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Micro credit in pakistan

micro credit in pakistan

Similar Publications Journal of Sustainable Development Vol. 4, No. 4; August 2011

ISSN 1913-9063 E-ISSN 1913-9071


Sustainability of Micro Credit System in Pakistan and its Impact on

Poverty Alleviation

Latif Abdul

Dr. Abdul Latif

Chairman, Department of Management Sciences, Islamia University, Bahawalpur

Muhammad Suhail Nazar

Assistant Professor, IER-University of the Punjab-Lahore

Faiz Muhammad Shaikh

Assistant Professor, SZABAC-Dokri-Larkana


Dr.Anwar Ali Shah

Dean, faculty of Commerce and Business Administration

University of Sindh-Jamshoro

Received: June 13, 2011 Accepted: July 4, 2011 doi:10.5539/jsd.v4n4p160


This research investigates the sustainability of Micro Credit system in Pakistan and impact of poverty alleviation.

Data were collected from 400 respondents who used Micro credit by using the simple random sampling

technique and data were analysis by using SPSS-18 version. Interviews of farmers/ growers, officers of micro

credit, office public and private supporting services, Institutions and other professionals were conducted by using

structured interview. Present study attempts to viability of Micro credit system in Pakistan and how its impact on,

macro economic policies designed to accelerate growth were combined with appropriate fiscal polices for

income redistribution for reducing inequalities. The second style aims at public investment in creating an

infrastructure for providing health, education, etc. with a view to promoting quality of life. Results showed that

Micro credit has positive impact on alleviate poverty in Pakistan. The case study indicates that 40% of the

beneficiaries opened shops/small provision stores, followed by investment in poultry, embroidery and livestock.

Keywords: Sustainability, Micro Credit System, Pakistan

1. Introduction

The concept of sustainability has to be viewed from a broader perspective and multiple dimensions. These

include economic, social, political, enterprise, institutional and biological aspects and their interface with various

sub-systems for balanced development. Eradication of poverty is the ultimate goal of sustainable development.

Poverty stems from a number of factors, which are region specific and linked to socio economic conditions and

have contextual dimensions. Strategy towards poverty eradication incorporates multiple initiatives that require a

comprehensive framework encompassing physical, structural, economic, social and political aspects. There is

growing evidence across the globe regarding the role of rural financial services for alleviation of food insecurity

and poverty.

The traditional face of banking is undergoing change since 1999 through 2008, providing institutional micro

credit to the rural sector in particular and to underdeveloped regions in general. Micro means small, whereas

credit means the opportunity to borrow money. Micro credit is a small amount of money loaned to a client by a

bank or other institution. Microfinance refers to loans, savings, insurance, transfer services, micro credit loans

and other financial products targeted at low-income clients. Micro credit is a system where people in poor

countries can borrow small amounts of money at low rates of interest even if they have little or no collateral. It

works through small banks, which lend money to local people so that they can start businesses and earn their

living. Micro credit and micro finance have changed the lives of people and revitalized communities in the

world’s poorest as well as the richest countries. Micro credit has been changing the lives of people and

revitalizing communities worldwide for centuries. Micro credit programs extend small loans to very poor people

Page 2 Journal of Sustainable Development Vol. 4, No. 4; August 2011

Published by Canadian Center of Science and Education


for self-employment projects that generate income allowing them to care for themselves and their families

(Microcredit Summit E-news;

March 11, 2003). In micro credit, more emphasis is on loans. Micro credit caters

commercial needs of poor for enabling them to raise their income levels and improve standards of living.

Microcredit means more emphasis on loans while micro finance also includes support services where you open

up channels for thrift, market assistance, capacity building, insurance, social and cultural programs. So

microfinance is “credit plus”, while micro credit is “only credit”. In this way, micro credit refers to making small

loans available to the poor through schemes especially designed to meet the Poor’s particular needs and

circumstances. It has proven an effective and popular measure in the on going struggle against poverty, enabling

those without access to lending institutions to borrow at lower bank rates, and start small business. The concept

of micro credit was pioneered by Dr.Mhuhammad Yunus, and first implemented in the Grameen Bank,

Bangladesh. Subsequently, Grameen Bank replications have proliferated, and have proven effective in repeating

the micro credit miracle on vast and consistently increasing scale. Numerous schemes, in developing countries in

particular, have now shown that micro credit can make a significant contribution for tackling poverty.

2. Poverty-Credit Interface

The linkage between economic growth and poverty reduction is rather weak. This calls for the need for

sustainable mechanism to provide safety nets for sustainable development of the poor. However, there is a

growing evidence now that the promotion of micro credit systems and development alleviation. Through micro

finance is not a panacea for the poverty alleviation there is consensus now that the poor through self help

approach can be moved out of poverty syndrome. It can be powerful instrument for self powerment by enable the

poor especially women to become economically self-reliant. Promoting income generating activities among the

poor therefore, seem to be one of the push factors for poverty eradication in Pakistan.

3. Micro Credit Access to Rural People

In spite of large banking network, a vast majority of the rural poor have no access to bank credit for various

reasons. Despite the massive subsidy-credit linked self employment program under SGSY, poverty levels in

Pakistan continued to be very high (22%) and. many poor people still do not have access to formal credit

institutions. In tables 1, 2 and 3, the details of poverty in different provinces of Pakistan are given. It is this

inability of credit institutions to cover a sizeable segment of rural poor due to the high cost of administering a

large number of small loans and their perceived lending risks, which has prompted a number of non-government

organizations (NGOs) to enter the rural credit scene by organizing the poor into informal groups for the mutual

help and benefits. Many of these groups have provided credit support through their credit institutions. Micro

credit is being increasingly recognized as an important tool for sustainable social and economic progress. The

micro credit in practice is a savings and credit program. But the emphasis has been on the credit side to channel

financial resources to the poor for self employment and consequently for generation of income. Self help groups

of the poor are the chariots on which micro credit movement has been built over the years.

Data Collection Methodology

Data were collected from 200 respondents who availed micro credit facility by using the simple random

sampling technique and data were analyzed by using SPSS-16-5 version. Structured interview technique was

used for farmers /growers, officers of micro credit office, public and private supporting services, institutions and

other professionals

Table 1. Poverty Trends by Province

Category: Payday loans

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