Muhammad Ajmal
Microfinance refers to a financial services provided to unemployed or low-income individuals or those
groups who have no access to financial services. Microfinance mainly targets poor households or
underprivileged women in order to empower them in society. The idea of microfinance evolved around
mid-1970s, when renowned economist and Nobel prize-winner Mohammad Yuns and his graduate
students at Chittagong University in Bangladesh began providing small loans to underprivileged villagers.
It attracted worldwide attention and began to be implemented across the globe. At the moment more
than 3700 microfinance institutions provide financial services to 206 million clients in more than 147
countries. The mission of microfinance institutions is to improve the lives of poverty-stricken clients
specially woman in households and communities. Indeed, financial services are very important in
educing poverty and stabilizing economy. In Pakistan, impoverished households are facing liquidity
constrained as majority of them live below or near the poverty line. Such households find microfinance
more attractive to finance their microenterprise because they get high returns by making investments. It
is widely acknowledged that small businesses can play a key role in accomplishing sustainable growth in
developing countries. This is, especially, true in Pakistan where 90% of companies are Small Medium
Enterprises (SMEs), most of them operate in informal sectors. According to Small Medium Enterprises
Development Authority (SMEDA), there are four types of microfinance institutions in Pakistan and these
include Microfinance institutions (MFIs), Rural Support Program (RSP), Non-Governmental Organizations
(NGOs) and Commercial Financial Institution (CFI). The main objective of these institutions is to provide
social benefits to the people rather than earning profit. In Pakistan microfinance sector serves 7.3
million low income households who live below or close to poverty line and half of the borrowers are
women, with low income or assets blow some threshold level. Furthermore, these participants have no
or very limited access to formal financial sectors because they have nothing to offer as a guarantee to
commercial banks. Undeniably, microfinance are facing many challenges and covid-19 has multiplied the
challenges for both the microfinance companies / organizations and the clients who need it most during
the pandemic. In fact, covid-19 could deprive millions of household from capital and access to other
financial services and it requires prompt action from regulator, investors and other private and public
institutions. Undoubtedly, there is dire need of action by the stakeholders and microfinance institutions,
in order avoid any adverse repercussions. According to a study, business sales are declining and business
owners are facing 90% decline in income owing to pandemic. However, women are being affected more
by covid-19 with 100% fall in income during lockdowns. About 90% of borrowers reported that they are
facing food shortage and their primary concern is to get food. Unfortunately , majority of borrowers
reported that they are unable to repay the loans they have already taken. Furthermore, covid-19 has
prevented borrowers and microfinance companies to work closely together to earn income in the time
of pandemic in the country. It is not only the clients who are experiencing challenges but also the MFIs
and it is feared that if no repayments are made than microfinance institutions will collapse in near
future. Recently, World Health Organization along with developed nations and domestic stakeholders
suggested for restoring lockdown in order to curb the transmission of disease in the countries where
Covid-19 was spreading fast. This could further damage the microenterprises and the microfinance
institutions in Pakistan. However, MFIs are expected to experience more unfavorable consequences
because of covid-19 in near future . As the Pakistani Special Assistant to Prime Minister on Health has
claimed that covid-19,most probably, will reach its peak in July, thus it is likely that microfinance
institutions will encounter the challenges in near future as well. As a remedial measures , government
and investors should consider introducing better risk sharing investments and the government should
include small and medium enterprises loans under the Ehsaas program. They should provide them cash
to cope with current crisis. Moreover, regulators and donors should provide access to cash to the poor
and state bank needs to play key role in helping MFIs and borrowers . National and international
financial organizations have come out to help poor countries in dealing with the crisis but ultimately it is
the responsibility of stakeholders who to have to play key role in cop in with the challenges faced by
Pakistan. (The writer is (M Phil Student).
