Global Policy Forum

By Muddassir Rizvi

Inspired by Bangladesh's famous 'Grameen Bank', Pakistan's military government has set up a micro-finance institution to help the country's majority poor to help themselves.

But development experts in the country are unhappy with the decision. They argue that international experience has shown that schemes like these are not the best way of tackling mass poverty. They also question the need for a new bank, which will add to the administrative cost of tackling poverty, they say.

Established by a presidential ordinance, the Micro-Finance Bank (MFB) will offer tiny loans to the poor on the model of Bangladesh's non-governmental Grameen Bank. Micro-credit and savings schemes run by non-governmental organisations (NGOs) like Grameen Bank and BRAC have benefited nearly five million households in Bangladesh. A weekend official press note announcing the setting up of the bank, said the aim is to "mitigate poverty and promote social welfare and economic justice through community building and social mobilisation."

Nearly 50 million of the about 150 million Pakistanis are officially estimated to be living on less than one U.S. dollar a day. More than 70 percent of the poorest live in rural areas. Senior government officials say the micro-credit institution is part of a multi-pronged strategy to tackle poverty. "We have devised a comprehensive strategy to ameliorate the conditions of the poor," said a Ministry of Finance official. Micro-credit is the 'frontline strategy' of the government's poverty reduction plan, which is based on four key elements -- economic growth, development programmes for the poor, social safety nets and institutional arrangements to give greater say to the poor in decision-making.

The Micro-Finance Bank will "develop a pro-poor financial system which will ensure collateral-free lending to the people at grass-roots level," said government advisor Ghalib Nishtar, who is expected to head the MFB. "This would not only generate economic activities, but also help exploit the (nation's) huge idle human resource potential for its effective contribution to national economic development," he added.

The Micro-Finance Bank is to be funded by the Asian Development Bank (AsDB), which has promised 150 million dollars, say government officials. "We have already signed a memorandum of understanding with the AsDB," a Ministry of Finance spokesperson told IPS. The bank will have a capital base of five billion rupees (100 million dollars) and has been exempted from all taxes on income. Pakistan's President will be its ex-officio director. There will be at least seven other directors, including two women, say officials.

The MFB will provide micro-enterprise loans ranging from 5,000 rupees (99 dollars) to 50,000 rupees (980 dollars), to at least 80,000 people in the first year after it begins work in late August. Borrowers will not have to offer security for loans, which will mostly be to start household-based ventures -- opening a village grocery kiosk or a farm tool repair shop. The number of borrowers are estimated to swell to about one million, spread across 53 of the country's 106 districts, by the year 2007.

However, the critics say there is no need for a separate bank to give small loans to the poor. "I don't see any need for another bank duplicating the work other banks are already doing," said Sarwar Bari of the Pattan Development Foundation, which works with the riverine communities in the eastern Punjab province. According to Bari, the government could have opened a micro- financing window in existing banks like the Agricultural Development Bank of Pakistan and the First Women's Bank.

His group and others also disapprove of the new bank "because micro-financing has not proved to be a viable option in a country where the causes of poverty are rooted in existing power structures and bad governance," he pointed out.

He gave the example of many rural support programmes that were established in Pakistan in the mid-1990s with the aim of disbursing small loans to the poor. But, the number of poor grew fastest in those years, jumping from 24 million in the year 1990 to more than 48 million by the end of the decade.

According to leading media commentator, Nujum Mushtaq, poverty is a political problem that cannot be tackled with "borrowed development interventions". "We should not invest money on interventions like micro-credit that are now being challenged throughout the world as being useless...what we need is investment in the provision of basic needs like health services, education, clean water and food and environmental security," he said.

The prestigious Islamabad-based Mahbubul Haq Centre for Human Development points out that poverty is not just lack of money, but also lack of opportunity. "Income poverty is only one of many deprivations. Other human deprivations include lack of education, ill-health, social exclusion," says the Centre's landmark report 'Profile of Poverty in Pakistan' that was released last year. Officials counter that besides loans to the poor through the micro-credit scheme, the government is trying to introduce good governance at the lowest level by its devolution of power plan.

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