Microfiance Entrepreneurship Pakistan | Finance Dissertations

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Chapter One: Introduction

Background

Around the world economies have experienced high growth and financial systems have undergone major transformation, a significant number of people especially in the developing countries do not have access to finance. Policy makers have increasingly promoted the use of microfinance as a tool to eradicate poverty and implement financial inclusion strategies. Pakistan being a developing country is no exception to this, having a large number of people that are poor with limited recourse to livelihood. Though limited in its scope, microfinance in Pakistan has been able to bring some of the large number of unbanked people into the banking network and has also helped in improving their socioeconomic condition (SBP & ILO, 2009). About 90 % of the people in developing countries lack access to financial services from institutes, either for credit or saving, which further fuels the “Vicious Cycle of Poverty” in Figure 1. A lack of assess to financial institutions also hinders the ability for entrepreneurs. Microfinance serves as a means to empower the poor and provides a valuable tool to assist economic development process. Figure 1: Vicious Cycle of Poverty Pakistan is fourth most populous country in Asia and sixth in the world. Having an average annual growth rate of 2.02 percent the population of the country reached 160 million in 2007 as compared to 139 million in 2002. Two third of the population is living in rural areas and the working age population (15-60 years) is increasing which was 51% in 1998 and 57% in 2008 (SBP, 2008). In 2008, about 24% population is living under the line of poverty which was 34.46% in 2002. There is significant increase in economic growth and improvement in Social Sector Development. Now Pakistan has shifted from Low Human Development group to the category of Medium Human Development (Global Monitoring Report, 2007). Despite all these improvements, poverty is a major issue which every government is combating against. Pakistan is a country with high population growth and increasing ratio of labor force. According to Economic Survey 2007-08, Pakistan has 51.78 million active labor forces while 2.69 million out of this is unemployed. If we look unemployment gender wise, despite of women ratio of population which is 49.6%, ratio in labor force is only 25% (10.08 million out 51 million) of total labor force. Government of Pakistan has taken many steps to increase women participation in labor force, still women ratio is very less to over all labor force and it is not matching to world standards and trends about women participation in business and job opportunities (SBP, 2008). All these facts show potential to work in microfinance to encourage people and specially women to develop their own entrepreneur so that men in general and women specially can contribute a productive part of society to make it a sustainable. To combat unemployment, only big companies or public sector are not enough for job creation but it would be better if people start their own business for making society productive.

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