The Role And Impact Of Micro Finance Institutions

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The strong economic growth is bound to create employment opportunities and therefore it will reduce unemployment. The evidence provided by the Labor Force Survey 2005 (First two quarters) clearly supports the fact that economic growth has created employment opportunities. Since 2003-04 and until the last half of 2005-06, 5.82 million new jobs have been created as against an average job creation of 1.0-1.2 million per annum.

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Consequently, unemployment rate which stood at 8.3 percent in 2001-2002 declined to 7.7 percent in 2003-04 and stood at 6.5 percent during July-December 2005.The rising pace of job creation is bound to increase the income levels of the people. Agriculture, housing and construction, IT and telecom sector, and SME are the sectors, which have created relatively more jobs. The estimation of poverty line enables the policy makers to further identify and group the population into various ‘poverty bands’ such as extremely poor, vulnerable and non-poor etc.

The current growth rates however need to be strengthened to arrest the current growth in poverty levels. Macro stabilization, governance reforms and re-profiling of external debt stock have created prospects for growth in future. The government has indicated its willingness to speed up the pace of structural reforms to meet the major challenges of:

Reducing poverty,

Improving governance and administration,

Improving the fiscal and balance of payments positions,

Restoring investor confidence,

Achieving higher growth on a sustainable basis, and

Improving social indicators.


Microfinance in Pakistan is relatively a new concept as compared to other countries in the region. The NGOs and Rural Support Programs has been the major player in the sector since early 1980s covering about 5% of more than 6.5 million poor households in the country. Recognizing microfinance as an important poverty alleviation tool, the Federal Government has adopted a microfinance policy that mainstreams the concept of sustainable microfinance, recognizes the private sector’s role in poverty reduction and encourages its entry into banking with the poor. It has enacted a legal framework, the MFIs (Micro Financing Intermediaries) Ordinance 2001, for establishing Microfinance Banks in private sector and also facilitated establishment of Khushhali Bank, a public private partnership, with twin objective of substantially increasing outreach of microfinance services in the medium term and giving a model institution to the private sector to follow.

The MFIs Ordinance 2001 inter alia stipulates the functions, capital requirements, ownership structure, terms and conditions for establishing Microfinance Banks/Institutions in the country, audit and disclosure requirements and winding up procedures. The provisions of the ordinance are applicable on microfinance institutions mobilizing savings from public to finance their operations. The operations of NGOs and other programs providing micro credit and allied services through sources other than public deposits/savings are not covered under the ordinance.

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