ARTICLE (April 01 2010): General criteria for an effective financial system is its capacity to achieve sustained business growth in a country by channelising funds into more productive and development projects of both public and private sector corporations in particular, but fast increase in poverty during the last three decades, rendering one in six of the world's population hungry every day (according to Oxfam's study report of 2009), has brought a major shift in thinking.
Now financing of small, medium and micro businesses sector is gaining importance and is considered as an important component of financial sector development and also an engine of employment growth particularly in low income developing countries. Congenial environments for poor to access institutional credit can bring manifold impact on poverty eradication.
Sustained growth of micro businesses set-up with the help of institutional borrowing automatically results in induction of hired labour in business from the same community or outside community, hence unskilled and semi-skilled unemployed labour finds opportunity to get out of clutches of poverty.
Microfinancing wherever introduced in earnest has helped reducing poverty and unemployment and, at the same time, assured viability and sustainability of the organisation concerned due to large number of poor clientele with a low unit of loan (normally within the range of Rs 10000 to Rs 100000) taken by them for their small businesses.
As such, borrowers as well as microfinance institutions (MFIs) and microfinance banks (MFBs) remain immune to external and internal financial shocks. Despite recent global financial turmoil micro financing sector growth remained unaffected everywhere.
In Pakistan, no doubt, due to overall stagnant economic conditions, steep rise in food and other essential consumer item prices and worsening of security and law and order situation, unemployment level has increased to 8%, but in areas where the MFIs and MFBs have outreach and population in those pockets have availed credit for establishing micro businesses, their level of employment and self-employment has improved without any gender discrimination.
Now it is global phenomenon rather an outcome of replication of Grameen Bank model, where almost 60% of their rural population have set up micro businesses of varying nature and have proved their ability to expand businesses to the extent that they have offered employment to other men and women of their community.
In case of Pakistan, micro credit impact assessment study conducted by JICA in 1998 regarding First Women's Bank micro credit programme revealed that micro businesses of varying nature set-up with an investment of Rs 25,000 could generate two additional jobs for family/community members.
Similarly, a study conducted by University of Manchester finds that almost 15% of borrows from micro finance institutions the world over have gained status of employer at a point of time and globally self-employment remains main source of income to 75.39% of people covered under micro credit programme.
The said empirical study on operational status of the MFIs and MFBs, particularly in low income developing countries points out that subsidised credit offered to poor makes the entire programme unsustainable and financial collapse of the institution becomes imminent at an early stage and MFIs and MFBs, which have focused on reducing transaction cost and have brought innovation in financial services have enhanced not only their outreach, but also helped stimulating micro businesses and substantial improvement in employment level of poor communities served by them.
In the above context it is evident from initiative taken by some of the private sector MFBs operating in Pakistan like Tameer Bank and First Microfinance Bank. Tameer Bank's initiative in collaboration with Telenor, a cell phone company to provide mobile banking service through cellphone under Easy paisa programme has not only helped common men for payment of their utility bills and remittances relating to various business transactions but also provides funds transfer facility to their families in far-flung areas.
It has also helped the bank as well as Telenor Company to achieve accelerated increase of their clientele. New micro businesses set-up through borrowings from the bank and substantial increase in the number of Easy paisa point of transactions and Telenor branches, thus providing employment and self-employment opportunities to a sizable number of unemployed youth.
Similarly, First Micro finance Bank's agency arrangements with Pakistan Post has considerably enhanced remote areas' poor access to bank credit and helped poor communities combat poverty through employment and self-employment and at the same time has reduced the transaction cost thus making credit disbursement programme totally sustainable.
Apart from above initiatives, the MFBs and MFIs must put in place arrangements for business development of their 'start up' clients to ensure success of their projects. Training and vigorous monitoring is essential for new enterprises. For undertaking such ancillary services, these institutions may have financial constraints.
Financial support in this regard can be provided through allocation of funds from Baitul-maal and Benazir Income Support Programme and also from donor agencies having mandatory allocations of funds for capacity building of the MFIs and MFBs in developing countries.
No doubt, it is a globally established fact that a business started with borrowed funds and grown to the level where the cost of buying efficiency units of labour is affordable, enterprise will proceed to hire the labour from the market.
However, in the context of low income developing countries, including Pakistan, it is generally seen that enterprising household handling micro business, if need arises, proceeds to employ only unskilled labour with low productivity.
Due to lack of information regarding labour market, particularly regarding wage rates of different category of workers small business owners may perceive it too risky to deploy workers of high productivity demanding higher wages, which may not match threshold of operational and financial efficiency of their business.
As such they avoid induction of skilled labour and rely on unskilled or semi-skilled help and continue to produce at sub-optimal level. Secondly, non implementation of labour laws in informal sector has given rise to free use of child labour depriving them of their basic human right to education, which is essential for development of effective work force.
In the context of Pakistan where number of duly regulated MFBs and MFIs does not match needed expansion programme based on fast growth rate of poverty in recent years and for meeting related Millennium Developmental Goal, there is need to strengthen/refurbish the existing microfinance sector and also NGOs involved in credit disbursement programme to provide access to untapped unemployed workforce all over the country, enabling them to get self-employed and thereafter bring trickle down effect on level of employment through hiring of both unskilled and skilled labour for expanding their businesses funded under microfinancing.
Group loaning by the MFIs and MFBs if applied for collective use of funds for setting up a medium size project particularly labour intensive industry will generate more employment opportunities.
'Waseela-e Haq' programme, an offshoot of Benazir Income Support Programme is a timely initiative by the government to arrest growing poverty through financing to the extent of Rs 300000 per person being made available to economically disadvantaged population to set up small businesses producing value added goods and services. However, success of the programme depends on proper monitoring and supervision by loan disbursing agency for proper utilisation of the funds.
Further provisioning of ancillary services as a part of this programme like training in entrepreneurial skill development and arrangements in place for providing market access to products and services both at national and international level can ensure sustainable growth of businesses set-up through borrowed funds, thus not only creating job opportunities for unemployed youth, but also enhancing supply of consumer items (both industrial and agriculture) products to bring down core inflation at targeted level.
Since poverty level has inched up in recent years, it is essential that microfinance sector must expand their outreach so as to cover at least additional 10 million poor by 2011 to get them gainfully self-employed / employed and also provide support services in rural areas like cattle and crop insurance to make farming and non-farming businesses viable and sustainable thus creating more employment opportunities in their surroundings.
akram.khatoon@yahoo.com
Source: http://www.brecorder.com/index.php?id=1038565&currPageNo=1&query=&search=&term=&supDate=
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