MICRO FINANCING AS A SHORT TERM EASE IN RURAL AREAS EVIDENCE FROM BAHAWALPUR, (PUNJAB) PAKISTAN.

MICRO FINANCING AS A SHORT TERM EASE IN RURAL AREAS EVIDENCE FROM BAHAWALPUR, (PUNJAB) PAKISTAN. MUHAMMAD MAJID AMBREEN KANWAL MUHAMMAD USMAN GHANI DEPARTMENT OF MANAGEMENT SCIENCES NATIONAL UNIVERSITY OF MODERN LANGUAGES H9 ISLAMABAD MRS. BENISH JAVED LECTUERE MANAGMENT SCIENCES DEPARTMENT NATIONAL UNIVERSITY OF MODERN LANGUAGES H-9 ISLAMABAD Abstract Microfinance industry in Pakistan has indeed seen some very remarkable developments in the past few years. Microfinance it also provides business development services to its clients so as to promote their business and provide them access to market. In the interest of its economic growth and inclusion agenda Pakistan must promote entrepreneurship among its women by improving their access to financial services, particularly through microfinance. Education enables individuals to develop entrepreneurial skills. Micro financing includes micro credit, micro insurance, micro remittances, and micro savings in Pakistan peoples are using micro credit but they are not using for the purpose they should use there is good trend for remittances but peoples not much interest towards micro insurance and micro savings. There is no impact on the poverty, peoples are just using the micro financing just for the short term ease. Key words: Micro credit, Micro Remittances, Micro insurance, Micro Savings Introduction:- Microfinance is a key factor to diminish the poverty in emergent nations. It is well thought-out that suitable clients for microfinance are the peoples living under the poverty line. Microfinance straightforwardly used to decline the poverty. Microfinance provides the improved standard life to the poor peoples. Microfinance is not a latest improvement. It was basically started by Muhammad younis in Bangladesh as an experiment in 1976 which gave the positive results. After the concept of the microfinance in Bangladesh different countries start s working in micro financing which alleviates poverty. They provide the charges free loans to vulnerable people, particularly in rural areas, they also provides loans with cost but collect money in installments. Borrowers are structured into groups which minimize the threat of being defaulter because the members in a group are close to each other and the cost of security is also low. Microfinance is different from conventional financing there is no need for collateral security because poor people have no possessions for making as security. Microfinance also used for empowering the women s. Mr.younis father of microfinance was awarded by the Nobel Prize in 2006 due to his great invention. Poverty is a situation of hunger, lack of shelter, lack of food, unhygienic foods COPY RIGHT 2013 Institute of Interdisciplinary Business Research 525

and drinking water, being ill but not able to attend the doctor, lack of education facilities etc. A person should be treated as a poor if he/she could not gain the basic needs. Poverty is sin and there is the number s of peoples living on or under the poverty line in the emergent nations just like Pakistan. One out of three peoples in Pakistan is living under the poverty line (dawn 21 ). The microfinance includes microcredit, micro insurance; micro savings and micro remittances. The microfinance is more effective for women as compare to men s. Under this view there are so many organization including (Governmental and Non Governmental) which are providing microfinance loans in Pakistan. The names of these institutions are National Rural Support Program which was capitalized by the Government of Pakistan, Khushali Bank, Tameer Micro finance Bank and many others some NGOs are also providing microfinance loan. Problem Statement:- Significance of the study:- Objectives:- Micro financing as a short term ease in Pakistan. The objective of the particular study is to know the impact of the microfinance on the lives of the poor people. What the improvements have come in their lives after getting the microfinance loans. We will study their standard of living before getting the loans and after getting the loans. Research Questions: 1. How the respondents gets the loans from the microfinance institutions? 2. Where the respondents consumed the loans? 3. Impact of the loan on minimizing the poverty? Literature Review: Sulaiman D. Muhammad (2010) said that microfinance is a world which provides the high quality financial services, including not only credit but also savings, insurance, and fund transfers to the poor peoples of any nation. According to him the purpose of microfinance is to change to financial system which is only for those peoples who have some financial worth mean to say only rich peoples. Dr. Gobind M. Herani (2010) it is argued that financial institutions in emergent countries been failed to provide the better financial services to the poor peoples at the level at which they can 21 Dawn 26 th September 2012. 58.7 million out of 180 million are living under the poverty line more than half from Baluchistan, 33 per cent in Sindh, 32 per cent in Khyber Pakhtunkhwa and 19 per cent in Punjab. COPY RIGHT 2013 Institute of Interdisciplinary Business Research 526

afford. The reserved large loans and their tough methods for receiving loans keep away the poor from the financial institutions. Casual segment are also failed to supply the poor peoples because they impose the high interest rate. Saba Nisar Ahmad (2008) Microfinance tends to provide the facilities at a much lower rate than what they get from these informal means and provides a much lesser risk also. As the poor people cannot avail these financial services from the formal commercial banks (because of the collateral requirements), microfinance tends to provide to them exclusive of these conditions (Morduch J. 1999) Microfinance collectively refers to the supply of loans, savings accounts, and other basic financial services like insurance, to the poor. Prof. Dr. Hans Dieter Seibe (2006) The agricultural areas of any developing countries can t afford the loans provided by the commercial due to high interest rates of the banks. They have no pool of money that they can use the better quality seeds, fertilizer, pesticides, tools and machinery so microloans should provide to improve the quality. Umara Noreen (2010) States that Loan to the poor to be used an absurd concept. According to her millions of poor and non poor household s want to get the loans but conventional banking is being failed due to high collateral charges and requirements for the loans. Micro financing means to provide loan, saving insurance and receiving and sending of amount facilities but in Pakistan no institution is providing the micro finance services they only providing the microcredit services. Idowu Friday Christopher (2010) said the importance of the micro financing for the SMEs in these words that micro finance loans are helpful for increasing the market share, innovation and improvement in the product, better facilities for the promotion of the business. The important and main issue of the SMEs is the lack of capital (debt and equity). Micro finance institution not providing enough loans as the SMEs required. David Roodman made a study on the experiences of the micro credit clients in his book Due Diligence. In which he analyzed the hundreds of the respondents of the micro credit then he conclude that impact of micro credit to minimize the poverty is zero. Mostly the people gets the multiple loans from different institutions through which they get from one and pay it into the other and vice versa. Types of microfinance loans: Group Credit. Microfinance institutions provide loans to the group of 5 to 10 peoples. These loans are mostly for starting the new businesses. Main purpose of these types of loans is to get the peoples close on a plate form where they can share their experience and earn money through which they can improve their lives. Micro leasing. Micro leasing is the types of loans which the microfinance institutions provides the machinery and assets on the credit to the small businesses and poor peoples. Mostly these types of loans are provided to the woman s in which micro credit institutions give them, sewing machines and many new technologies. COPY RIGHT 2013 Institute of Interdisciplinary Business Research 527

Business loans: Business loans are provided to those peoples who are technical hands but they have no such financial resources that they can start their businesses. In this situation micro credit institution plays a vital role and provides the opportunity to these peoples that they can start new business or they can enhance their existing business. Micro agri loan: These types of loans are mostly plans for the peoples from the rural areas. Under these types of loans the farmer can buy any new machinery for the land. They can purchase the high quality seed, pesticides and innovations in irrigation system. Live stock loans: These loans are also for the peoples who belongs from the rural areas. Under this scheme the micro credit institutions provides loans to the poor peoples because they can buy the animal make their own little live stock forms through which the living standard of the poor peoples improves. The economy of the country can be stabilizing because these animals are being used for different purposes. Theoretical Frame work: Microfinance Short term ease 1. Impact on Living Standard The poor people can uplift their living standard by getting the microfinance facilities just like improvement in their houses,, hygienic kitchen, better sanitary condition (washroom facilities) these all facilities have positive impact on the lives on the poor peoples and in our villages unfortunately most of the peoples have no opportunity to avail this type of facilities. 2. Impact on drinkable water (filtered water) According to a survey in Pakistan the most of the water is not drinkable mostly in the rural areas people used to drink water which is unhygienic. Peoples are poor s and have no such facilities that they can filtered the water and can save themselves and their family member from the different disease caused by drinking the unhygienic water. 3. Impact on health facilities Health is wealth but the vulnerable peoples of this country can t get the better health facilities only due to scare means of their income. And as our system of this country we have the health units away from their villages which is costly so the peoples preferred the local traditional methods of treatment. 4. Impact on education facilities Education is dominant means to minimize the poverty. In Pakistan unfortunately we have two or three different classes of education. One is for elite class second is for middle standard and third one is for the peoples of poor s. Unfortunately the level which is for the poor peoples children s has no facilities. The peoples have lack of the resources or COPY RIGHT 2013 Institute of Interdisciplinary Business Research 528

means of income so they could not sent their children s to the school. By getting the microfinance they can improve the education of their children s. Hypothesis: When the peoples get the loans from the micro credit institutions then mostly it has no impact on the lives of these peoples. We can develop the following hypothesis for H o = Microfinance has no impact on the social lives of the peoples of Pakistan. H 1 = Microfinance has impact on the social lives of the peoples RESEARCH METHOD If we talk about the research methods than only two type of method comes in our mind which are quantitative method and qualitative method. The Quantitative method is in the numeric form and we sue the questionnaire for data collection and analyze it in the form of graphs and statistics and than produce the result. On the other hand, qualitative method is in the form of non numeric data and we use the techniques such as interviews for data collection and it can be analyze by categorizing the data The examination of the impact of microfinance on the general people or society is not as easier that we can express this in the few paragraphs. some of the impacts of microfinance can be revealed only in numerical figures just like, savings and income, and on the other side some impacts of the microfinance can be revealed in the form of non numeric data just like access to education, business experience health facilities etc. When we were making questionnaire, we try to build a fully structured to get most of the impact of microfinance on the society. For the understanding of the sample I have translated the questionnaire in Urdu. SAMPLE SELECTION AND DATA COLLECTION PROCEDURE The population for our research are those peoples who get the microfinance loans. Our main focus are those peoples who have long experience in the field of our research. We have used structured questionnaire for gathering the data by questioner and interviewing the customers involved in microfinance. The respondent for the filling the questioner and interview were chosen randomly. We get the address and contact number of the respondent s selected for gathering data was collected from the local branches of the microfinance institutions in the selected areas. We will start data collection from the village of Bahawalpur Goth Noor Muhammad than continued to Israni, Lal sohnara, Gaden, chelae wahin, khair pur tame wali, khurm pur and Bahili which are the different areas of district Bahawalpur which is our population area selected by us. Results and Discussions Small enterprises play a vital role in economic development as they can provide the economy with efficiency, innovation, competition and employment. Microfinance industry in Pakistan has COPY RIGHT 2013 Institute of Interdisciplinary Business Research 529

indeed seen some very remarkable developments in the past few years. Microfinance it also provides business development services to its clients so as to promote their business and provide them access to market.we surveyed 300 people in our research, out of which most of our respondents were of age between 26-35 years, which is 54% of our overall data. Despite a robust environment for microfinance in Pakistan, its women entrepreneurs face major challenges in accessing loan for their small business to a recent World Bank report. In our survey we find that most of our microfinance borrowers are males, which is 71% of our overall data. Only 28.7% are females. In the interest of its economic growth and inclusion agenda Pakistan must promote entrepreneurship among its women by improving their access to financial services, particularly through microfinance. In our survey we find that most of our respondents have done metric, that is 43% of our overall data. Remaining was under metric and few of them have done graduation and masters. Education enables individuals to develop entrepreneurial skills. They will be having knowledge about money management, savings and budgeting. In this manner microfinance borrowers can utilize their loan in better way. According to our survey, most of microfinance borrowers were farmers, which is 52.3% of our overall data and 24.3% were technical hands. Remaining was employee and very little number of respondents was businessman. Most of microfinance borrower s microfinance income is between Rs.6000-10,000, which is 43.3% of our overall data and 42.3% were between Rs.11, 000-18, 000, and very few were between Rs.19, 000-30,000.Poverty is widespread in Pakistan and it is particularly predominant in rural areas. Nearly two third of the population, and 80% of the country s poor people live in rural parts of the country. Agriculture is at the heart of the rural economy, and most of the rural people rely on agriculture for their livelihoods. But many of the poorest rural people income depend on nonfarm sources. Lack of access to market and services has contributed to chronic poverty in these areas. Parents and children in large families are trapped in a life of poverty because of lack of affordable childcare. Nearly a third of Pakistani had three or more children. Large families can often struggle to meet the cost of school uniform and equipment, and are also at particular risk of going into debt. They also have higher rates of wordlessness than for parents in small families. According to our research,44.3% of respondents were having large families, having more than eight and less than twelve family members. These families rely on a single earning. Small farmer s loans are highly seasonal and linked with the wheat, cotton, sugarcane and rice crops. During disbursement and collection of these loans, a high percentage of rural community at southern Punjab is involved in planting and harvesting these cash crops. These loans are given for the purpose of payment of land lease, land leveling, land preparation for cultivation, purchase of diesel fuel, procurement of seeds, fertilizers, pesticides or tube well water, installation of tube wells and turbines, or any other activity related to agriculture production. But these loans are not only limited to these purposes. Live Stock loans may be taken for the following purposes but are not limited to these purposes. live stock flattening, live stock trading and for purchase of milking animals, goat and sheep farming and any other loan related to live stock. These loans are repaid on monthly and six monthly installment bases. According to our research, ratio is same for both COPY RIGHT 2013 Institute of Interdisciplinary Business Research 530

small farmers loans and live stock,50.7% of our respondents borrowed agriculture loans and 49.3% borrowed live stock loans. So, 50.7% of our survey respondents got loan of Rs.26,000-50,000 and remaining got loan between Rs.15,000-25,000.The duration for paying back loan is less than one year, and our survey result is 100% for this. History of getting the loan is almost same and equal for both who are getting the loan for first time and who are borrowing after one year. Those who are borrowing for the first time is 49.3% of overall data and 50.7% are those who are borrowing after one year. The National Rural Support Programmed(NRSP) is an integrated rural development organization. NRSP, works through four sectors; the Microfinance, Human Resource development, Physical Infrastructure and Technology Development and Social Sector Services. But in order to make micro-credit work, one has to keep some harsh ground realities in mind. The majority of people who need to benefit from microfinance live in remote and rural areas which are often difficult to access. many don t even have a permanent address. Most are either illiterate or semi-literate. So, Khushali Bank Limited was established in August 2000,as a country s first licensed microfinance institution. Our research shows that, most of the microfinance loans are provided by NRSP and Khushali Bank,46.7% by NRSP and 45.7% by Khushali Bank. According to our research, equal number of respondents borrowed loan for agriculture purpose and for live stock farming. Financial instability creates barriers to education, preventing children from attending school; these barriers include the cost of transportation, school books and uniforms, as well as lost hours of child labor that would contribute to family income. Microfinance initiative can indirectly support education, by providing families with income stability, enabling them to afford schooling. The causes of poverty include lack of education, poor access to health services, large family size, gender discrimination and vulnerability to environment degradation and deterioration of natural resource base. According to our research 50.7% of respondents said that, their children didn t get better education and 49.3% said that their children got better education. Out of 300 respondents not even a single borrower,have done marriage of any children using microfinance loans. They also didn t create any employment opportunity. Not even a single respondent in our survey created an employment opportunity by using microfinance loans. It is because, microfinance loans are not even enough to fulfill their own basic needs. Half of our respondents answered Yes, that they purchase new asset by using microfinance loans and remaining half replied No. So, ratio is almost equal of those who purchased new assets, using microfinance to those who didn t purchase any new asset. All of our survey respondents replied Yes, that their living standard have improved after getting microfinance loans, and also they are able to get better health facilities. Our research shows that half of the respondents started new business by using the microfinance loans and remaining half didn t started new business, using these loans.montly increase in income according to our survey is 100% of overall data, as all of our respondents give positive answer. COPY RIGHT 2013 Institute of Interdisciplinary Business Research 531

Conclusion Micro finance is important tool for the poverty alleviation in any country but in Pakistan peoples don t use the loan for productive purpose. They use it only for the short term ease. There are several reasons which comprises lack of training, less amount sanctioned by the financial institutions. So the banks should provide the enough training and provide enough amount of loan because the peoples can use the loan and the poverty can be minimized. COPY RIGHT 2013 Institute of Interdisciplinary Business Research 532

References: Saba Nisar Ahmad August 28, 2008 Microfinance in Pakistan Policies and Practices. Herani, Gobind M.Khadam Ali Shah Bukhari Institute of Technology (KASBIT) Microfinance and Self-Help Finance System to Reduce Poverty from Pakistan. Sulaiman D. Muhammad Microfinance Challenges and Opportunities in Pakistan Associate professor, Federal University of Arts, Science and Technology European Journal of Social Sciences Volume 14, Number 1 (2010). Maliha Hussein and Shazreh Hussain The Impact of Micro Finance on Poverty and Gender Equity Approaches and Evidence from Pakistan December 31, 2003 Umara Noreen (2010)Impact of Microfinance on Poverty Foundation University, Islamabad. Wuhan, P.R.China, 430070 Impact of Microfinance on Small and Medium-Sized Enterprises in Nigeria Idowu Friday Christopher School of Management, Wuhan University of Technology. www.kmfbank.com www.khushhalibank.com.pk www.tameerbank.com www.nrsp.org.pk COPY RIGHT 2013 Institute of Interdisciplinary Business Research 533