No conversation on Pakistan’s fabulous women is complete without Roshaneh Zafar, the founder and managing director of Pakistan’s first microfinance institution, Kashf Foundation.
Following a chance meeting with Nobel Peace Prize winner and founder of the Grameen Bank, Muhammad Yunus, Roshaneh quit her job at the World Bank and launched Kashf as an action research program in 1996. Following two years of intensive research on the needs of clients, and learning about products, systems and processes, Kashf has grown into a formidable force, providing financial services to over 68, 000 clients through a network of 30 branches.
So what exactly does Kashf Foundation do?
For those not familiar with microfinance institutions, MFIs are institutions that provide financial services to low-income clients that traditionally lack access to banking and related services. Aside from the fact that it was founded by a female social entrepreneur, what makes Kashf Foundation such an appropriate pick for this week is also because of the fact that it specifically targets women from low-income communities.
The heart behind Kashf is poverty alleviation. Kashf Foundation’s mission is to:
“Alleviate poverty by providing quality and cost effective microfinance services to low income households, especially women, in order to enhance their economic role and decision-making capacity”
In order to further put the conversation into context, it is estimated that nearly 56% of Pakistan’s population is excluded from the formal banking sector. Out of this 32% access their money informally (PMN 2008). Formal institutions are often reluctant to extend credit to low-income individuals, as they have few assets that can serve as collateral (Qadir 2005).
Why does it matter?
While a detailed discussion on the virtue of microfinance is beyond the scope of the post, the key take away is that the poor need access to credit. In times of need, they have to turn to shopkeepers and money enders that provide loans at exorbitant rates. Going back to our #socent spotlight on Naya Jeevan, as Asher pointed out “a sudden, major illness such as a stroke or cardiac arrest could trap a family in a vicious cycle of debt”.
In addition to providing low-income families with a much- needed safety net, microfinance helps provide individuals with the resources to take the first step towards establishing their businesses, which brings us back to Kashf’s mission of enhancing poor women’s economic role and decision-making capacity.
A quick glance at Kashf’s products and services will immediately give you an idea of the scope and idea behind a MFI. Currently, Kashf’s products and services can be listed broadly as follows:
1. General Loan, which is an income-generating loan that focuses on creating sustainable economic opportunities for the household.
2. Emergency Loan, which is designed to provide credit to clients during financially volatile periods (bringing us back to Asher’s point about how a single catastrophic event can trap a family into an irrevocable cycle of poverty).
3. Kashf Business Surmaya Loan, which is specifically geared towards small enterprises.
4. The Home Improvement Loan that strives to improve Kashf’s clients standards of living.
5. Credit for life insurance, which is life insurance for poor clients to help them deal with emergency periods, such as the death of a breadwinner.
In 2008, the Kashf Foundation established Kashf Microfinance Bank Limited (KMBL) – a concentrated push to reach the foundation’s goal of financial services for all. KMBL’s primary lending product is the Kamyab Karobari Karza, which caters to the financial needs of micro and small enterprises. It also has a range of deposit products, which include the Kashf Ahtimad Bachat account, a checking low balance savings instrument and the Kashf Sahulat account, a non-interest bearing current checking account.
Can Microfinance Save the World? Kashf’s successes and challenges
It was heart-warming to read Kashf Foundation’s numerous success stories and how it has succeeded in changing the lives of numerous women through loans as small as Rs.13,000 (approximately $150). From Naheed in interior Punjab who following her husband’s spinal injury set up a successful beauty salon to Jamila in Kasur who was able to escape a vicious cycle of poverty and domestic violence by setting up a mini loom factory, a venture that began with a second-hand small spindle machine.
But as Kristof neatly sums it, “Microfinance is sometimes oversold as a silver bullet – which it’s not”. Simply put, microfinance is hard. Businesses do fail and sometimes borrowers do squander money. Global recession and rapid inflation in Pakistan has complicated matters even further.
In her interview with CHUP, Roshaneh acknowledges that Kashf’s growth has definitely slowed as a result of the recession. It has disrupted the gains made by microfinance by decreasing the purchasing power of low-income households and compromising the ability of users to make payments on their existing loans. While economic hardship has escalated the demand for microcredit, it has also increased the refinancing risk for microfinance providers.
Roshaneh also touches upon growing political intervention in the field, which presents its own set of problems: “uncertainties stemming from the political set-up have adversely affected the economy, especially microfinance providers”. Her comment is the perfect segue way to the current crisis in Bangladesh, where Muhammad Yunus has come under a multi-pronged attack by the Bangladeshi government. The government has asked Yunus to resign from his position as head of the bank following a Norwegian documentary which alleges that the Grameen Bank has been evading taxes. (P.S. The controversy is the subject of another post altogether).
The current Grameen situation illustrates the importance that microfinance has acquired in the past decade. It has changed the way policy, development professionals and governments think about poverty alleviation altogether.
But with widespread attention comes great controversy. The more attention successful microfinance providers receive, the more susceptible they become to political attacks. Aside from Grameen Bank, another illustrative example is SKS Finance in India, which came under ferocious political attack after its public IPO made millions for its founder.
The debate over discomfort with MFI’s high interest rates, profitability and aggressive recruiting practices visa-a-vis their ability to provide a critical service to the world’s under-served is an ongoing one. While it is certainly naive to categorize microfinance as the panacea for world poverty, as Kristof notes, “Done right, it can make a significant difference”. With specific reference to Kashf, he highlights how, “An outside evaluation found that after four years, Kashf borrowers are more likely than many others to enjoy improved economic conditions”.