The Development of Microfinance in Pakistan

This article summarizes various public and private initiatives aimed at expanding financial services in Pakistan.

The paper traces the various phases in the evolution of Pakistani microfinance representing development of new institutional forms and structures. They include:

• Phase I, which involved many government directed/subsidized credit schemes, with public sector commercial financial institutions providing concessionary financing;
• Phase II comprised microfinance activities such as Aga Khan Rural Support Program, Orangi Pilot Project and others, which started gaining interest, and the involvement of the leasing sector;
• Phase III which marked the entry of regulated financial institutions such as commercial banks and leasing companies as well as development of regulatory structures.

The paper summarizes Pakistani microfinance sector's challenges and constraints as those involving scale and sustainability. Research points to limiting factors such as:

• Lack of clear vision about the future direction;
• Weak government structures and transparency;
• Lack of experienced managers;
• Adequate products and market knowledge;
• Delinquency numbers and constrained funding.