Paper

The Microfinance Evolution Toward MSME Lending: Lessons from Pakistan

Examining rationale behind MFI lending to small enterprises in Pakistan
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This paper examines why MFIs in Pakistan are adding small enterprises to their portfolios, how they are reaching this market and its impact at the MFI and developmental levels. Pakistani MFIs are attracted to the micro, small and medium enterprise (MSME) market because of unmet demand for credit and the higher profitability potential in this segment, in addition to competition amongst MFIs. The paper identifies the following key factors to success in lending to this segment:

  • Strong understanding of the market;
  • Lending methodology that factors in risk on account of larger loan sizes and fewer social guarantees, while remaining cost efficient for the MFI;
  • Carefully planned human resources strategy.

Finally, the paper refutes the idea that small enterprise lending in Pakistan has resulted in a diversion of resources from poverty lending. Instead, it suggests that such lending may have positive impact on job creation and other development indicators.

About this Publication

By Weiss, K.
Published