Risks to Microfinance in Pakistan: Findings from a Risk Assessment Survey

The present study presents results from a survey focusing on identifying and ranking risks faced by the microfinance sector in Pakistan. These results are based on the perceptions of the respondents about what poses a high versus low risk to the sector.

In the survey, respondents were asked to rank twenty-seven types of risks faced by the sector. These were macroeconomic trends, profitability, credit risks amongst others. The top ranking risks were:

• Macroeconomic trends were perceived as the greatest risk since Pakistan lacks the reserves to shield herself against these fluctuations;
• Since most of the microfinance providers (MFPs) in Pakistan are donor driven and financially unsustainable, the profitability risk was ranked as second highest;
• Credit risk figured third owing to client over-indebtedness, competition, and weak internal controls at MFPs;
• Security risk, rated the fourth most severe is unique to the Pakistani context as frequent incidents of violence across the country pose a threat to the MFPs.

The study contends that MFPs' inability to grow is because they are not equipped to handle the risks and challenges that arise from expansion. It is thus vital that these institutions adopt a proactive approach in mitigating risks they face.