Can Islamic Microfinance give more people access to the financial services they need to grow their business? (Credit: DFID, Flickr Creative Commons)
Research has shown that financial sector development and the efficiency of financial systems are closely linked to economic growth. Ensuring the provision of financial services to the poor can also address the challenge of poverty alleviation and directly target financing towards economically and socially underprivileged groups. Appropriate financial services, such as savings services, investment, insurance, and payment and money transfer facilities, enable the poor to acquire capital to engage in productive ventures, manage risks, increase their income and savings, and escape poverty.
On October 23, Nigeria joined a fast-growing list of countries making headline commitments to financial inclusion targets and actions,by launching a new Financial Inclusion Strategy.
A total of 35 countries have now made commitments through the ‘Maya Declaration’ of the Alliance for Financial Inclusion (a global network of financial regulators), including 19 as recently as September 2012. 17 countries committed in June 2012 to targets, actions, and coordination platforms through the new G20 Financial Inclusion Peer Learning Program. These new commitments and targets could have a significant impact in advancing financial inclusion, if the challenges in meeting them can be overcome.
The idea for looking into the issue of microfinance outreach to women in Pakistan had been of interest to the World Bank for some time. Outreach of the microfinance sector to women borrowers had always been extremely low – hovering between 50 to 60 percent of borrowers. Compared to the rest of the region, where we see outreach to women in the 90 percent range in India, Bangladesh, and Nepal, it raised the question as to why similar targets could not be achieved in Pakistan. We reviewed a number of possible explanations, but none of them seemed satisfactory. On top of that, Pakistan is probably one of the most progressive microfinance sectors in the World. The central bank has developed the most enabling regulations possible, Pakistan continues to top the Economist Intelligence Unit list of the most enabling regulatory environment, innovations in branchless banking and new modes of financial service delivery are being incubated here, and the microfinance network in Pakistan continues to be regarded as world class. So, given all the positive attributes around the sector, why was it not possible to more effectively reach this important constituency?