A report released last month by the World Bank unearthed evidence that less than 25% of Pakistani women use micro-finance loans. The report takes a closer look at two challenges facing the micro-finance sector in Pakistan. The first is the potentially widespread practice of women borrowers acting as conduits for loans passed on to other beneficiaries. The second is to understand the obstacles that prevent or hinder women entrepreneurs from accessing start‐up and working capital from micro-finance providers.
Early last year, State Bank of Pakistan released a report on the micro-finance sector, highlighting that in order to minimize the trade-off between the social and commercial objective of micro-finance, the sector needs to concentrate less on extensive expansion and should focus more on utilizing the existing human resource and financial resources intensively. The targets set by the sector may be more simply achieved by adopting an intensive growth strategy.
After India’s independence from Britain, Nehru sent a team to Moscow to see how it was run, and since then India has operated on a model where the economy was centrally planned, closed to outside trade, and closed to prosperity.
Even as late as 1991, India only had $1 billion in foreign reserves. Recently, Prime Minister Manmohan Singh opened up India’s economy to the outside world by lifting trade restrictions and allowing foreign businesses to operate freely in India. It now has $118 billion in reserves, multinationals are outsourcing their call-centers to India, poverty is decreasing, and the country is a rising superpower. Such opportunities have arisen within 14 years through the global network. India experimented with socialism and has now embraced globalization. The debate on whether third-world countries should embrace socialism or globalization and capitalism has now ended.
The Indian example shows that multinational companies are catalysts for economic growth. But micro-finance is also a catalyst for economic growth, as demonstrated in Bangladesh through NGOs such as Grameen Bank or BRAC (Bangladesh Rural Affairs Committee), where poor people are taken out of poverty through micro-loans. Governments in emerging markets can do more to encourage micro financing for small businesses.
These governments can also help home-grown businesses by cutting taxes and reducing bureaucracy so that they are free to reinvest in the expansion of business which would facilitate greater employment opportunities. Technology, biotechnology, and pharmaceutical companies would also be able to expand much-needed research and development supported by a strong capital market. This can finance the transition of research into products and services, which can then be promoted to global consumers.
Finally, if there is any lesson to be drawn on the financial crisis it is this; poor countries had largely been cushioned from the crisis because they do not have excessive reliance on credit. Credit-driven economies in the West had clearly been affected by the spread of toxic loans in the global marketplace. Whilst governments in emerging markets must ensure that they embrace economic freedom and empowerment to drive growth, they must develop policies to minimize reliance on credit.