Microcredit at the Grassroots: A Case Study of a Microfinance Program in Pakistan

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Introduction

The successes of microcredit are most visible in South Asia where model programs such as the Grameen Bank in Bangladesh and the Self Employed Women's Association (SEWA) in India have disbursed loans to millions of people, the majority of whom are women. Most case studies typically focus only on the microfinance aspects of a development program, and do not attempt to place them within the larger political, economic and social context. This article is a case study of a successful rural development program in Northern Pakistan, which has successfully targeted over a million people in some of the poorest and most isolated regions of the country.

The Aga Khan Rural Support Program (AKRSP) in Pakistan
Initiated in 1983, the Aga Khan Rural Support Program (AKRSP) has been instrumental in impacting the lives of women, men and children in the areas of Gilgit, Baltistan and Chitral where the population subsists on a per capita income of 50 cents a day. Key human development indicators in this region lag behind national human development indicators, which are already low by most international standards. The United Nations Development Programme's 2003 Human Development Report ranks Pakistan 144th out of a total of 175 countries in its annual Human Development Index. Hence, Pakistan remains one of the poorest countries of the world with low development indicators for life expectancy, education and income.

Reasons for Success
The AKRSP's success is remarkable as it operates in an extremely challenging region of the world, bordered by three mountain ranges with few transport and communication links with the rest of Pakistan. As a rural development program, its success can be measured by the fact that it has been replicated in at least 8 other rural development programs across Pakistan. Based on an organizational model of rural development, there are currently 20,000 community organizations across Pakistan, nearly five times the number of AKRSP community organizations. The AKRSP has employed a unique combination of economic, social and technical organization to create a sense of community and ownership among the village participants of the program. Economically, the AKRSP has provided loans and other forms of credit to the people; socially the AKRSP has facilitated the formation of village organizations and women's organizations and technically, the AKRSP has developed key infrastructure projects for agriculture.

The most successful component of the AKRSP has undoubtedly been in the social sphere by developing village organizations, which are simply interest groups where people converge to pool their resources for the betterment of the community. These organizations are based on participatory and democratic principles, requiring the consent of 75% of the population. However, given the conservative patriarchal traditions that exist in this area, women did not feel free to actively participate in the discussions. Hence, the AKRSP formed separate women's organizations to address the needs and concerns of women, based on similar organizational and managerial principles. The number of village organizations has mushroomed from 175 in 1983 to 2,371 in 2000. Unfortunately, the pace of women's organizations has not kept up with the village organizations and by 2000, numbered approximately 60% of the total number of village organizations. Although the women's organizations have made significant progress, much more still needs to be done before gender equality can be achieved.

AKRSP and the Microcredit Summit Campaign
The experience of the AKRSP's microfinance arm is of particular relevance within the global context of the Microcredit Summit Campaign's goals of reaching 100 million families by 2005. Its successes as well as its present challenges have lessons for the international development community. Most important, its impact on women needs to be researched further. Microcredit and gender mainstreaming have been popularly adopted by international development practitioners in theory; however, practical experience demonstrates that the solutions may not be as clear-cut as they may seem. The AKRSP's microcredit program was originally referred to as village banking, where villages raised capital through their own savings. Initially, the AKRSP provided small and medium-term loans, but eventually ceased to disburse medium-term loans. In 1992, the AKRSP launched its Microenterprise Credit Program (MECP) aimed at developing local businesses and entrepreneurship. In its most recent evaluation of the AKRSP's Microfinance division, the World Bank rated the AKRSP's financial performance as relatively more efficient than similar institutions in Pakistan and across the globe. Overall, the AKRSP was more efficient than the global average for 114 microfinance institutions.

Financial and Political Struggles

Despite these positive indicators of the AKRSP's microfinance division, recent economic developments do not portend well for the future sustainability of the program. The global financial crisis has also affected Pakistan, which is in the midst of an economic recession resulting in slower disbursement and recovery of loans. The number of outstanding loans is slowly increasing and village organizations are increasingly engaging in internal lending. Overall, the AKRSP's microcredit wing has reached approximately 600,000 people, an accomplishment by itself considering that people in this region have no alternative sources of credit as government financial institutions have been reluctant to operate in such a high-risk environment.

Microcredit and Women

The success of microcredit initiatives has often been attributed to their particular focus on empowering women and encouraging their self-reliance through developing their own means of income. However, few studies have assessed the wider context within which such programs operate. In the case of the AKRSP, whereas the village organizations and microcredit initiatives have been successful, the women's organizations have not been as successful as originally envisioned. Microcredit may be an instrumental tool in fighting poverty, but what if the very women it is targeted towards are excluded from the lending process? In the case of the AKRSP, although the women's organizations have been successful in recruiting large numbers of women, they have also tended to exclude the poorest members of households who simply do not have the time on their hands to participate in women's organizations. Participation in women's organizations varies greatly by the three program regions and participation alone should not be a measure of the actual success of the microcredit program. 75% attendance at a meeting of a women's organization does not necessarily indicate that women are satisfied with the program. Hence, one needs to be extremely cautious when hailing the success of a microfinance program, as it may not be truly participatory or targeting the poorest sections of the population.

The Future of the Program

In conclusion, although the AKRSP has been an exemplary paradigm of participatory rural development, there have been significant changes in the political, economic and social realms that threaten to tear at the very fabric of its community organizations. The most recent national elections in 2002 witnessed the election of a fundamentalist Islamic party, the Muttahida Majlis-I-Amal (MMA) for the first time in Pakistan's history, primarily due to pro-Taliban, anti-Western sentiments in the Northern Areas of Pakistan. In May 2003, the provincial government of the North West Frontier Province (NWFP) passed the traditional Islamic Shariah law and is currently undertaking measures to restrict the movement of women and censor the media. The recent war in Iraq has further fuelled sympathy for Islamic forces even within moderate elements of Pakistani society. These political and legal developments are not promising for the future development of women in the Northern Areas of Pakistan, a region which is ethnically and culturally similar to Afghanistan.

In the economic sphere, the global economic recession and growing unemployment in the Northern Areas is a matter of concern. Furthermore, the future sustainability of the AKRSP is uncertain at the moment because of the shift in donor interests towards Afghanistan and Iraq, with the result that the AKRSP has had to reduce its employees. A program that remains dependent on external funding for its survival always leaves itself vulnerable to operational risk due to a change in donor priorities. On the positive side, a national microfinance bank has been formed with AKRSP having a 60% share, the Aga Khan Fund for Economic Development (AKFED) a 20% share, and the International Finance Corporation (IFC) having a 20% share respectively. Lastly, in terms of social constraints, although the AKRSP has taken giant steps towards promoting greater gender equality, attitudes cannot be changed overnight. The AKRSP has operated in an environment where three Islamic communities reside side by side and where sectarian differences can often be exploited. These sectarian differences have the potential to destabilize the region, even though the AKRSP has been a harmonizing force across villages. The success of the AKRSP's microfinance initiative to date could very well be reversed, with the political, economic and social upheaval that is occurring across Pakistan.

by
Sarah Ishaque
http://www.worldhungeryear.org/why_s...style=ws_table