By Yusra Salim
Published in The Express Tribune on January 02, 2022
KARACHI: There is a quote attribute to rock star activist Bono of U2. “Give a man a fish, he’ll eat for a day,” he says. “Give a woman microcredit, she, her husband, her children and her extended family will eat for a lifetime.” The changing dynamics post-pandemic and increasing inflation and unemployment has forced people round the world to rethink how to earn a living. Where the idea of working women was once looked down upon by many in Pakistani society, the aforementioned challenges have made it a must for women to contribute financially to their households.
How microfinancing works
In recent years, the concept of microfinancing has emerged to the fore as a prime means of providing social and economic mobility for those from a low-income bracket. By helping them establish small businesses, microfinancing allows such individuals and families to work towards financial self-sufficiency.
The microfinancing system relies on loaning small amounts of money that can be used to set up a small business. Banks have a system in place where they hire a loan officer in designated areas where they have branches. It is the duty of these loan officers to find customers who are in need of money to start a business or venture. Upon finding prospective customers, the loan officer verifies their case, collects necessary documentation and provides advice that can range all the way from using an ATM to explaining the loan return policy. To facilitate loan return, the officer is also responsible for regularly reminding customers about the due date for their Equal Monthly Installment (EMI).
While microfinancing allows for easier access to loans, such programmes are not without regulation. Loan amounts, for instance, are limited to Rs75,000 without surety beyond a CNIC and affidavit. “The banks also finance businesses of more than Rs75,000 but, in that case, we keep any valuable thing as security be it gold, property papers or any other asset,” shared M*, a technical consultant at a microfinance bank. He explained that microfinance as the word suggests is financing on a small level with a lesser amount to help people establish their businesses. “This is mainly someone who wants to open a small tailoring shop and can easily buy two machines in Rs50,000. This amount can give them an initial push and they can easily return the amount in a year.”
Each loan is verified and planned out separately and the main target is students and women who are trying to be entrepreneurs or men who are trying to set up any small business. “The amount that the bank finance is enough to buy second-hand machines or items to start a setup and once the customer returns the whole amount, they can apply for more loans to expand their business,” shared M.
Return policies
Microfinancing not only works for individual loans but also provides loans to groups. For example, four to five people can take a larger amount together to start a business but if any of them backs off from returning the amount the other partners have to pay. “Before releasing the money, the bank makes a plan chart of return every month, the penalty customer will bear if they do not return on time and verifying their cases and business models,” M said. If the customer does not return on time and the payment is late after 30 days the system automatically marks the customer as Over Due (OD) and the charges on the whole amount keeps increasing. “When the final installment time comes and the customer didn’t return until then, the customer is marked as the default account.”
To make this easy and keep the system working, the loan officer is the one who is responsible as he works on the ground level and he knows the customer on a personal level. But even then, if the customer’s business didn’t work out and he or she cannot pay back the amount, the bank calls for insurance. “All loan amounts are insured and the bank charges the customer for it when processing in the first place,” M said.
“The whole idea was just to help people establish their businesses. There are several people who take loans and buy cycles and start selling any bakery item, toys, or even snacks. Women mostly apply for loans with the aim to set up a grocery store in their house or a small parlor with used chairs and machines which costs them Rs25,000 roughly,” he added.
Small loan security
Any loan amount which a customer is applying for that exceeds Rs75,000 needs security as the bank needs something valuable to compensate if the customer does not return the loan amount. “We accept anything which has a value, for example, property papers, gold or anything,” shared Fahad Aleem, a manager at a private bank. “People even offer buffaloes or other livestock as security when they need a loan for spreading their businesses. With such assets our teams go and tag the animals – it is like a stamp tattoo – so that they can be kept as security in return for money. The market knows what these stamps are so such animals aren’t sold anywhere in the country,” Aleem explained. Similarly, banks have their own fixed goldsmiths to check the gold. A bank representative goes with the customer to the goldsmith who checks, weighs and assigns a value to the gold. “The bank finances only 70% of the ascertained value of the gold keeping in view that gold prices may fluctuate. But in all such cases, the loans are still insured with the possibility of the livestock dying or any natural disaster happening on the property,” Aleem added.
To avoid fraud of people, all the data according to the State Bank of Pakistan’s regulations is centralised through Credit Information Bureau which is a must SOP for every bank to check before sanctioning a loan. “Anyone who has any loan on their name will be in the list of CIB with details of the category loan has been taken in, any default installment, and the amount of loan left to be paid,” said Aleem. He also said that if someone is not in the default category and has been paying their loan on time then the banks usually sanction another loan for them. “One person can have several loans under several categories but with microfinancing, the main focus is the earning of the customer and loans are only sanctioned keeping in view their earnings,” he added.
Success stories
People keep dreaming of businesses and try to help their families to earn something and contribute to their household, but with limited resources, it is difficult for someone whose total income is under 30,000, one such story is of Nighat Parveen who is a mother of four and her husband is a driver for a transport company. “My husband earns Rs30,000 but with Covid, he was jobless because everything was closed down. I know stitching but I had an old sewing machine which my mother gave me on wedding,” said Parveen. She added that she got to know about microfinancing from her neighbor so she visited the bank near her house in Korangi. “With a little documentation and verification, a Rs60,000 loan was sanctioned for me using just my CNIC. I used it to buy two second-hand sewing machines and started stitching.”
For Parveen, it was difficult at first to manage house chores and work. “But now I and my elder daughter manage everything,” she said. Parveen paid an installment of around Rs6,000 a month but her shop is established now and she plans to extend it more as she charges a reasonable amount than the rest of the professional tailors in her area. “This is why everyone from the locality comes to me for stitching clothes.”
Another such story of willpower and fearlessness is Sakina Zulfiqar, the 36-year-old with minimum to no support, who has proven that leading a company all by herself is not beyond her ken. Zulfiqar is an established entrepreneur with a dream to keep growing.
She was a stay-at-home mom, with her husband providing financial support but she was eager to create her own business and supplement her family’s income as part of her quest for empowerment. “I started a small school with only three rooms but due to a lack of investment finance in the early years, growth was modest,” she said. “I didn’t want the school to close down due to finances. I learned about microfinance loans around the same time, which were to help small enterprises to invest in their assets.”
So she applied for a small loan and was able to enhance her school. “Initially I used the loan to upgrade to a larger structure with more classes which also helped in enrolling more students and providing classes all the way to matriculation,” she shared adding that the ambition to build, create, and learn outweighed her apprehension. Zulfiqar not only expanded the infrastructure of her school but also added more facilities with the help of loans which eventually attracted more students and helped her business flourish. “Today our school has over 350 students and offers lessons from Kindergarten to Intermediate,” she told. Her school is regarded as a high-quality educational facility in the community.
Non-governmental assistance
Other than banks there are many other programs that are running under NGOs to help women feel empowered and start their own businesses, one such program is run through Eesha Sheikh, who is the next Forbes 1000. The program works under the name of Chaap which is an interest-free financing plan where women can submit their ideas and business plans and the organizations then fund them. “Our goal is to finance women with ideas to start businesses but they don’t have investment money, so we provide financing of around a million rupees for the time of one year and we select 5-7 ideas,” told Sheikh, adding that the amount we finance, we don’t demand in return as the idea is just to help and also we are not registered as any finance company so the whole idea is to uplift women who are educated, have the spark to prove themselves with great business plans but the only hurdle is financing.
