GROWTH AND PERFORMANCE OF MICROFINANCE IN PAKISTAN

This paper views the growth strategy adopted by the microfinance sector and its impact on performance of the microfinance institutions. To strike a balance between outreach and poverty alleviation, an intensive growth strategy would have been more cost effective at the initial stages of development. This would have reflected in improved performance, efficiency and productivity. Instead the sector adopted an extensive growth strategy which involved huge investment in physical infrastructure and rapid increase in recruitment and branch network. Thus, the credit constrained institutions had to focus more on sustainability than their primary objective of social support. The issue of sustainability would not have been as central had the sector adopted an intensive growth strategy. The six dimensions of outreach examined also indicate that the targets set were modestly attained as breadth of outreach is below the target outreach, depth of outreach is concentrated in big urban cities, scope of outreach is mostly limited to credit. The financial performance of the sector is weak, its cost per borrower is increasing and productivity ratios are low. Growth of the sector is being led by a few unsustainable institutions that are neither operationally nor financially self-sufficient. This approach has already impacted the growth of microfinance in the last few years and is likely to continue to impact the growth and performance of the sector unless more funds are injected.