A Comparative Study of Micro-Finance Institutions In Creating Self-

Employment In Pakistan

1. INTRODUCTION

The idea of microfinance has been available in rustic and urban territories as unsupervised cooperatives
since a genuinely prolonged stretch of time. Nonetheless, microcredit as a progressive social wonder
was begun by the Grameen Bank amid the 1970s. From that point forward, the advancement of
microfinance on the planet and particularly in Asia has been motivated by the example of overcoming
adversity of the Grameen Bank. Set up by Dr. Muhammad Younus to give to the necessities of poor
people and the poor segment of society on an exploratory premise, Grameen Bank encouraged access
of credit to poor people, particularly ladies, with the point of annihilating neediness and joblessness, the
essential worry of any creating nation. Pakistan, however a late starter in this industry, has likewise
made significant improvements in Microfinance. Despite the fact that Non-Government Organizations
(NGOs) and Rural Support Programs (RSPs) have been giving small scale credit in the nation since the
1980s, however the inclusion and extent of their tasks has for the most part been somewhat
constrained. The improved worldwide spotlight on microfinance toward the start of the new thousand
years has quickened the development of the Microfinance division in Pakistan. At present, six
Microfinance Banks (MFBs) are working in the nation. Other than MFBs, there are 14 other microfinance
foundations (MFIs) including Rural Support Programs (RSPs), Non-Government Organizations (NGOs)
and Commercial Financial Institutions (CFIs). Production of business has remained a top need in creating
nations like Pakistan. Various examinations in regards to development and advancement have likewise
centered around the work advertise. Since the fundamental wellspring of a person's salary is related
with business openings. Besides, salary and nature of occupation both influence social welfare
altogether. Work and monetary improvement are associated. Among the different work statuses,
independent work has accomplished a major ordeal of consideration directly. Arrangement creators
particularly in creating nations are fundamentally concentrating on advancing independent work and
private venture. Prof.Dr. Abdul Ghafoor Awan , Dean of Faculty of Management and Social Sciences,
Institute of Southern Punjab-Pakistan in 2010 revealed that in creating nations there are almost 90
percent of the general population which have absence of access to money related administrations from
the organizations, either for credit or sparing reason. Particularly for the poor who as of now have need
resources this circumstance turned out to be progressively basic for them. In microenterprises by and
large there is requirement for little capital however it is as yet troublesome for the needy individuals to
oversee even that little amount of capital. Resultantly, these absences of capital postpone the
development of microenterprise.

Independent work is one of the normally terms utilized in business, the executives, financial aspects and
other related fields. Independent work implies advancement, innovativeness, initiative, benefit boost or
beginning of another business. Independent work encourages in the process to increment financial
development, business age, increment national pay and furthermore making advancement.

"Independent work could be the demonstration of getting one's salary straight from clients, customers
or different associations as opposed to being a worker of any business or individual"

Independently employed people for the most part discover his or her work instead of being furnished
with work by an incredible boss, procuring salary from an exchange or business that they can work. In
certain countries around the globe governments (the Us and UK, for instance) are setting more
accentuation on illuminating whether an individual is independently employed or possibly occupied with
secured work. Somebody whom will probably act naturally utilized could be the proprietor of online
business, in which procures he an awesome living by logging with respect to himself/herself and
furthermore not being a staff of another person. One man shop whether he use individual in the after
ones associated with organizations:-

• Sole ownership

• Partnership

• Limited duty firm (LLC)

Independently employed individuals incorporate managers, possess account laborers; individuals

related with makers' co-agents, also unpaid family specialists. In the last with respect to the vast
majority of these gatherings don't influence application for a formal contract to get a fixed amount
including assets in customary interims, yet they share at the money produced as a result of the venture;
unpaid family staff is especially clicks in cultivating notwithstanding list exchange. Note: It practically all
people that work inside corporate undertakings, similar to establishment executives, will in general are
taken to have the capacity to dependably be representatives.
 2. LITERATURE REVIEW

The extended form of small security free institutional loans is known as micro credit is the innovation of
Grameen Bank of Bangladesh the pioneered of credit supply to the poor. The quantitative measurement
of the scheme of microcredit attracted a great deal of global attention in forefront of researcher, policy
makers and households due to its successful, unbiased and enterprise of sustainable development. The
microcredit takes a new model in poverty improvement, economic development and in empowering the
poor. The idea of microcredit is comparatively new to Pakistan. However, it is beneficial to be late in
Pakistan that the experience of other countries could also be entertained in making decision whether
one should go for micro loan or not. Besides positive aspect, black spots of this program also exist that
are reviewed in the following selection of recent literature.

Rahman and Khan (2012) investigated the worth of microcredit program by focusing on the connection
between the socioeconomic characteristics of borrowers and program’s usefulness for the Bangladesh.
The special focus of the paper was to assess the microcredit functioning of American Sociological
Association (ASA) program. For quantitative analysis bi-variant and multivariate analysis were used.
Cross tabulation method was conducted for bi-variant analysis and for relationship between dependent
and independent variables “chi square test” (a statistical method assessing the goodness of fit between
a set of observed values and those expected theoretically) was performed. At the end by including all
the independent variables Legit model was built up on primary data. The results revealed out huge
conventional of ASA microcredit borrowers who showed positive attitude toward it. The study
confirmed the effectiveness of ASA program on the basis of existing literature and its own finding and
revealed that beneficiaries of ASA experienced improvement in their socioeconomic status including
income, education, living standard, technical and business skills and social awareness. The longer the
duration of involvement with this programme the better the results.

Ali and Alam (2010) explored the importance of microfinance for the rural areas of Pakistan. They
mentioned that microfinance could affect social and economic life of people positively through poverty
elimination and condition of better standard of living. In Pakistan the requirement of microcredit in rural
areas is greater than urban areas as most of the population is living below the standard poverty line.
They highlighted the positive as well as negative aspects of microfinance program confronted to the
Pakistani nation. The study revealed that high rate of interest on microcredit was the most common
problem faced by the borrowers but in spite of that the demand for credit remained high because
people had not access to commercial loans. They further mentioned that the Pakistanis are hard
working and might be blessed with innovative business techniques so they would be ready to borrow
micro loans on high interest rates.

Siddiqi (2008) discussed the conventional and Islamic aspects of microfinance in Pakistan. The author
mentioned that the performance of microcredit in Pakistan was confused that whether it had positive
role or negative. He further mentioned the hurdles confronted to the program of microfinance in
Pakistan. The first and foremost hurdle was high rate of interest charged by MFIs and the second
obstacle was interest or Riba itself. In Pakistan having Islamic society Riba is not allowed hence micro
loans are not encouraging. The third hurdle was women’s empowerment because they ill treated for
receiving loans by the male relatives. The study concluded that Islamic micro credit was superior to
conventional micro loans because it was not only profit generation but also full fill the requirements of
the poor.

Mazumder and Wencong (2013) explored the connection between microcredit and socio economic
status of rural poor community of Bangladesh. For econometric analysis they collected primary data
based on face to face interview in two phases (April 2009- April 2010) before involvement with
microcredit program and after involvement with program from the same sample of 360 microcredit
borrowers. They also considered a control group of non credit borrower respondents to assess the
effectiveness of program. Multiple failure method along with Chi square and F-test were performed to
analyze the role of micro credit program in cut-back the poverty by considering the change in income,
assets, living standard and poverty. The results revealed that the number of poor which were 86.7
percent before involvement with microcredit program reduced to 40 percent after involvement with the
program. This implied a significantly positive connection between microcredit and poverty reduction.
While the level of poverty remained unaffected for control group.

Zeller and Sharma (2000) conducted a multi country research study to analyze the association between
credit access, food security of households, insurance and saving program. The study carried out a
comprehensive conceptual framework to address various policy questions about the role and
functioning of micro finance and presented a combination of experimental results for ten Asian and
African countries. The study concluded that poor’s capability to bear with risk and outreach of MFI to
the poor could be enhanced by putting up credit, saving and insurance program. Due to the complex
nature of insurance services precautionary saving could be best substitute for the poorest.

Research Questions:
Q1: How effective is the microfinance institutions in poverty reduction?

Q2: What strategies they follow for providing loans?

Q3: What is the interest rate does the institutions charge?

Hypothesis:

H1: There is positive impact in per capita income of peoples through microfinance.

H2: If self-employment increases poverty decreases.

H3: There is change in living standard of people due to self-employment.

 H4: Savings of peoples affected due to increase in poverty.

H5: Formation of new assets and buildings also have a positive impact on unemployment of poor
people.

H6: If expenses increase living standard decreases.

Framework:

POVERTY FULFILMENT OF
REDUCTION BASIC NEEDS

MICROFINANCE
INSTITUTIONS

LIVING STANDARD
SELF-EMPLOYMENT
OF POOR PEOPLE

FORMATION OF
NEW ASSETS &
BUILDINGS