Micro-Finance in Pakistan: Institutional Practices, Challenges and Way Forward
DOI:
https://doi.org/10.65755/jpa-20264701-132Keywords:
Bilateral Contract Market, financial sustainability, gross loan portfolio, Microfinance BanksAbstract
During the last five years, size of Pakistan’s microfinance sector got double in terms of its gross loan portfolio (GLP) of PKR 703 billion. Despite the hundred percent increase in the GLP, the fact that serving only 12 million borrowers out of a potential 40 million transpires that a significant inclusion gap still persists. This research uses the qualitative and quantitative data to find the existing gaps between the supply and the demand sides. This research study utilizes Chi-square analysis to quantify the qualitative survey results. Comparative analysis of different institutional practices, lending methodologies and products guides the research to find out the challenges and to recommend the strategic interventions for improvement. The study, after the analysis, identifies several critical barriers including high operational costs, scarcity of inexpensive credit lines and stringent regulations which fail to reduce the existing gaps between both sides and thus threaten financial sustainability. Furthermore, Microfinance Banks (MFBs) provide microloans on high interest rates (25–30%), while the borrowers, particularly in agriculture, struggle with increased default risks due to climate-induced shocks. Other operational challenge like limited staff capacity and very low digital literacy among the borrowers further hinder growth. The study recommends that in order to reduce the gap between the demand and supply of MF services, the sector requires structural reforms, including the availability of inexpensive and low-cost equity, regulatory reform regarding deposit-taking licenses for MFIs and enhanced digital integration among the borrowers. Introduction of large-scale safety nets for the borrowing farmers besides training the relevant human resource in MF services are very important steps for shifting microfinance from a means of survival to a plausible cause of sustainable and inclusive economic growth in Pakistan. Bilateral Contract Market (CTBCM) to induce competition for better performance and service delivery. For resilient financial sustainability of power sector in long term, competitive market with modernized grid infrastructure, integration of renewable/distributed generational sources and professional cadre management shall be essential.
Downloads
References
Akhtar, S. (2003). Building inclusive financial system in Pakistan. Growth, 31, 12–2006.
Akhuwat Foundation. (2020). Akhuwat Islamic Microfinance – Financial Statements 2020. Lahore: Akhuwat Foundation. cihcdn.blob.core.windows.net
Akhuwat Foundation. (2020). Akhuwat USA Donor Report 2020. Lahore: Akhuwat Foundation.
Akhuwat Islamic Microfinance. (2025). An Overview of Akhuwat Islamic Microfinance. https://akhuwat.org.pk/anoverviewofaim.pdf
Ansari, A. G., Ansari, M. S., & Dars, B. A. (2019). English-measuring the impact of Islamic Microfinance product, Qarz-e-Hasna, on poverty alleviation in Hyderabad district. The Scholar Islamic Academic Research Journal, 5(2), 139–163. https://doi.org/10.29370/siarj/issue9ar14 DOI: https://doi.org/10.29370/siarj/issue9ar14
Azam, M., Ahmad, H., Sadeeque, J., Farooq, U., & Haroon, U. (2024). Factors affecting the expansion of the microfinance industry in Pakistan. Journal of Excellence in Management Sciences, 3(1), 211–223. https://doi.org/10.69565/jems.v3i1.316 DOI: https://doi.org/10.69565/jems.v3i1.316
Banerjee, A., Duflo, E., Goldberg, N., Karlan, D., Osei, R., Parienté, W., Shapiro, J., Thuysbaert, B., & Udry, C. (2015). A multifaceted program causes lasting progress for the very poor: Evidence from six countries. Science, 348(6236), 1260799. https://doi.org/10.1126/science.1260799 DOI: https://doi.org/10.1126/science.1260799
Bari, F., Malik, K., Meki, M., & Quinn, S. (2024). Asset-based microfinance for microenterprises: Evidence from Pakistan. American Economic Review, 114(2), 534–574. https://doi.org/10.1257/aer.20210169 DOI: https://doi.org/10.1257/aer.20210169
Bayulgen, O. (2008). Muhammad Yunus, Grameen Bank and the Nobel Peace Prize: What political science can contribute to and learn from the study of microcredit. International Studies Review, 10(3), 525–547. https://doi.org/10.1111/j.1468-2486.2008.00803.x DOI: https://doi.org/10.1111/j.1468-2486.2008.00803.x
Besley, T., & Coate, S. (1995). Group lending, repayment incentives and social collateral. Journal of Development Economics, 46(1), 1–18. https://doi.org/10.1016/0304-3878(94)00045-E DOI: https://doi.org/10.1016/0304-3878(94)00045-E
de Montesquiou, A., & Sheldon, T. (2014). From extreme poverty to sustainable livelihoods: A technical guide to the graduation approach. CGAP and Ford Foundation. https://www.cgap.org
Grameen Bank. (2018, December). Performance indicators & ratio analysis (December 2018). Grameen Bank. https://www.grameen.com/data-and-report/performance-indicators-ratio-analysis-december-2018
Grameen Bank. (2020). Annual Report 2020. Dhaka: Grameen Bank.
Hashemi, S. M., & de Montesquiou, A. (2011). Reaching the poorest: Lessons from the graduation model. CGAP Focus Note No. 69. https://www.cgap.org
Hossain, M. S., Al-Amin, M., & Rahman, M. M. (2024). Beyond microcredit: The role of micro-insurance and financial literacy in poverty alleviation. Journal of International Development, 36(2), 415–432.
Hulme, D. (2009). The story of the Grameen bank: From subsidized microcredit to market based microfinance. Microfinance (pp. 163–170). Routledge. https://doi.org/10.4324/9780203882764-17 DOI: https://doi.org/10.4324/9780203882764-17
Kamran, S., & Uusitalo, O. (2024). How informal financial service institutes facilitate the financial inclusion of low-income, unbanked consumers. International Journal of Bank Marketing, 42(6), 1232–1263. https://doi.org/10.1108/IJBM-03-2023-0148 DOI: https://doi.org/10.1108/IJBM-03-2023-0148
Kashf Foundation. (2021). Annual Report 2020. Kashf Foundation.
Khan, A. H. (1979). The Comilla Model and the Integrated Rural Development Programme of Bangladesh. Bangladesh Academy for Rural Development. https://doi.org/10.1007/978-1-349-04946-2_4 DOI: https://doi.org/10.1007/978-1-349-04946-2_4
Khan, W., Naz, A., Shah, I., Khan, F., Alam, A., & Khan, N. (2016). Measuring mission drift in emerging economies: An evidence from Pakistan microfinance network. Journal of Applied Environmental and Biological Sciences, 6(6), 20–27.
Khan, Z., & Sulaiman, J. (2015). Social and financial efficiency of microfinance institutions in Pakistan. The Pakistan Development Review, 389–403. DOI: https://doi.org/10.30541/v54i4I-IIpp.389-403
Kiva, R., & Morduch, J. (2024). The digital divide in microfinance: Efficiency versus social capital in the fintech era. World Development, 174, 106–120.
Malik, F. (2022). State Bank of Pakistan Policies and The Lending Behavior of Commercial Banks: A Case of Pakistan from 1972–2021. Journal of Academic Opinion, 2(2), 67–73.
Manzoor, R., Javed, A., Ahmed, V., & Rauf, A. (2021). Digital financial services in Pakistan: Opportunities, challenges and suggestions. J Financ Econ, 6(2), 1–6. https://doi.org/10.20547/jfer2106201 DOI: https://doi.org/10.20547/jfer2106201
McHugh, M. L. (2013). The chi-square test of independence. Biochemia Medica, 23(2), 143–149. https://doi.org/10.11613/BM.2013.018 DOI: https://doi.org/10.11613/BM.2013.018
Mersland, R., Nyarko, S. A., & Szafarz, A. (2023). Digitalization and the performance of microfinance institutions: A global analysis. Small Business Economics, 61(3), 1125–1145.
Microcredit Regulatory Authority. (2024). Annual report 2023–24. Microcredit Regulatory Authority (MRA). https://www.mra.gov.bd
Microfinance Institutions Network. (2025). Bharat microfinance report 2024–25. MFIN. https://mfinindia.org
Montgomery, H. (2006). Serving the poorest of the poor: The poverty impact of the Khushhali Bank’s microfinance lending in Pakistan. Poverty Strategies in Asia. Edward Elgar Publishing. https://doi.org/10.4337/9781847203168.00014 DOI: https://doi.org/10.4337/9781847203168.00014
Ngo, T. M.-P., Mullineux, A., & Ly, A. (2014). The impact of scale of operation on financial performance in microfinance. Journal of International Development, 26(5), 588–603. https://doi.org/10.1002/jid.2901
Pakistan Microfinance Investment Company Ltd.. (2025). About us. https://pmic.pk/about-us/
Pakistan Microfinance Network. (2020). Pakistan Microfinance Review 2020: Annual State of the Industry Report. Pakistan Microfinance Network.
Pakistan Microfinance Network. (2024). Pakistan Microfinance Review. Pakistan Microfinance Network. https://www.pmn.org.pk/storage//publications/1755499708_Pakistan_Microfinance_Review_2024.pdf
Pakistan Microfinance Network. (2025). Micro Month. Pakistan Microfinance Network. https://pmn.org.pk/micromonth/July2025.pdf
Pakistan Poverty Alleviation Fund. (2024). Role of Pakistan Poverty Alleviation Fund (PPAF) in Sustainable Development. https://www.ppaf.org.pk/doc/PPAF-Corporate-Profile.pdf
Purohit, B. C., & Saravanan, S. (2018). Sustainability and efficiency of microfinance institutions in South Asia. Theoretical and Applied Economics, 4(617), 97–120.
Ranjani, K., Singh, P., & Revulagadda, R. K. (2022). Mission drift and scale: An empirical analysis of Indian Micro Finance Institutions. Business Perspectives and Research. https://doi.org/10.1177/22785337211070370 DOI: https://doi.org/10.1177/22785337211070370
Rasheed, B., Malik, Z. F., Shakeel, A., & Kazmi, S. T. F. H. (2021). Evaluating the State Laws and Regulations of Microfinance Institutions (MFIs) in Asia: A Comparative Study. Audit and Accounting Review, 1(2), 91–110. https://doi.org/10.32350/aar.12.05 DOI: https://doi.org/10.32350/aar.12.05
Rehman, H., Moazzam, D. A., & Ansari, N. (2020). Role of microfinance institutions in women empowerment: A case study of Akhuwat, Pakistan. South Asian Studies, 30(1).
Robinson, M. S. (2001). The microfinance revolution: Sustainable finance for the poor. World Bank Publications. https://doi.org/10.1596/0-8213-4524-9 DOI: https://doi.org/10.1596/0-8213-4524-9
Rozzani, N., Mohamed, I., Izhar, F. S., & Othman, R. (2013). Integrity check on procurement corruption in pre-tendering construction stage: The Malaysian public sector perspective. Paper presented at the 5th International Conference on Financial Criminology (ICFC).
Sa-Dhan. (2020). Bharat Microfinance Report 2020. New Delhi.
Sapovadia, V. K. (2007). Capacity building, pillar of micro finance. Pillar of Micro Finance (March 19, 2007). https://doi.org/10.2139/ssrn.975088 DOI: https://doi.org/10.2139/ssrn.975088
SBP. (2025). Financial Inclusion. State Bank of Pakistan. Accessed September 10, 2025. https://www.sbp.org.pk/Finc/About.asp
Serrano-Cinca, C., & Gutiérrez-Nieto, B. (2023). A social and financial efficiency analysis of microfinance institutions. Expert Systems with Applications, 213, Article 119010.
Shankar, S. (2007). Transaction costs in group microcredit in India. Management Decision, 45(8), 1331–1342. https://doi.org/10.1108/00251740710819069 DOI: https://doi.org/10.1108/00251740710819069
State Bank of Pakistan. (2025). Banking Supervision Department FAQ: What is microfinance? Retrieved from State Bank of Pakistan website: http://www.sbp.org.pk/
Thanh Tung. (2024, August 11). Grameen Bank Now. Grameen Bank. https://www.grameen-info.org/grameen-bank-now/
The Nation. (2025). Government raises BISP allocation to Rs. 716 B. https://www-nation-com pk.cdn.ampproject.org/v/s/www.nation.com.pk/11-Jun-2025/govt-raises-bisp-allocation-to-RS716B
World Bank. (2019). Global Financial Development Report 2019/2020: Bank Regulation and Supervision.
Yousry Fattouh, R., & Sobhi Makhlouf, R. (2024). The role of digital transformation in developing microfinance. 33(2). https://doi.org/10.21608/asfer.2024.243199.1019 DOI: https://doi.org/10.21608/asfer.2024.243199.1019
Zafar, R. (2002). Microfinance and Women's Empowerment: Turning Lead to Gold? Development Bulletin, 57, 63–66.
Downloads
Published
Issue
Section
License
Copyright (c) 2026 Qurat-ul ain Memon (Author)
This work is licensed under a Creative Commons Attribution 4.0 International License.
