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The Social Welfare Impacts of Microfinance on
Household at District Quetta, Pakistan
Abdul Naeem, Assistant Professor,
Institute of Management Sciences,
University of Balochistan, Quetta Pakistan.
Professor. Dr. Shadiullah Khan,
Department of Public Administration,
Gomal University, D.I.Khan, Pakistan
Qamar Afaq, Assistant Professor,
Department of Public Administration,
Gomal University, D.I.Khan, Pakistan.
Dr. Faqir Sajjad ul Hassan, Assistant Professor,
Institute of Management Sciences,
University of Science and Technology, Bannu, Pakistan
Abstract The present study evaluated the impact of microfinance
on social welfare at
household level by using the concepts e.g. access of Children
Education, family
member‟s access to better health facilities and household‟s
expenditure (Food items
and Clothing). The primary data was collected through structured
questionnaire from
75 clients (57 beneficiaries group and 18 non-beneficiaries) by
following Cross
Sectional research design. The study revealed positive and
significant impact on
family member‟s access to better health facilities, while, there
were positive but non-
significant impact on access of children to education and
household expenditure
(Foods item and clothing). It has also been observed that female
clients were more
motivated toward manufacturing whereas male were inclined toward
services types of
business activities.
Key Words: Microfinance, Microenterprise, Household, Children
Education,
Household Health and Household Expenditure.
1. Introduction
1.1 Background of the Study
In this modern economic world Microfinance has been taken as an
attractive
Economic Development tool to help poor especially women, since
it has been
perceived that it helps in improving livelihoods, reducing
vulnerability, and fostering
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social as well as economic empowerment. Now the policy makers
and development
economist are formulating their policies using down up approach
by boosting up
microfinance sector by creating livelihood opportunities for the
poorest section of
communities.
The Microfinance Movement was initiated in 1970s. It‟s goal was
provision of
microcredit or small loan to the poorest section of community.
However, over two
decades it has become a fast growing microfinance industry which
has been providing
financial services to the millions of people Worldwide. Since,
Pakistan‟s 37.5% of the
population lives below the poverty level therefore microfinance
has paramount
importance. However, unfortunately more than 95 percent of
potential client‟s
approximately 44 million men and women do not have access to
micro finance
(International Newspaper, 2011). The outreach of Microfinance
sector in Balochistan
province is below than satisfactory as microfinance services are
available only in
urban area. The main hurdle in extension of microfinance
outreach is due to insecurity
due no writ of law and order in province. So due to these
barriers the present study is
limited to the urban area of district Quetta, which is the
provincial capital of
Balochistan.
Due to several aspects the province of Balochistan is least
developed province of
Pakistan. It has a lowest rate of education both among male and
female, poor health
facilities, at the bottom in the Gender Parity Index (GPI), and
very minute
contribution of private educational institution in education
(National Economic
Survey of Pakistan, 2013).The illiteracy, repression of women
and ignorance of
individual rights are the main socio-political evils that need
to be overcome. These
economic, social and political situations can be tackle by
initiation of mega projects as
well as need to initiate projects at grass root level. The
microfinance can be act as tool
for development to solve the problem of poverty if it is
delivered at a grass roots
level.
It has been realized that financing micro enterprises act as an
effective tool for
development and eradicating absolute poverty: the availability
of necessary fund is
one of the main problems for initiation of business. In
underdeveloped countries lacks
of funds is one of the major problems for poor section of
community for initiation and
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extension of their own business, to becoming self-employed and
support their
household. A number of Banks and Non-Governmental Organization
(NGO‟s)
emerged in the financial market for providing microfinance
services in different cities
of Pakistan including the province of Balochistan especially
district Quetta. But it is
needed to see how much effective government and NOG‟s effort
are? The research so
far conducted in recent few decades on impact of microfinance by
the researchers,
donors and practitioners produced some encouraging results.
However knowledge
regarding their achievement in Pakistan is still immature or
underdeveloped.
1.2 Statement of the Problem
The present study is conducted to seek the answer of the
question.
“Does access to microfinance services contribute to social
welfare of the
household”?
1.3 Purpose of the study
The main goal of the present study is to evaluate the impacts of
microfinance services
on the social welfare of the household in the urban area of
district Quetta. The
objective of the study can be achieved by evaluating the impact
of microfinance
services on social welfare of the household who have obtained
the microfinance
services from First Microfinance Bank (FMFB) at district
Quetta.
In addition the present study will helpful in tracing answer to
the following research
questions;
i. Does access to microfinance services helpful in the business
activities
of the Household?
ii. Does access to microfinance services impact on the Social
Welfare of
the Household?
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Microfinance provides access to financial resources to the poor
for uplifting their
standard of living in a sustainable way and helpful in
eradication of poverty. It is due
to this importance the UN has declared 2005 as International
year of Microcredit. The
finding of the research conducted in Asia, Latin America and
Africa have come to this
conclusion; that microfinance has a positive impact on
expenditure on children
education, microenterprise owned by household (Nanyor, M. A.,
2008) but still the
evidence of microfinance impacts from the research point of view
so far has been
done is insufficient and many results so far obtained have been
highly challenging
(Kiiru, J. M., 2007). There is great potential for further
research in the field of
microfinance sector and it is more important to conduct some
empirical studies to see
the economic and social impact of microfinance on household and
their owned
enterprises. The present study will definitely helpful in
achievement of these
objectives.
2. Literature Review
2.1 Basic Concepts of Microcredit and Microfinance:
In broader sense we use microcredit and microfinance
inter-changeably, but in
narrower sense we refer microcredit as an act of providing small
loan for shorter
period for initiation or extension of micro-entrepreneur.
Whereas boundaries of
microfinance is much broader which means an act of providing a
complete set of
financial services such as deposits, loans, payment services,
money transfers, and
insurance to poor and low-income households and their
microenterprises. So the term
microfinance refers to the provision of financial services to
low income group of
people, including self-employed (Ledgerwood, J., 2000).
The microfinance services are provided by Microfinance
Institutions (MFIs) to the
poorest section of community who have lack of access to formal
financial services
due to lack of financial or physical collateral for development
of their enterprises.,
which will help them in generation of self-employment and
empowerment of poor.
Today by extension of microfinance services to the poor the
Microfinance Institutions
(MFIs) want to seek dual objectives i-e financial as well as
social intermediations;
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from social intermediation we mean creation of sense of group
formation, self-
confidence, financial literacy and management capabilities among
group members. It
has been observed that some of the MFIs in addition to the
social intermediation also
provide enterprise development services such as skills training,
marketing, planning
and accounting. So microfinance should not be taken as a simple
banking operation
but it is a tool of development (Ledgerwood, J., 2000).
A microenterprise is very small business operated by an owner
having uncertain
means i.e. a microenterprise having few or no other employees
excluding those
businesses that is owed by one professional person like doctors,
lawyers or computer
programmers and hobbyists (Schreiner. 2004). USAID defines
microenterprises as
“tiny, informally organized business activities with ten or
fewer employees having
low levels of assets and income” (Cohen., 2001). In
underdeveloped world it is very
common practice that microenterprise is establish informally by
poor by investing
small amount of funds from their own saving or obtaining loan
from their friends,
relatives and other informal lender for earning income.
2.2 Impact of Microfinance on Household
It has been inferred by Baberjee (2009) in an empirical research
at India that
Microfinance program was helpful in establishment of about 32%
more new
businesses in treatment area than the control area. Similar
finding were reported by
Ati & Hela (2011) at Tunisia where they found members of two
groups clients and
future clients become the sole owners of the micro-enterprise
which they have
initiated from microfinance services provided by MFIs. Whereas
Chowdhury (2009)
in his research study at Bangladesh has revealed quite
contradictory results as he
found that participation in the program didn‟t have any positive
impact on enterprise
ownership. Overall from the reviewed literature we come to this
conclusion that we
need to accept the claim of the microfinance that it is helpful
in promotion of
microenterprises and play a vital role in eradication of
poverty.
The groups of Senegalese women micro-entrepreneurs have positive
experience after
participation in the microfinance program as they utilized
portion of their
entrepreneur profit for the wellbeing of their children
schooling (Kane, 2011). The
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Nanor (2008) in research study at Ghana has depicted the same
impact and found
microcredit has positive impact on participant‟s household
income, education and
expenditure as compare to control group. Whereas Mochona, S
(2006) has reported in
a case study conducted at Ethiopia no significant difference was
found among two
groups so far their children access to education and family
member access to better
health facilities after participation in microfinance
program.
Abafita (2003) has reviled in research study at Ethiopia that
access to medical
facilities were not significantly increased after participation
in microfinance program.
Whereas in research study at Hyderabad, India it has been
reported that the treatment
household spends less on health care as compare to comparison
household from
control group (Banerjee, A. 2009). Nighiem., Coelli & Rao
(2007) claimed that the
decline in health care expenses can be taken as positive sign
which show curing from
ill health.
It has been revealed from research studies conducted at
Tajikistan, India and
Philippine by ADBP (2009), Manimekalai, N (2004) and ADB (2007)
respectively
that microfinance services have been helpful in enhancement of
education followed
by clothing, festival and food expenditures. It has been
observed in the reviewed
literature that the clients after initiation of their business
slowly and gradually utilize
their incremental income for enhancement of consumption pattern
of their household,
food consumption, and clothing and for the welfare of their
household. Whereas an
impact study at Senegalese revealed that due to lack of income
resources Senegalese
household could not afford sufficient and nutritionally balanced
meals everyday
(Kane, S. 2011).
It has been observed from the reviewed literature that in some
cases the participants
utilized their loan amount directly in household because of
pressing demand for it,
which is not a good sign for operational staff of the MFIs as
they provided the funds
to the clients for their enterprises development and growth and
to becoming self-
employed.
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2.3 Overview of Microfinance in Pakistan
In Pakistan the beginning of modern Microfinance can be traced
at early 1980‟s when
Agha Khan Rural Support Program (AKRSP) in northern areas of
Pakistan and Orangi
Pilot Project (OPP) in urban areas of Karachi were
operationalized by two different
NGOs. By the mid-1990s some other Rural Support Program NGO were
also took
interest and established like Kashf Foundation in Lahore which
has offered specialized
microfinance services to poor (Duflos, E., et al 2007). When the
Government of Pakistan
perceived Successful operation of AKRSP in Northern Area it took
bold initiative for
establishment of Rural Support Programs following the same
model. The National Rural
Support Program (NRSP) initiated its operation at whole sale
level that operates at
national level and providing its services in all four provinces
i.e. Punjab Rural Support
Program (PRSP) which operates at province of Punjab, Sindh Rural
Support Program in
the province of Sindh, Sarhad Rural Support Program and
Balochistan Rural Support program were established in North West
Frontier Province
(NWFP) now called Khyber Pakhtunkhwa and Balochistan provinces
respectively. All
these rural support programs provide funds for wide range of
economic and social
development programs (Goodwin-Groen, R. 1999).
At the beginning of year 2000 the Government of Pakistan has
took sincere steps for
eradication of poverty. The government took microfinance as an
instrument for ploughing
out poverty from grass root level. It has operationalized his
dream by establishment of the
Pakistan Poverty Alleviation Fund (PPAF) in year 2000 with
collaboration of the World
Bank (Mohammad, S. D, 2010). The World Bank provided financial
support of $ 90
million for disbursement of credit and equivalent amount was
provided by the
Government of Pakistan as grant for infrastructural development
of PPAF and related
organization.
After initiation of PPAF in the same year 2000 the Pakistan
first microfinance bank i-e
Khushali Bank was established under special ordinance with the
financial support from
the Asian Development Bank (ADB). Its main establishment
objective was provision of
microfinance services to those areas of Pakistan which have been
left ignorant form such
services. The State Bank of Pakistan formulated special
ordinance which was called the
Microfinance Ordinance 2001. The ordinance opened doors for
private sector to establish
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microfinance bank with much low level of reserve and equity
financing (Hamid, H. M.
2009). By taking advantage of this ordinance many private banks
and NGOs were
encourage to establish microfinance banks, Kashf and AKRSP NGOs
have transformed
into microfinance banks. In very short time period at the end of
2009 this sector consists
of vast range of actors like 5 developments NGO, 7 Specialized
MFIs and 7 Microfinance
Banks and many other local NGOs (Mohammad, S. D. 2010). The
microfinance sector
now is strengthen and sustainable and is playing vital role in
the economic development
and eradication of poverty in Pakistan.
The First Microfinance Bank Ltd (FMFB) was established after
successful
microfinance and integrated rural development program operation
by the Aga Khan
Rural Support Program (AKRSP) in northern area of Pakistan since
1982. The FMFB
(The financial institutions understudy) was initially registered
as non-listed company
under company ordinance 1984 with cooperation of Government of
Pakistan and
later-on in January, 2002 licensed was issued under the
microfinance ordinance, 2001
to function as microfinance institution (Pakistan Microfinance
Network, 2012). The
FMFB has developed a partnership with Pakistan Post to enhance
its delivery channel.
Under this model more than 40,000 borrowers have got benefit of
microfinance
services through 68 offices of Pakistan Post (State Bank, 2011).
The bank serves the
rural and urban population of Pakistan and operates under two
basic principles
outreach and sustainability. The target market of Bank is
vulnerable poor especially
women. The FMFB has started it operation in the province of
Balochistan at district
Quetta in year 2006. In under study area its operation was
limited only to the rural
areas.
2.4 Hypothesis of the Study
By keeping in view the reviewed literature following hypothesis
were formulated:
H 1: Participation in the Microfinance Program has been helpful
in increasing
access of Children Education.
H 2: Participation in the Microfinance Program has increased
family member‟s
access to better health facilities.
H 3: Participation in Program leads has been helpful in
increasing household‟s
expenditure (Food items and Clothing).
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.
3. Methodology
The Cross Sectional survey design by taking household as
assessment unit has been
adopted for the present study with the aim of achieving the
research objectives. The
main strength of cross sectional design is that it requires
short period to conduct it
and is less expensive. Also the researcher does not need to
maintain a record of the
entire population over period of time just like in longitudinal
research study
The Sample of the research study was comprising 60 clients (30
each from male and
female) who have already received loan from the FMFB, Pakistan
for minimum
period of two years prior to the survey i.e. December 31st, 2011
are known as
beneficiaries / treatment group and 20 (10 each from male and
female) from those
applications who have applied for microfinance services and were
eligible for
extension of microfinance services are known as
non-beneficiaries / control group
were randomly selected. The new clients/ non-beneficiaries
having more or less same
characteristic as that of beneficiaries were used as control
group had been selected for
data collection. The selection of clients who have at least two
years based on the
assumption that impacts are not likely felt among newer
borrowers (Nelson C., 2001).
The impact of microfinance will be checked on two groups, if any
difference found
among these two group it would be treated as an impact of
intervention (Kiiru, J. M.
2007).
The Population of the study consists of all active or
ex-borrowers of the FMFB,
Pakistan who have borrowed loan for minimum period of two years
since 2006. The
active and new clients were belongs to the following areas in
District Quetta: Hazra
Town, Kalli Qambrani, Wahdat colony, Rehmat Colony.
The data was collected through pre structured questionnaires
from total sample of 80,
out of all collected questionnaires 75 were valid respondents
who have cooperated
with research team and filled the questionnaires whereas five
respondents didn‟t fill.
Out of valid respondents 57 were from beneficiaries group and 18
from non-
beneficiaries. The response rate for the present study was
93.75% which is
approximately equal to the required rate of 95%.
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After codification the data was transformed into statistical
software. The SPSS
version 16 software was chosen for statistical analysis for
current study.
4. Research Finding
The main objective of this research was to assess the impact of
microfinance on
household social welfare. The level of significance assumed for
the present study was
0.05. There were no significant difference found between
beneficiaries and non-
beneficiaries in term of income level, education, age, size of a
family, and marital
status.
3.1 Types of Business Activities Initiated
Figure 3.1:
26%
54%
20%
Types of Business Activities Opted by Female
TradingManufacturingServices
Figure 3.2:
The majority of male 40% have made an investment in service
followed by 37% in
Trading and 23% in manufacturing (See Figure 3.1), whereas among
Female majority
54% have made investment in manufacturing business followed by
26% in Trading
and 20% had opted services activities (See Figure 3.2).
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3.2 Household Social welfare
Impact on Household Children’s Access to Education:
Table 3.1:
Type of
Group
Children Access to Education in (Percentage).
Total Decreased Greatly
Decreased Stayed about
the same
Increased Increased
Greatly
Don’t
Know
Beneficiaries
N=57
0.0 % 0.0% 28.1% 70.2% 1.8% 0.0% 100%
Non-beneficiaries
N=18
0.0% 0.0% 44.4% 55.6% 0.0% 0.0% 100%
Chi-Square Results: p=0.389, df= 2, χ2 = 1.901b
It has been inferred from the field data that 72.0%
beneficiaries have felt their
capability has enhanced and they could afford their children
schooling expenditure
due to enhancement in their income after joining microfinance
programs and none of
them have any feeling that their capability have been negatively
affected whereas
28.1% respondents reported that their children access to
education were remain
stayed.
On the other hand the (55.6%) non-beneficiaries have sensed that
their children‟s
access to education had increased whereas 44.4% respondents
replied that their
children accesses were stayed about same. In case of
beneficiaries about (16.4%)
higher number as compare to non-beneficiaries have that their
children access to
education has increased. But these differences among two groups
do not make any
significant difference in performance among two groups.
The chai square tests result shown non positive and
non-significant indications as the
value of p= 0.389 which is higher than p= 0.05, this mean our
developed hypothesis
(H-1) is rejected as none from both groups found any significant
difference in their
capabilities to enhance their children schooling expenditure
which can make variation
among them.
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Impact on Household’s Family Access to Health
Table 3.2 :
Type of
Group
Family Access to Health in (Percentage).
Total Decreased Greatly
Decreased Stayed about
the same
Increased Increased
Greatly
Don’t
Know
Beneficiaries
N=57
0.0% 14.0% 31.6% 28.1% 1.8% 24.6% 100%
Non-beneficiaries
N=18
11.1% 11.1% 55.6% 22.2% 0.0% 0.0% 100%
Chi-Square Results: p= 0.02, df= 5, χ2 = 13.464a
For seeking response from respondents about the impact of
participation in
microfinance program on their family access to health facilities
e.g. treatment from
private doctors, visit to private hospital, availability of
medicine during illness. The
majority respondents (31.6%) from beneficiaries has feeling that
their family
members access to health was remain same as before joining the
program and it was
not affected while 29.9% expressed that their family access to
health has been
improved whereas 14.7% respondents felt it was decreased and
24.6% didn‟t
expressed their view.
In case of non-beneficiaries majority (55.6%) have felt their
family access stayed
about the same as previously and 22.2% have disclosed it was
decline whereas 22.0%
have experienced it has increased since their participation in
the program and none of
them were not aware about their these changes.
If we compare the responses of both groups we can say about 7.9%
more respondents
from beneficiaries were able to provide to their family members
better health facilities
as compared to non-beneficiaries. It is also confirmed as the
statistical tests were
positive and significant as the value of p= 0.02 which is less
than alpha 0.05. So in
this case we have accepted our developed hypothesis (H-2).
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Impact on Household’s Expenditure (Food items and Clothing)
Table 3.3 :
Type of
Group
Impact of Participation on Household’s Expenditure
in (Percentage).
Total Decreased
Greatly
Decreased Stayed about
the same
Increased Increased
Greatly
Don’t
Know
Beneficiaries
N=57
0.0% 1.8% 26.3% 61.4% 3.5% 7.0% 100%
Non-beneficiaries
N=18
0.0% 5.6% 55.6% 27.8% 0.0% 11.1% 100%
Chi-Square Results: p= 0.089, df=4, χ2 = 8.068b
The respondents were asked to express their view about the
impact of microfinance
on household‟s expenditures (food security and clothing). It has
been exposed from
the field data given in the table (3.3) that majority (64.9%)
beneficiaries replied their
household‟s expenditure were increased since their participation
in the microfinance
programs and 26.3% did not felt any changed in it whereas 1.8%
have experienced
decline in expenditures and 7.0% have couldn‟t expressed their
views.
While in case of non-beneficiaries majority 55.6% felt their
household expenditure
were remain same and 27.8% felt increased whereas 5.6%
respondent‟s expenditure
have a feeling of decline and 11.1% didn‟t have any knowledge
about the change.
37.1% more in number of beneficiaries have experienced increase
in their household
expenditure as compare to non-beneficiaries; so we can observed
non-significant
change among two groups experience and statistical test also
show non-significant
difference among both groups as the value of p= 0.089 which is
slightly higher than
minimum value of alpha 0.05 . Although the expenditure incurred
by beneficiaries is
higher than that of non-beneficiaries but statistical evidence
are not supports our
developed hypothesis. So we can say that participation in the
microfinance program
has not significantly enhanced household‟s expenditure of
beneficiaries which can
improve his status of life.
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5. Discussion and Conclusion
It has been revealed from the field data that majority of the
male clients have invested
the microcredit obtained from FMFB, Pakistan for extension /
initiation of services
(tea, repair and barber shops) and in case of female they have
opted investment in
manufacturing types of business activities (handmade wooden
product, craft and
embroidery). As the province of Balochistan has male dominating
culture so majority
of the female have invested in home based business activities in
which they not only
feel comfort but also they can provide financial assistance to
their household without
disturbing their family life.
The microfinance has positive but non-significant impact on
household access toward
their children access toward education, as it has been revealed
that the beneficiaries
were more interested in paying their attention in provision of
their children education
as compare to non-beneficiaries. The results of our study were
supported by research
study conducted by Mochona, S (2006), Whereas majority of other
regional and
International research studies like Kane, S., (2011) at Senegal
& Manimekalai, N.,
(2004) at India; Enterprising Solution for Global Consulting
(ESGC) (2004) at Haiti,
Kenya, Malawi and Nigeria have shown quite opposite results
wherein children
access to education was increased because of participation. The
mix results found
among different studies were because of cultural difference
among different areas
and priority which they have set for their household
expenditures.
It has been witnessed from our field data that microfinance has
created more positive
and significant impact on beneficiaries members „access to
health facilities as
compare to non-beneficiaries. Some other research studies which
experienced positive
impact on access to better health facilities were conducted by
KB‟s study commission
by Kane, S., (2011) at Senegal; Haq, A (2010) conducted in
Pakistan. Whereas some
researchers have experienced negative impacts of microfinance on
health care like in
a research conducted by Banerjee, A (2009) at Hyderabad, India;
Nighiem, H. S
(2007) at Vietnam; Abafita, J (2003) at Ethiopia.
It has also been exposed from our study research results that
microfinance has
positive yet non-significant impacts on participant‟s household
expenditure (food
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security and clothing) after seeking microcredit from FMFB,
Quetta. The other
national research which has supported our findings is by KB‟s
study commission by
ADB in 2005 reported by Haq Aban (2010) conducted in Pakistan.
The studies in
which researcher reported positive impacts were study conducted
by ADB (2007) at
Philippine ; Manimekalai N. (2004) felt by participants of Self
Help Group (SHG) at
India; Enterprising Solution for Global Consulting ESGC, LLC,
(2004) study
conducted in four countries i.e. studies at Haiti, Kenya, Malawi
and Nigeria.
It has been observed that overall microfinance services are
playing positive role in
entrepreneurial establishment whereas in case of household
social welfare level it was
not very much effective. It is just because of the facts that
social impacts are very
slow and require long time to develop impacts as compare to
economic impacts.
6. Recommendations
The following are some of the recommendation about the
studies.
The Microfinance Institutions extend too small amount of loan to
their clients which is
not sufficient for extension of old or establishment of new
business. So, it is
recommended to the policy makers that the amount of microcredit
which is provided
to the clients should be sufficient so they can easily establish
their business.
The rate of interest charged by MFIs in Pakistan is very high,
which is the main
reason due to which the clients could generate sufficient
positive impact on social
welfare of the household. It is therefore recommended for the
practitioners that
the rate of interest may be reduced so that it can be affordable
for the clients.
7. Limitation of the study:
The present study was limited to the urban areas whereas rural
areas were not
studied so in future both areas are needed to be covered
in-order to get more
comprehensive information.
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