Chapter One: Introduction

Background

Around the world economies have experienced high growth and financial systems have undergone major transformation, a significant number of people especially in the developing countries do not have access to finance. Policy makers have increasingly promoted the use of microfinance as a tool to eradicate poverty and implement financial inclusion strategies. Pakistan being a developing country is no exception to this, having a large number of people that are poor with limited recourse to livelihood. Though limited in its scope, microfinance in Pakistan has been able to bring some of the large number of unbanked people into the banking network and has also helped in improving their socioeconomic condition (SBP & ILO, 2009).

About 90 % of the people in developing countries lack access to financial services from institutes, either for credit or saving, which further fuels the “Vicious Cycle of Poverty” in Figure 1. A lack of assess to financial institutions also hinders the ability for entrepreneurs. Microfinance serves as a means to empower the poor and provides a valuable tool to assist economic development process.

Figure 1: Vicious Cycle of Poverty

Pakistan is fourth most populous country in Asia and sixth in the world. Having an average annual growth rate of 2.02 percent the population of the country reached 160 million in 2007 as compared to 139 million in 2002. Two third of the population is living in rural areas and the working age population (15-60 years) is increasing which was 51% in 1998 and 57% in 2008 (SBP, 2008).

In 2008, about 24% population is living under the line of poverty which was 34.46% in 2002. There is significant increase in economic growth and improvement in Social Sector Development. Now Pakistan has shifted from Low Human Development group to the category of Medium Human Development (Global Monitoring Report, 2007). Despite all these improvements, poverty is a major issue which every government is combating against.

Pakistan is a country with high population growth and increasing ratio of labor force. According to Economic Survey 2007-08, Pakistan has 51.78 million active labor forces while 2.69 million out of this is unemployed. If we look unemployment gender wise, despite of women ratio of population which is 49.6%, ratio in labor force is only 25% (10.08 million out 51 million) of total labor force. Government of Pakistan has taken many steps to increase women participation in labor force, still women ratio is very less to over all labor force and it is not matching to world standards and trends about women participation in business and job opportunities (SBP, 2008).

All these facts show potential to work in microfinance to encourage people and specially women to develop their own entrepreneur so that men in general and women specially can contribute a productive part of society to make it a sustainable. To combat unemployment, only big companies or public sector are not enough for job creation but it would be better if people start their own business for making society productive.

Microfinance is being recognized by different researchers as an effective tool to fight poverty by providing financial services to those who do not have access to or are neglected by the commercial banks and financial institutions. Microfinance has been successfully implemented by Grameen Bank. Back to 1976, Mohammad Yunus took initiative of lending loans by developing solidarity group of women in Jobra village, Bangladesh. Many MFIs has adopted idea adding with new strategies and now serving poor in effective way. Now Garmeen Model is a successful approach of microfinance.

Microfinance is being considered as one of the most essential and an effective driving force for poverty reduction and alleviation. Kashf case attracted me because Kashf believes in a world where financial inclusion is a possibility and where poor women are fully engaged in realizing the economic dreams of their families. Kashaf vision of “Financial Services for All” posits a miracle for transforming the role of women in society and for making a poverty free world a reality.

Statement of Problem

Although social entrepreneurship plays great role as looking to the world real and see clearly what is happening, feel responsibility for financially weak people and help them as much as they can. It is also a big challenge to the entrepreneurs and organizations that they should take steps to eliminate unbalance between different levels in society. In other way, this thought encouraged me to choose this problem. I think that empowerment of poor people by microfinance and with combination of micro entrepreneurship is a great idea. You can never help people just giving money.

But you can help people giving them job and help to create their small businesses in order to optimize their share of production to the society. All these issues lead to research on this topic that how microfinance is contributing for entrepreneurship in low income communities of developing countries, how sustainable society is evolving as the result of doing own business in low income communities and how Kashf’s way of microfinance is supporting all of this process.

Research Objectives

To be meaningful, every work must have to formulate the objectives of the study (Mark Saunders, Philip Lewis, Andrian Tronhill, 2007). Although most of research has been done either microfinance or entrepreneurship separately. But in my opinion there is close relationship between microfinance and entrepreneurship. As social entrepreneurship is doing a lot for credit pool of MFIs with social services, micro entrepreneurship can be found in micro enterprise. As per research topic the objective is research on the issue that how do microfinance and entrepreneurship work for poverty alleviation and empowerment of poor.

Research Questions

The study was conducted with the guidance of the following questions.

How microfinance is contributing for entrepreneurship?

How do microfinance and entrepreneurship work for reduce poverty, empower poor in Pakistan?

How do microfinance & entrepreneurship work for sustainable development in Pakistan?

Research Methodology

The research methodology of this paper will be qualitative. My work is covering two main topics; entrepreneurship and microfinance with discussing three factors; poverty reduction, empowerment of poor and sustainable development. In this paper data collection techniques are used, interviews as primary source and internet, web pages, articles, annual reports, books etc.) as a secondary source. The research type will use deductive and empirical data will analyze by the help of conceptual framework, develop after literature review.

Significance of The Study

A lot of research is doing on Entrepreneurship and Social Entrepreneurship because it is emerging thread in business. On microfinance and entrepreneurship much research work has been while discussing in Grameen model. For both fields in terms of combining microfinance and entrepreneurship this research will lead a new horizon. It will also give a vision, to Kashf that how they can improve microfinance lending process, and other Microfinance institutions (MFIs) that how they can develop process in more effective way. Further, students, researchers in Microfinance field, NGO’s and Governmental organizations can extend research in this area to address the issue of poverty alleviation and empowerment of poor.

Assumptions & Limitations

The assumption of this research is that all information, written in the reports, news, web page true and can be used fairly. The study does not cover all the aspects that the promotion of microfinance requires. It was difficult to organize interviews at large scale from borrowers due to distance problem between Pakistan and The Netherlands and this can reflect limited information about micro entrepreneurship. I primarily focused on microfinance and entrepreneurship role in reduce poverty and empower people.

Organization of Study

The thesis will consists of six chapters and will be organized in the following manners:

Chapter One: Introduction: Briefly introduces the background information of the study. In addition, it consists of, statement of the problem, research objectives, and research questions to be addressed, significance of the study, research methodology, scope and limitation of the study.

Chapter Two: Literature Review: Describe different theories and readers will look on previous research on the research topic. Also, discuss microfinance, its different models and how microfinance contributes in poverty alleviation, and theories about entrepreneurship and social entrepreneurship.

Chapter Three: Theoretical Framework and Research Methodology: It will be building a theoretical framework that will use while analyzing empirical data.

Chapter Four: Empirical Findings: It will present empirical data collect through borrower’s interviews and Kashf’s administration. Empirical daa is including facts and figure about poverty, unemployment, economy and microfinance. There is also detail information about Kashf Foundation.

Chapter Five: Analysis of Data and Interpretation: It will present analysis regarding need of interactive strategy of microfinance and entrepreneurship, social services and intermediation by Kashf and sustainability issue.

Chapter Six: Conclusions: Finally findings and conclusions will be put in the light of previous discussions.

Chapter Two: Literature Review

2.1 Introduction

The extent to which microfinance, entrepreneurship and sustainability are interrelated is dependent on the extent to which it addresses the economic development process. Yunus (1994), claims, “If we are looking for one single action which will enable the poor to overcome their poverty, I would go for credit. Money is power.” Credit invested in an income-generating enterprise as working capital or for productive assets leads to establishment of a new enterprise or growth of an existing one. Profit from the enterprise provides income, and a general strengthening of income sources.

A variety of financial institutions, worldwide, have found ways to make lending to the poor sustainable and to build on the fact that even the poor self-employed repay their loans and seek savings opportunities. The challenge is to build capacity in the financial sector drawing on lessons from international best practices in micro, small enterprises and rural finance.

The extent to which microfinance, entrepreneurship and sustainability are interdependent is becoming increasingly recognized by experts in their respective fields of work, associated with economic development. Over 500 million poor people around the world run profitable microenterprises and often cite credit as the primary constraint to business growth (IFC, 2002). Robinson (2002), a prominent expert in the field of microfinance, notes that “The formal sector has begun to realize that financing the poor can be both economically and socially profitable.”

2.2 What is Microfinance?

Poor people are not able to access loans from commercial banks normally because of lack in guarantee and collateral. But there are also many other reasons involved for which commercial banks were not willing to finance poor. These reasons are included that poor have less education, experience and training, high expenses on transactions of small loans and lower rate of profit. This situation resulted in emerging the idea of micro lending and microfinance. Microfinance, therefore, a way to finance people, those have no collateral or any property for guarantee.

Microfinance is a way of financing to poor for their business, to alleviate their poverty, empowering them, giving social benefits on sustainable way. Due to microfinance, there are many possibilities have emerged including extending markets, reducing poverty and fostering social change (Agion & Morduch, 2005, pp.3). But there is general concept that microfinance is just lending loan to poor but as I mentioned that microfinance is no more only loans but covering the issues of poverty alleviation, putting social impact on poor and educating poor to savings. Therefore, MFIs, today, not only NGOs but serving as a complete banking system. This discussion lead to me that microfinance is a form of financial services for poor to help them for their business activities by giving micro credit.

There is no one universal accepted definition of microfinance as different related variables like poverty, lone size, the poor and the poverty line carry different meanings in different countries. Different authors have defined the term in different ways. According to CGAP, Access to financial services puts power into the hands of poor people. Evidence shows that when poor people have financial services, they use their savings or loans to improve their families’ lives in a variety of ways: sending their children to school, buying better medicines and more nutritious food, fixing a leaky roof, meeting social and cultural obligations like paying weddings and funerals, and building income generating potential by investing in business (CGAP 2007).

Microfinance has evolved as an economic development approach intended to benefit low-income women and men. The term refers to the provision of financial services to low-income clients, including the self employed (Ledgerwood, 2000, pp.1). While according to ADB (2008) Microfinance is the provision of a broad range of financial services such as deposits, loans, payment services, money transfers, and insurance to poor and low-income households and, their microenterprises. These definitions are elaborating that microfinance is a financial services but designed specifically for poor to improve their lives in sustainable way.

2.2.1 Microfinance Activities

Economic activities are based upon sellers and buyers and their capacity. Sellers, before market their product, look at buyer intention and capacity. On the other hand, banking activities depend on both sellers and buyers. Financial institutions/lenders finance both sellers and buyers for their activities and commercial banks invested in projects at large scale while with this, banks invested in consumer finance also. Usually MFIs don’t invest in consumer finance, but give finance only for micro enterprise. MFIs encourage people to improve their standards by doing businesses and earning from them and this is a consistent and sustainable way. In fig (2), microfinance is dedicated only to poor and explicitly for business activities. But with this, there are some indirect impacts of microfinance on the micro borrower which are alleviation of poverty, improvement in healthcare, increase in literacy and other social impacts. These figures are taken from Ledgerwood, 2000.

Figure 1: Economic Activity by Commercial Banking Figure 2: Economic Activity by MFIs

There are many activities and characteristics are included in microfinance. Some are (Ledgerwood, 2000, pp.1):

Small and short term loans

Social collateral rather than financial collateral

Access to larger amount of loan if repayment performance is positive

Search and access the real poor and their business demand

Continuous monitoring of business.

Higher interest rates on loan due expensive financial transactions and risk factor.

Easy way to access finance, therefore not too much paper work, and easy and short procedures.

Saving Services and training services to borrower’s development.

Literacy training to borrowers so that they can come up with competence to daily business problems and its solutions.

Health care, social services and other skill training services to provide borrower a sustainable base for their business development.

2.3 Microfinance - A Developmental Tool

Due to lack of financial resources in developing countries, people from low income communities while having innovative idea for their business, even as shop keeper or house hold products manufacturer, they can’t implement their ideas. This low economic activity in low income communities due to lack of financial resources lead them to more poverty and poor life standards. Generally financial services cover savings and credit activities and there is same concept about MFIs. But according to Ledgerwood (2000), MFIs work for general financial services with this they provide insurance and payment services to their clients. But important aspect of MFIs is not only financial intermediation but also providing social intermediation and social services to their clients. Social intermediation and social services contain many activities including trainings, management development, and financial literacy activities. Furthermore, many MFIs, arrange get together where experienced people guide others, where they give useful suggestions, tips and other tactics for their business. Microfinance is providing financial services along with social services. Normally, social services are not applicable in general banking system. So, microfinance is not simply banking system but development tool, combining both financial and social intermediation (Ledgerwood, 2000).

2.3.1 Different Services by MFIs

Financial Intermediation

The primary objective of MFIs is financial intermediation because without loan/money social intermediations can not work. As prior discussions that poor face barriers to access finance from general financial service institutions. In this regard, MFIs become a bridge to access finance and in result to poverty alleviation, health care and education literacy (Ledgerwood, 2000). MFIs provide many financial services including credit, savings, insurance credit cards, payment services etc. It is not necessary that every MFI should facilitate their customers by all these services but MFIs can facilitate anyone of these services or all. The choice of which financial services to provide and the method of providing these services depend on the objectives of MFI, the demands of its target market and its institutional structure (Ledgerwood 2000, pp.66).

Social Intermediations

Social intermediations for individual whose social and economic disadvantages place them beyond the frontier of formal finance (Von Pischke 1991). A successful financial intermediation is often accompanied by social intermediation. It covers the issues of group formation, leadership training and cooperative learning, is secondary role of microfinance for borrowers of MFIs. Development in Social capital is a basic ingredient of sustainable development in poor’s life and especially in society. Social intermediation is process of building the human and social capital required by sustainable financial intermediation for poor (Ledgerwood 2000, pp.64). Now question rise, how social capital be acquire and strengthen? Social capital is actually links between clients of a group and multiple groups, and between MFIs and borrowers. These links establish on the basis of strong foundation of trust and cooperation (Agion & Morduch, 2005).

The ratio of social capital will increase with increase in business activities among members, and financial transaction between lender and borrowers. It is normally developed through group activities but there are other ways to develop it by individually. In group social intermediation, activities perform inside the group with some help from outside to develop institutional capacity and human resource. In group, most of members belong from remote areas, having less literate and experience about business and financial transaction. So from group formation to selecting leader, developing networks and working mutually, MFIs support borrower to deal with these issues. Therefore, these members need training in record keeping, book keeping, accounting, training about business activities and tactics, and negotiation skills (Ledgerwood,2000).

Enterprise Development Services

Micro finance institutions (MFIs), not all, support to borrowers, either in group or individual in different enterprise development services like marketing, business and accounting training etc. This service can be divided in to two parts, enterprise formation and enterprise transformation. In enterprise formation, MFIs provide technical support to group or individual in start up of business, development and maturing ideas and maturing the skills. During in transformation of enterprise, MFIs arrange trainings for their borrowers, workshops and get together for developing latest skills in their business area (Ledgerwood, 2000).

Figure 3: Minimalist and Integrated Approaches to Microfinance (Ledgerwood, 2000, pp.65)

Minimalist Approach Integrated Approach

One-missing piece Financial and non financial Credit Services

Financial Intermediation

• Working Capital

• Fixed asset loans

• Savings

• Insurance

Social Intermediation

• Group formation

• Leadership training

• Cooperative learning

Social Services

• Education

• Health and

Nutrition

• Literacy training

Enterprise Development

Service

• Marketing

• Business training

• Production training

Social Services

Microfinance practitioners define that, poverty can be addressed by financing poor for productive activities which in result comes up to their access to life necessities. But financial lending is only a one tool to poverty alleviation. Poor needs more than microfinance to address the problems of poverty and accessibility to other life needs like food, health, family planning, education, social support network and so on. In Ledgerwood (2000) MFIs serve to their clients with additional social services with financial intermediation.

The best way to contact with their clients is in the form of group, that is the easy way to literate them, giving health care and other facilities. So in this way, MFIs would positive effect in the life of poor by offering financial services with supportive services. These supportive services, actually, play important role in sustainable human development and livelihood of the poor (Khan, Rahman, 1998). Social service should not implicate with financial or social intermediation because financial intermediation is primary service providing by MFIs. That means, there should be no additional cut off from loans in account social service but it should be provide by secondary means or by subsidies (Ledgerwood, 2000).

2.4 Microfinance Models

The term model refers to “service delivery methods and microfinance products”. There are now nearly 70 million poor people who are getting benefits from 2500 MFIs in over 100 countries by microfinance (Sengupta, Aubuchon (2008).

The poor’s conditions are different in different countries in world. These conditions are related to social, ideological and political issues (Weiss, Montgomery, 2004). Therefore, there are some distinctive differences between approaches and motive of microfinance. I will see briefly two approaches, which is very famous Grameen Model, originated from Bangladesh and other is Banco Sol Model, Bolivia.

2.4.1 Grameen Model

In Grameen model, primary unit to whom lending fund is a group of 5 members that organize and apply for loan. In first stage loan is granted for two members to invest in their business. If these two members become successful to repay amount, then four to six weeks later, next two members are granted for loan. Last one member will be eligible for loan if previous two repay loan successfully. Repayment of loan open door for next loan and then go on if all members repay loan successfully. If anyone of group member will default in their loan, whole group will disqualified for further loan.

Each group has its own president and secretary to coordinate all activities among their own group and to communicate and coordinate with other groups. Eight groups are then organized at center level, by which a bank officer deal with these all eight groups. This center of eight groups has its own center chief and center group leader (Khan, Rehman, 2007). According Sengupta, Aubuchon (2008), first time, bank granted loan $100 and bank require to repayment of 10 percent amount, at rate of per annum, weekly. This repayment ensures to user for loan security, and also encourages them for savings. Along with five percent of loan deposited in group account for emergency and social need. For example, in case of need of health care of any one member, in case of emergency, this five percent deposit will be use.

A unique and innovative approach of group lending is used in Garmeen Model. As Sengupta, Aubuchon (2008) described that group lending have many benefits. First, group usually organize in members who are neighbor to each other, those can understand each other well and recognize their needs. Second, if anyone of group member will not present in group meeting, leader or other member can pay its installment.

We can say that there is a kind of mutual understanding between all members. Third, in south Asia generally, and in Bangladesh specially, there are social pressures among members of society with social bindings with them. If one member of group will not pay even one installment, social pressure will be levied from all eight groups on this member and this reduces the risk factor.

2.4.2 Banco Sol Model

Grameen model of microfinance emphasize on lending to villagers and keep loan lending on in smaller amount. The other core concept of model is formation of groups and these groups are eligible to take loan, no option of loan for individuals. Idea of progressive lending introduced to lend loan to individuals with group lending (Agion & Morduch, 2005, pp.119).

In this model after completion of every repayment schedule the amount of loan increased. But other characteristics of Grameen model (Group lending) are included in this method, like targeting to poor, women, group formation, and public payment. No doubt, progressive lending is an extension of group lending but now many MFIs are adopting this approach. In this model of Progressive lending, microlenders are flexible about collateral and lend loan to group with individuals also.

This method is very helpful in areas with low population densities or highly diverse population where group forming is not so easy due to different ratio of safe and risky borrowers. In Bolivia, there was different situation when populist regime left government and there was high ratio of unemployment in urban areas. To come to fulfill the need of time, Banco Sol started operations in microfinance with progressive lending. Therefore we can say that microfinance approaches are evolved due to different political, ideological and social conditions.

In Weiss Montgomery (2004, pp.3) Microfinance in Latin America developed under quite different conditions. In Bolivia, a collapsing populist regime led to widespread unemployment. Banco Sol, a pioneering microfinance institution in the region, developed to address the problem of urban unemployment and provide credit to the cash-strapped informal sector. The notion of commercial profitability was embraced relatively early in this approach.

2.5 Empowerment

Poverty effects not only on individual’s life but also on society as a whole. Poverty is one of the main reasons in cause of less empowerment of poor especially in developing countries. Empowerment is a broad concept to define because there are many elements involve in it. These elements influence by including political, social and power system in the country. Empowerment covers many issues and when there is discussion on empowerment it includes many elements. These elements are, self-strength, control, self-power, self reliance, own choice, life of dignity, fighting for rights, independence, decision making, being free, capability , access to basic human needs etc.(PREM,WB, 2002). Misra (p.3) describes empowerment as a power to the people and self governance.

He define that Empowerment builds self-reliance and strength in women, preparing them towards gathering the ability to determine the choice of life. This adds to the command over resources outwit insubordination and signify their social role. Empowerment is about change, choice, and power. It is a process of change by which individuals or groups with little or no power gain the power and ability to make choices that affect their lives.

Due to different social, political, economical conditions, we can not define a one definition for empowerment. According to Batliwala (Makombe, 2006, p.52), empowerment mean, take control over material assets, intellectual resources, and ideology. The material assets over which control can exercised may be physical, human, or financial, as land water, forests, people’s bodies and labor, money and access to money. Intellectual resources include ideas and knowledge information. Control over ideology signifies the ability to generate, propagate, sustain, and institutionalize specific sets beliefs, values, attitudes, and behavior-virtually determining how people perceive and function within a given socio-economic and political environment.

Empowerment is the expansion of assets and capabilities of poor people to participate in negotiate with, influence, control, and hold accountable institutions that affect their lives. (PREM, WB 2002, p.11) define that A strategy for empowerment is taken at individual, government, civil society and private sector level. Usually these efforts lead to empower people in context of sharing of power, freedom of information, access to resources and health and education services. These strategies normally share four types of elements: First, Access to information, its mean every citizens including poor have direct access to information because information is power.

Second, Inclusion/participation, that’s mean there should be opportunities for poor that they can participate in decision making and they should be included in all financial and political policies. Third is accountability, that’s mean officials, public servants, private actors should be accountable not only to some specific institutions but to their citizens for performance. Fourth and last one Local organizational capacity, its mean that people can work together, organize themselves, mobilize and utilize resources and solve problem at community level (PREM, WB (2002).

2.6 Entrepreneurship

It is one of the most widely used terms in business, management, economics and other related fields. One of important thing is that entrepreneurship has different meaning for different people, some use it in the meaning of innovation, some use for creativity, risk taking, leadership, and profit maximization or in social context, and some consider it as start up of business, new production methods and many other different meanings. Davidsson, (2004) describes it that entrepreneurship is rich phenomenon which makes it a resourceful field. While defining entrepreneurship, I consider some school of thoughts that have major role to define this field.

According to Schumpeter school of thought (Swedburg, 2000), Entrepreneurship is about innovation in organizational process, thinking up new combination, entrepreneurial behavior and motivation of entrepreneurs. While according to Gartner (Thornton, 1999), entrepreneurship is about creation of new organization or new startup, creating values and entrepreneur mean owner-manager. In Krizner’s view, entrepreneurship is searching opportunities and exploiting them so it reflects towards the alertness capability of entrepreneur towards profit opportunities (Swedburg, 2000).

Timmons describe different component of entrepreneurship and named it entrepreneurial process. Model emphasizes three entrepreneurial components, Opportunity, Resource and the Team. According to Timmons (Bengtsson, Peterson, 2008) in following fig (3), there is description about each factor which describes best about entrepreneurship and role of entrepreneur is growth of firm:

Figure 3: Timmons Entrepreneurial Process Model

(Source: Bengtsson, Peterson, 2008, p.6)

Opportunity: According to Timmons (2008, p.7), the greater the rate of change, the discontinuities, and the chaos, the greater is the opportunity. So, in imperfect market there will be more opportunities to exploit. Entrepreneur will have more room to exploit opportunities. This is a core entrepreneur’s characteristic that he/she should be opportunistic.

Resources: For an entrepreneur resources are not always first priority, innovative business idea is at top of his/her priority list. No doubt, lots of resources require in a new business but if there will be no business idea then this money is useless. According Schumpeter (Reisman, 2004), entrepreneur have strength to stand up and resist if he/she feel any problem even in the form of resources. If entrepreneur has problem to access financial resources from bank, he/she may have capabilities to see alternative ways to access resources.

Team: Team in firm always stand firm with objective of organization. It is also core characteristic of entrepreneur and important factor of entrepreneurship, that entrepreneur make up team and utilize team strengths to achieve firm’s objective.

2.5.1 Entrepreneurship-Two Distinct Schools of Thoughts

Two schools of thoughts about entrepreneurship are famous while defining entrepreneurship; these are Schumpeter’s theory of entrepreneurship and Austrian theory of entrepreneurial discovery.

Schumpeter Theory of Entrepreneur

The Entrepreneur theory of Schumpeter is evolved while contributing knowledge in theory of economic development by Joseph Schumpeter. According to Schumpeter (Swedburg, 2000), innovation is that to combine materials and forces, which are under reach, with different method or with new combination to produce a new innovative products. By this definition, it is important to consider that Schumpeter emphasize innovation rather invention.

The model of Schumpeter works through the transformation of production function (Mondal, p.6). A production function is the technological relationship between inputs and outputs. Further to elaborate innovation and resulted products, in following there are five forms:

The introduction of new good for users or new quality of good.

The introduction of new method of production-handling production system in new way.

The opening of new market-where company do not enter before, even existing or new market.

The conquests of a new source of supply of raw material.

The carrying out of the new organization of any industry, like the creation of monopoly organization.

These all steps indicated a kind of innovation by combining sources, materials and function and producing a new product or service. Another major contribution of Schumpeter theory also discusses motivation of the entrepreneur. First, it discusses about the desire and will of entrepreneur to establish an organization where entrepreneur can work independently and enjoy power. Second, that he/she will to become successful in his/her business and third is satisfaction and joy on reaching his/her goals (Swedburg, 2000).

When we think about entrepreneurship, there are many factors attached with it like economic, personal and sociological variables and their combination. Personal characteristics also attached as entrepreneurial behavior, these characteristic are included need of achievement, risk taking propensity, locus of control, beliefs about wealth and material gain and business growth (Mondal, p.5).

Theory of Entrepreneurial Discovery-Austrian Perspective

According to Austrian Theory of Entrepreneurship (Swedburg, 2000), entrepreneur anticipating market and need of customers exactly and correctly, produce more cheaply than competitor and earn profit. Entrepreneur makes it useful for customers and hence as it will be more useful, entrepreneur can earn more. This idea directly indicates to earn profit while anticipate market and customer needs in advance. By this theory, it is showed that successful entrepreneur will be that who can earn more profit.

The discovery of entrepreneurial emerged in Austrian economics by evolving two elements. One, market is act as entrepreneurially driven process and other is knowledge which can be increase by market interaction (Kirzner, 1997). Austrian entrepreneurial discovery theory has three main concepts which are entrepreneurial role, the role of discovery and rivalries competition. From discussion, we can perceive that Austrian approach emphasize entrepreneurship with economic activity and market process.

And both theories have similar and different aspects on entrepreneurship. Different authors have different approaches on entrepreneurship; this may be due to their research, the environment in which they are working, the previous research and literature available. Innovation, risk taking and creativity are almost essential part of both theories. Schumpeter’s theory mainly emphasize on innovation, emphasizing to redefine and regroup resources to produce new product or service and innovation always has risk with itself. By producing new product, accessing new market, adopting new production system, all lead to risk.

In case of Austrian theory of Entrepreneurship, anticipating market and customer need is somewhat need an innovative idea and it also lead to risk. So compete this, creative mind, technique is needed. So Schumpeter emphasize on creative destruction while Austrian approach argue towards market knowledge which priory unknown.

2.7 Micro-Entrepreneurship

Microfinance is a tool. It is not a “stand-alone” poverty alleviation program. Some other conditions have to be altered to explore further the usefulness of tools like microfinance and microenterprise (Sreya Sarkar, 2007). Microfinance is powerful tool for economic development, poverty alleviation, empowering of low income communities and contributing a new role in micro-entrepreneurship (Mondal, p.1-3). It has realized a prominent role in developed and also developing countries.

Most of research on micro financing is developed on issue of poverty alleviation and empowering of poor but there is very less shed light by researcher on Micro enterprise and Micro-entrepreneurship. My study will base on this and my initiative that how micro financing is contributing in entrepreneurship? Is there entrepreneurship and entrepreneurial abilities and activities exist in owner and in business? If study will reflect answer ‘yes’, then how micro financing is contributing in entrepreneurship? And if answer will be ‘no’, then justify it.

There are two types of microfinance borrowers; one is Micro borrower and other Micro entrepreneur. Micro borrower has mind like capitalist who is aim to earn profit while doing business. So micro borrower get finances from MFIs, after paying back, again they will get finances but only motive is to generate profit but not any entrepreneurial achievement. On the other hand, micro entrepreneur financed their business and brings innovation, creativity and doing a different from others. In my work, I will see this aspect of micro entrepreneur (Mondal p.3). For this, initial and essential is to develop definition of micro entrepreneurship. For definition, I will work on different theories of entrepreneurship, examine different entrepreneurial abilities, different characteristics as micro entrepreneur.

2.8 Social Entrepreneurship

In practice this concept is known as which includes a wide range of activities like individuals in enterprises devoted to making a difference; social purpose business ventures devoted to adding for-profit motivations to the non-profit sector and non-profit organizations that are reinventing and making innovations as a change makers by drawing on lessons learned from the business world (Peredo, McLean, 2006).

Pomerantz (2003) described, social entrepreneurship can be defined as the development of innovative, mission-supporting, earned income, job creating or licensing, ventures undertaken by individual social entrepreneurs, nonprofit organizations, or nonprofits in association with for profits (Peredo, McLean, 2006, p.60).

According to Brock (2008), Social entrepreneurship is an innovative approach to social change or using business concepts and tools to solve social problems (Brock, 2008, p.3). In Zhara, Rawhouser, Bhawe, Neubaum and Hayton (2008, p.118), Social entrepreneurship encompasses the activities and processes undertaken to discover, define and exploit opportunities in order to enhance social wealth by creating new ventures or managing existing organizations in an innovative manner.

Finally, the general definition of Social Entrepreneurship concept: an activity that taken by entrepreneurs who finds particular social problem and specific solutions for these problems in society; determination of the social impact, the business model and the sustainability of the organization; and creating a social mission-oriented for-profit or a business-oriented nonprofit entity.

2.8.1 Models for Social Entrepreneurship

Nowadays it is usual to see certain companies in the private, public and independent third sectors as examples of social entrepreneurships. Mostly we can see that while private sector social entrepreneurs engaged in social activities and ‘‘more entrepreneurial approaches in the not-for-profit sector (Canadian Centre for Social Entrepreneurship, 2001), and we notice the same framed initiatives of social entrepreneurship in public sector as well. In this part I consider organizational models of entrepreneurship, I apply to private, public and non for profit sectors and also I mention on hybrid or bridge forms which is usual nowadays (Roper , Cheney ,2005).

Private Social Entrepreneurship

As literatures and recent publications suggested that working as private social entrepreneur gives three advantages in terms of orienting to planning, profit and innovation. Socially oriented purpose business venture can draw upon a wealth of experience in terms of market analysis and the conduct of feasibility studies (Campbell, 1998). Perhaps the single most important activity for the business that is charting a new course into the social seas is a systematic process for generating and screening ideas (Thalhuber, as cited in Campbell, 1998). In general self-styled socially entrepreneurial enterprises assume greater latitude in adopting and adapting the popular business trends of the day.

Social Entrepreneurship in the not-for-profit Sector

It is not new sector for social entrepreneurship; social entrepreneurship has been going with in not for profit sector in a very real sense and many, social advocacy groups, social-movement organizations and community initiatives have been started and sustained all over the world through the passion, insight, and creative work of people that fit our contemporary application of the idea of the entrepreneur (Roper, Cheney, 2005).

The entrepreneurial trend in many not-for-profits has been increased competition for funding resources from private foundations and government agencies (Leonardis and Mauri, 1992). In fact, not for profit organizations started their actions to provide educational and specific health profit making activities in urban environment and functioned as small business incubators as Wallace (1999) described.

Whereas the specific governance, fiduciary, and organizational structures of such enterprises vary greatly, most of these ventures involve at least these characteristics: an orientation toward the regeneration or expansion of economic activity, collective advancement of the public good rather than exclusionary support for private interests, community ownership or control, and participative democratic structures (Pearce, 1994). Not-for-profit that assumes an entrepreneurial posture is less hesitant to implement concepts and practices from marketing, strategic planning, and systems for the analysis and control of costs. In other words, a certain blurring of not for profit sector boundaries is taken for granted, often as necessary for survival (Roper, Cheney, 2005).

Social Entrepreneurship in Public Sector

Privatization has power to divide ownership sector into two parts as private and public before that we had only one owner public sector which was usual before 1950s. After privatization public sector remains less flexible and less freedom than that of private sector. As Ostrom (1964) stated that public organizations have a more difficult time adapting to changing circumstances and innovating owing to constitutional, executive, legislative considerations, as well as to sheer habit. In short, the private sector allows for greater freedom and experimentation.

In the 1990s, the theories and models of public-sector entrepreneurship overwhelmingly stressed rational economic calculation and especially direct responsiveness to market data (Shockley et al., 2002). But, Kirzner (1999) argued, this mechanical idea of entrepreneurship as applied to public sector overlooks the fact that true entrepreneurship is something more and beyond mere calculated responses to the environment of decision; it entails alertness to hitherto unnoticed opportunities (p. 39).

In public and 3rd sector the social entrepreneurship’ stages are certainly different than other sectors. To reach financial wells as well much greater, but policy and regulations constrained by only presidents of the companies or by government. In this way, third and independent sectors will arise and make partnership with governmental sectors to create combination of

Organizational interests in a project focused way (Roper, Cheney, 2005).

2.8.2 Social Entrepreneurship growing number of initiatives

As we know human needs are main reason to company’s decisions about which products or services to produce. In spite of unlimited volume of human needs, companies still struggling to survey to find new markets and value propositions, and for large corporations the challenge for growth has become as important aim. But even if there are a lot of companies struggling and producing products and services and making a lot of money but still in societies especially in non-industrialized countries basic needs of millions of people remain unmet, mainly because these customers are willing to satisfy their needs but unable to pay for products and services( Seelos Mair ,2005).

According to the World Bank (2003) services to satisfy basic human needs, especially those that contribute to health and education, are not serving poor people in terms of access, quality, and affordability. The main reason for this failure is that public spending, as a matter of fact, is not reaching poor people. But if they still reach, they are in poor quality and inefficiently. In all over the globe a growing number of initiatives seem to be defying the obstacles that have prevented businesses from providing services to the poor.

Collectively, those initiatives constitute a phenomenon that has been dubbed social entrepreneurship. Employing novel types of resources and combining them in new ways, Social entrepreneurship is a rich field for the discovery of inspired models of value creation (Seelos Mair, 2005). As we defined the term of social entrepreneurship, it is used to refer to the fast growing number of organizations that serving poor by meeting their basic needs that established existing markets and institutions have failed to satisfy (Seelos Mair, 2005).

In this type of business, The Institute for One World Health (USA), Sakem (Egypt), Grameen Bank (Bangladesh) these are some examples of initiatives which clearly reflect social entrepreneurship as a huge spots.

The Institute for One World Health (USA) founded by Victoria Hale, a research scientist with Genentech and former reviewer of New Drug Applications for the Food and Drug Administration, was aware of the economic and logistical barriers that prevented pharmaceutical companies from developing drugs for third world countries. To overcome these barriers, she founded One World Health as the first US non-profit pharmaceutical company.

One World Health has adopted an entrepreneurial business model to deliver medicines to those most in need in developing countries. Being a non-profit company is an enabling structure for social value creation, as One World Health can access capital that business entrepreneurs usually cannot. Sakem (Egypt) founded by Ibrahim Abouleish in 1977 on a piece of desert land north of Cairo, which was very small company indeed at the moment a multi-business firm that not only creates economic, social, and cultural value, but also has a significant influence to Egyptian society. In other words, its contribution to sustainable development of society, its businesses fund spent to build institutions such as schools, an adult education center, and a medical center.

These institutions cater directly to basic human needs; furthermore, Sekem fills an institutional void in Egypt by providing structures that people trust and that help them to escape the poverty trap and gain control over their lives. It has pioneered biodynamic agriculture in Egypt on the environmental side. It has deployed a new system of plant protection for cotton, which has led to a ban on crop dusting throughout Egypt. The pesticide use in Egyptian cotton fields had fallen by more than 90% in 2000. Ibrahim Abouleish received the Right Livelihood Award in 2003, (Alternative Nobel Prizes) in recognition of his achievements in integrating commercial success with social and cultural development.

The 3rd initiative is Mohammad Yunus, an economics professor who founded the Grameen Bank in 1976 to supply credit to those who would not qualify as customers of established banks. Today, Grameen operates 1191 branches, serving over 3 million poor people in 43,459 villages and grants unsecured loans to the poor in rural Bangladesh. It is different from other lending institutions. Characteristics of unsecured loans are loans can be repaid, and on time, only the poorest villagers, the landless, are eligible and bank makes efforts to lend primarily to women, who are not only economically but also socially impoverished (Seelos Mair, 2005). These examples in practice definitely show that inspired entrepreneurs have shown us new paths and solutions, basing their designs on local needs rather than on the centralized assumptions of large institutions about what needs to be done.

2.8.3 Sustainable Development and Social Entrepreneurship

Nowadays, while many companies are aiming to get as much profit as possible and trying to add some value to economic and social goals, but still there are a lot of social, economic, environment and health problems in the world and with sustainable development goals we should reduce poverty and keep balance in society. The main gun to reach sustainable development goals as discussed by many scientists is social entrepreneurship which is not many works done yet but we can already see some perspectives that already started to add their value to sustainable development. Brundtland’s (1987) defined, Development that meets the needs of the present without compromising the ability of future generations to meet their own needs. If we scrutinize this definition carefully, we can see a lot of value inside it such as human basic needs, future generation’s needs and definitely to make changes by changing norms and behavior to create opportunities (Seelos Mair, 2005).

To realize this definition, the United Nations defined a set of Millennium Development Goals (MDGs), based on a resolution adopted by the General Assembly in September 2000. These MDGs comprise eight specific, quantifiable and monitor able goals (with 18 targets and 48 specific indicators) for development and poverty reduction by 2015. These Goals include human rights, health, education, and environmental issues. Multinationals companies as the efficiencies of markets, combined with the resources and managerial expertise, are considered crucial success factors in achieving these goals.

Former United Nations Secretary- General Kofi Annan, in his address to the World Economic Forum on January 31, 1999, called on global business leaders to embrace a set of shared values and principles in the areas of human rights, labor standards, and environmental practices. Kell and Levin (2002) describe the formation of a Global Compact network consisting of several hundred companies, dozens of NGOs, major international labor federations, and several UN agencies to collaborate in creating a more stable, equitable, and inclusive global market by making shared values and principles an integral part of business activity everywhere.

Likewise, the European Commission (2002) has called for more direct corporate social responsibility (CSR) as a business contribution to sustainable development. Despite these welcome commitments, the United Nations Development Program Human Development Report (2003) provides evidence that, for many people on this planet, life remains grim, and hope for improving their situation is frail( Seelos Mair ,2005).

Social entrepreneurship is a combination of the resourcefulness of traditional entrepreneurship and a mission to change society (Seelos Mair, 2005). The complexity, scale, and scope of the world’s environmental and social problems and challenges seem overwhelming, tempting us to resign ourselves and doubt the capabilities of our institutions to improve things. However, inspired entrepreneurs have shown us new paths and solutions by making changes and creating new models to serve poor needs and basing their designs on local needs rather than on the centralized assumptions of large institutions about what needs to be done.

First of all, there is no such thing as non-social entrepreneurship; in fact, Reynolds, Bygrave, Autio, Cox, and Hay (2002) stated that in developed and even developing countries majority job places are created by social entrepreneurs, certainly as important social function. So Social Entrepreneurship is like business entrepreneurship, they find outs and acts upon what others miss such as opportunities to improve systems with new models, create solutions, and of course invention of new approaches. Venkataraman (1997), who states about Social entrepreneurship, understands that social wealth creation is a product of economic value which done by entrepreneurs. In Social Entrepreneurship he continues, social value creations stands as the first and primary aims of the objective, while economic value functions only to reach sustainability and self-sufficiency( Seelos Mair ,2005).

Chapter Three: Theoretical Framework & Research Methodology

3.1 Introduction

A theoretical framework is a conceptual model of how one theorizes the relationships among the several factors that have been identified as important to the problem (Sekaram, 1984). It is important to discuss how I will integrate and coordinate theories for my research work according to my research questions. My work is covering two main topics; entrepreneurship and microfinance with discussing three factors; poverty reduction, empowerment of poor and sustainable development. I will evaluate these theories with empirical data that how entrepreneurship and microfinance can work as a combined tool for empowerment of poor, poverty reduction and sustainable development in society.

In my work, I am going to investigate entrepreneurship on micro enterprise level. Most of the studies emphasize on Small and Medium Enterprise (SMEs) and Large Scale Enterprise (LSE) while discussing entrepreneurship but there is small amount of literature available on micro entrepreneurship. Micro entrepreneurship is hard to find on micro enterprise level because poor normally have no room for doing new experiences due to financial threat and lack of education and training.

As entrepreneurship is not available in every SME or LSE, in my opinion, this is same in microenterprise. In research work, I study two strand of entrepreneurship; Social Entrepreneurship and Micro Entrepreneurship. The other major issue in my research work is microfinance. Microfinance is a kind of special financial services by which poor can get finances for their business. Social entrepreneur work in neglected segment of society and today most of the social entrepreneur are working for empowerment of poor. The other major effect of social entrepreneurship is distribution of wealth to poor segment of society.

3.2 Conceptual Framework

It is starting with microfinance, Grameen model is most widely used lending method in microfinance and most MFIs adopted it.

To understand microfinance myth, methodology, characteristics and its uses, there is need of depth study of different model of microfinance. But mainly my study is emphasizing that microfinance is not only financial services but it is a complete development tool that include social services and intermediation with financial intermediation. Therefore microfinance is not only reducing poverty but also putting impact on poor’s life by increasing their life standards by providing social services.

While Social entrepreneurship is effecting on poor by providing them such opportunities where they can utilize their strengths and make opportunities fruitful. In my study, I examine the role of social entrepreneur in wealth distribution and sustainable development in society. Entrepreneurship theories mainly examined in both SME sector and LSE. For me it is very interesting to examine Schumpeter theory of innovation and Austrian theory of Entrepreneurial discovery while taking different cases of micro enterprise.

By entrepreneurial behavior, implementing innovative ideas and exploiting profit opportunities, poverty reduce with more speed and even micro entrepreneurs can get more profit by bringing innovation in their production system. By considering microfinance a development tool, and exploiting opportunities through entrepreneurial ideas, can become a successful and speedy tool for alleviating poverty and empowering women. Following figure is showing a detailed structure of my research work.

3.1.1 Dependent and Independent Variables

The conceptual framework was developed by taking poverty reduction, empowerment of poor and sustainable development as dependent variables and Microfinance and Micro Entrepreneurship as Independent variables.

3.2 Research Methodology

3.2.1 Research Design

The research used a case study to obtain data and information from Kashf and borrowers. The case study design was found appropriate due to time constraint and it gave an opportunity for the researcher to have an in depth investigation about microfinance and entrepreneurship as combine tool can contribute in poverty reduction and empower the poor. Case study methodology is preferred by many researchers for a Varity of reasons. For instance, some scholars prefer it because of its adaptability to different research settings and ability to make use of both primary and secondary data (Yin, 1994; McCurcheon and Meredith, 1993).

3.2.2 Research Objectives

Micro financing, along with social entrepreneurship, should be an essential component of non-government efforts in Pakistan and other developing nations to empower ordinary people to become self-reliant by lifting them out of poverty and teaching them the right skills to help themselves. “Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.” This proverb has guided the efforts of late Dr. Akhtar Hameed Khan, acclaimed Pakistani social scientist and founder of Orangi Pilot Project. All efforts at alleviating poverty should be guided by this proverb that captures the essence of self-reliance. So, the objective of my study is to conduct research on the issue that how entrepreneurship and microfinance can work as a combined tool for poverty alleviation and empowerment of poor.

3.2.2 Research Questions

Based on above research objectives, the following research questions are considered important.

How microfinance is contributing for entrepreneurship?

How do microfinance and entrepreneurship work for reduce poverty, empower poor in Pakistan?

How do microfinance & entrepreneurship work for sustainable development in Pakistan?

3.2.3 Research Type

The two famous strategies for conducting research are deductive and inductive. To choose one of any strategy it depends on the choice of topic for research. In deductive approach, researchers consider and study, first of all, theory, then generate hypothesis and this hypothesis is tested by the help of empirical data that resulted in conclusion drawn. So conclusion will be more reliable if more data is available.

On the other hand, the inductive approach is being done by studying and taking into consideration the empirical observation first and then researcher goes on to build hypothesis which leads to the development and consideration of new theories or making addition in existing theories (Bryman, 2004). So, human observations have keen role to pursue research in inductive approach.

It is important to include here that when there is lot of availability of literature on research topic, probably deductive approach is used. So it’s a little easy way to develop a firm background on research topic rather than inductive approach. In my thesis research, I used deductive type because of literature availability and its flexible design. Some parts included interest microfinance and micro entrepreneurship has no plenty of literature support. But still there is sufficient work and literature is available and by the help of this empirical data, I can continue my research work.

3.3 Methods for Data Collection

As Brewerton, Millward (2001) described that selection of research work suggest one or more methods for data collection. But it is important before selecting any method, see advantages and disadvantages of each data collection methods and think which method is useful for your study so that maximum and correct information can be collected. Because of, research works mainly base on empirical data, so selection of data collection methods become important in this regard. These methods generally divide in two categories, qualitative and quantitative.

According to Fisher (2004), methods are used for data collection are interviews, questionnaires, panels, observations, documents or data bases etc. These methods then major categorize in to two streams which are qualitative and quantitative. Surveys, questionnaires, databases are used as quantitative method while interviews, observation etc. used as qualitative methods.

3.3.1 Interview Technique

A famous tool for data collection is interview which is used by researcher on any stage of research work. It has flexibility while conducting interview and information gathering through interview, because researcher can conduct interview at any time and researcher gets information in huge amount. As mentioned by Brewerton, Millward (2001), interview can be combined easily with other data collection methods also, i.e. questionnaire can be conducted by help of interview.

With these advantages, the major disadvantage with interview is difficulty to collect precise information from huge information gathered by interview. With useful information, lot of useless information is also gathered during interview. So filtering information is probably difficult from huge amount of information, gathered by interview.

According to Fisher (2004, pp132-133), interview can be conducted in open, structured way, or combination of both techniques, base on flexibility of researcher and respondents and research work. In open interview, interviewer and interviewee talk openly with each other like discussion. Researcher have prescribed plan and questions to be asked but he/she give open room to respondents to give answer as much as flexible.

Advantage of this way is that interviewee feel freeness to answer questions and interviewer can get information which he/she can not get normally. But major disadvantage is that a lot of raw information is gathered with useful information and researcher may get problem to sort out the useful one. Second way is pre-coded interview. In this way, researcher asks pre planned questions, no less no more. In this type, there is no flexibility to ask questions or put any additional questions.

Advantage is that researcher get precise information but chances of missing of some issues which can be raised during interview but not raise. While, third way of conducting interview which is semi-structured, lies in between of these two approaches. Researcher has planned questions on research issue but with this he asks supplementary questions during questions to explain issues and then sub issues (Fisher, 2004). As Breakwell puts it: “structured interview involve a fixed set of questions which the researcher asks in a fixed order……In unstructured interview, the researcher has a number of topics to cover but the precise questions and their order not fixed, they are allowed to develop as a result of exchange with the respondent” (Breakwell, 1995, p.231).

I adopted qualitative approach for data collection and use interview technique for this. I conducted open ended interviews with the administration of Kashf. While structured interviews were used in case of borrowers. Aim of these interviews is to collect information about working methodology of microfinance, problems, future aspects, effect on poverty alleviation, social entrepreneurship and micro entrepreneurship. While in secondary data, I emphasized on State Bank of Pakistan reports, other MFIs’s reports, Pakistan Microfinance Network Reports, Finance Department, Government of Pakistan and other organizations.

3.3.2 The Interview Process

An idea interview process takes the following steps:

Sampling

Sampling is an important aspect of interviewing and effective & appropriate sampling is pertinent to the success of a quality research. Sampling is, in fact, short-listing all perspective interviewees and reducing the number of actual persons to be interviewed to a manageable level. “A sample is made up of some of the members of population” (Hussey & Hussey, 1997, p.144). In this process however, researcher must exercise vigilance and ensure that, keeping in view the research objectives the right people are short listed for interviews and people with the most relevant information are not missed out. Yin (1994, p.84) names these people with the most relevant knowledge ‘key informants’.

A purposive sampling strategy is one of the alternatives. The strategy is adopted in order to make sure that people with rich information on different aspects of the research issue are carefully selected for interviews (Rice and Ezzy, 1999). Under the strategy, prospective participants are short listed from different official positions in an organization over a period of time in order to ensure participants of only those who have the most relevant information but difficult to identify at the first instance because of different factors (Kuzel, 1992). Snowball sampling is another strategy resorted by researchers. If researchers are unable to identify or access people with the most relevant information concerning the research issue, they rely on other organization members to help them identify such people (Rice and Ezzy, 1999). Other sampling strategy include Extreme Case Sampling, which is resorted to by researchers when they need to choose interviewees on the basis of their special expertise and knowledge relevant to the research issue, and negative case sampling, which is used for selecting interviews who can divulge such type of information that could allow the researcher to refute an existing evidence (Kuzel, 1992).

The literature does not hint towards any of these strategies to be more capable of producing good and reliable results compared to the rest of the strategies. The quality of any of the strategies is dependent on the choice of researchers keeping in view their research aims (Fossey et al, 2002). This case study used a ‘purposive sampling strategy’, one of the branches of ‘qualitative sampling’ suggested by Kuzel (1992) and Rice and Ezzy (1999), among others, to first short listed prospective interviewees before investigating interviews, as it was appropriate in the light of the research objectives of this study. Moreover, they were physically and socially accessible, willing to give the information, able and allow giving the desired information. The literature guides us to employ different sampling strategies in order to make sure that basic requirements of effective sampling are duly met.

Study Sample

The population of this research is whole clients of Kashf. The Gujranwala is taken to be the sample of the whole population. The sample compromised seven borrowers and five from admisatrtion/staff.

3.3.3 Structured Interview

Motive behind to conduct structured interview from borrowers was that poor borrowers are illiterate and were not able to fill the questionnaire. Therefore I conducted structured interview in Urdu/Punjabi language so that they can respond easily and I can get full information. An open and close ended question was designed. Strategy to develop such kind of questions is due to providing facility to respondent to give answers with full detail and where I need fixed value of my questions, I need close ended questions.

Questionnaire is designed with six major portions including personal data, information about business and financial status, micro entrepreneurship, micro finance and poverty information. Start interview with personal data including name, address, gender etc. and then switch to business information which followed to details about financial information of business. The next part of questionnaire is leading to getting data from respondents about micro entrepreneurship. Desire of this part of interview to come in to know about any kind of innovation, risk taking factors and profitability which respondent use in his/her business different than others.

In this part, most questions are open ended, because I want to give full room to respondents to express their ideas, implanted in their business. This part follows to questions about micro finance. Objective of this part is to access to thoughts of user about micro finance, availability of finances, difficulties and advantages of micro finance to their business. Last part of interview emphasizes on poverty alleviation, respondents’ old financial situation, current position, and how all this story of micro finance and entrepreneurship is taking part in alleviation of poverty.

3.3.3 Open ended/Unstructured Interview

I used unstructured telephonic interview for collecting information from Kashf’s management and staff. Major reason is to repository of maximum information from interviewees and asking additional questions to respondents during interview. Interviews questions was about working methodology of micro finance, what make different microfinance from general banking, is micro finance worked only in developing countries, disadvantages of microfinance, Kashf history, motive and financial position.

3.3.4 Collection of Empirical Data

Yin (1994, p.8) argues that the real strength of the case study approach to research is that it builds its conclusions on data obtained from a Varity of sources, such as documents, interviews, observation etc. As suggested by Yin (1994) and other scholar in case study methodology, this study in addition to interviews structured/unstructured with the members of management and borrowers, relied on other sources for gleaning empirical data for the study, including print media (newspapers and magazines), Annual reports and archival documents.

So, I consulted MSM Library, different journal databases and research articles, websites, reports about poverty, MFIs, and micro entrepreneurship. Empirical data is contributing a portion of my thesis work. I am using State Bank of Pakistan annual reports, National Human Development Reports, A working paper ‘Challenges and Prospects’ of Microfinance in Pakistan’ by Khushhali Bank Pakistan and different reports from Pakistan Microfinance Network , and other many research papers.

3.3.4 Data Analysis

The qualitative analysis was conducted basing on data and information collected from primary and secondary sources. I analyzed empirical data by the help of conceptual framework, developed after literature review. The analysis is regarding need of interactive strategy of microfinance and entrepreneurship, social services and intermediation by Kashf and sustainability issue.

Chapter Four: Emprical Findings

4.1 Introduction

In this chapter empirical data collected through conducting interviews from borrowers and Kashf’s administration. It is including factors and figures about poverty, unemployment, economy and microfinance. Furthermore there is also detailed information presented about Kashf itself and successful stories of different entrepreneurs.

4.2 Overview of Pakistan

Pakistan became independent in August 14, 1947 after a long political struggle against British regime. Pakistan is located in very important strategic location in South Asia, share eastern border with India, north-eastern border with China, while south-west border with Iran and Afghanistan is at western and northern edge. Country has total area 796,095 sq km. administratively, country is divided in four provinces, Sindh, Punjab, Balochistan and NWFP, with tribal area (Federal Administrative Tribal Area-FATA), Azad Jammu and Kashmir and Federal Territory, Islamabad. Country has total 174.579 inhabitants with growth rate 2.2 percent. Sixty five percent of total population is living rural areas while 35% in urban areas (Pakistan-“Some Basic Facts”-2008).

Poverty

Poverty is a one of major problem that is facing by country. Government of Pakistan committed to expand its efforts to eradicate poverty and hunger in the country. Due to increase economic activities and governmental policies, there is some good figures came about poverty and poverty reduction. In Pakistan, people living under poverty line are 24 % which was 34 % in 2000-01. Poverty ratio is almost double in rural areas as compared to urban. Table(1) shows that extremely poor in country is 1 percent, ultra poor contributing this figure 6.5 percent while poor is 16.4% that sum up to 24 percent (SBP, 2008).

Employment

In Pakistan, there is 50.33 million active labor and 47.65 million are employed. Unemployment rate decline from 3.46 % in 2001-02 to 2.68 in 2006-07. As for as gender wise unemployment is concerned, female unemployment has seen a decline in both rural and urban areas with a modest improvement in the level of male unemployment level. The reason for decline in female unemployment rate may include initiatives like microfinance that have provided women with business opportunities. Due to economic growth, many employment opportunities have been created but still there is a big gap between unemployment and employment ratio (SBP, 2008).

Education

Education figures are not encouraging in Pakistan. Now the country’s literacy rate is 55 percent which is still behind from other neighboring countries like Indian with 61 percent and Sri Lanka 90 percent. Currently, there are 0.23 million educational institutions in the country where 33.38 million students are enrolled and 1.35 million teaching staff are serving. While among these institutions, 0.08 million institutions are working in private sector where 0.632 million teaching staff are employed. Government was spending 1.84 % of total GDP on education in 2007. While during the FY08 spending on education has been decreased, this is reflected in the federal budget FY09. An amount of Rs. 24.6 billion has been earmarked for education in the current federal budget (2008-09), (SBP, 2008).

Health

Health sector in Pakistan is progressing from last few years in term of per capita health spending, life expectancy, infant and maternal mortality rates, provision of immunization to children, the provision of human and physical health infrastructure. Life expectancy is low in Pakistan that is 63.2 years in male and 63.6 in female, from other regional countries like 71.7 in male in Sri Lanka 70.2 in China. This low average in life expectancy in Pakistan is due to poverty, low health spending, lack of infrastructure and lack of awareness. Pakistan is using US$ 18 per capita for health which is very less than that of recommended amount of US$ 34 set by WHO and health get portion of GDP only 0.51 percent (SBP, 2008).

Economy of Pakistan

Pakistan is mainly agriculture country and textile has major portion of country’s export. Pakistan’s economy is accelerated with fast growing speed since last four years due to heavy investments in telecom sector, large scale manufacturing industry, automobile, real estate and banking industry. Pakistan achieved GDP growth was 5.8 percent in the 2007-08 fiscal year and the government had originally set a growth target of 5.5% for the current year.

There are problems facing by economy that are lower ratio of tax to overall contribution to GDP, high inflation rate and increase in oil prices. Due to sudden increase in food inflation, poverty is converted in term of transitional poor to chronic poor. According to SBP, for consistent progress in economy, there is need to provide opportunities and facilities both agri and industry sector. For this purpose, there is need to execute such financial policies where farmer, especially, can get finances for their crops that, in result, will lead to more productive activities.

4.3 Microfinance Market In Pakistan

Microfinance practices are not so new in Pakistan but limited numbers of MFIs are working in Pakistan and there is comparatively limited outreach with compared poverty ratio in country. I found few institutions working in agri sector in 60s. Agricultural Development Bank of Pakistan (ADBP) which is now working as Zarai Taraqiati Bank of Pakistan (ZTBL) is one them. Even ADBP was financing smaller farmer but still, collateral was taken to lend loan, therefore it was not a pure microfinance. In 80s, there was a prominent development in establishing of MFIs when Agha Khan Rural Support Program (AKRSP) started their operations in northern part of country, in three sectors those were community development through community based organizations, infrastructure development, and resource mobilization through savings and credit (PMN, 2002). These all programs are in operation today also.

After initiating of these programs, many rural support uninitiated by different provincial governments by name of Sarhad Rural Support Program (SRSP), National Rural Support Program (NRSP), and Punjab Rural Support Program (PRSP). Rural Support Program is mainly based on microfinance methodology (SBP, 2008). While in urban areas Orangi Pilot Project was working in poor segment in cities. In 90’s, NGOs like Kashf Foundation, Daman, and Taraqee had started their operations in microfinance sector, based on both rural and urban areas. With major initiatives of NGOs, outreach is increasing to areas having chronic poverty.

MFIs can be established in regulated and non-regulated institutions by microfinance ordinance. Estimated clients, according to (SBP, 2008) are between 25-30 million and due to high inflation rate and worldwide trend of increasing in commodity prices, there is chances of increase in clientage. There different positive signs in development of microfinance sector are noted those are; provision of an enabling policy environment, institutional development of existing MFIs, evolving of new MFIs with sound basis, supportive infrastructure, encouraging government policies, use of technology, human resource development and management, and most important is enhancement in outreach of MFIs.

4.4 Innovation of Microfinance In Pakistan

The government have close look on microfinance and empowerment of poor, therefore it came up with the strategy of initiating of microfinance ordinance 2001, establishing First Microfinance Bank and Khushhali Bank and the establishment of Pakistan Poverty Alleviation Fund (PPAF), a whole sale window for MFI, s are the kind of innovative ventures as the micro finance is concern in Pakistan.

State bank of Pakistan has established a conducive legislative framework, which includes the rules about the micro finance funds as a whole facility and also some sort of protection mechanism for borrowers. Some micro finance providers are also started to offer innovative product like skill training, emergency loans, and also innovative management operation make possible for MFI, s to established partnership between commercial bank and MFI, s. Adaptation of Grameen bank model have a very innovative and successful. The Swiss agency for the development co-operation (SDC) for strengthening the Micro finance in Pakistan takes sectoral approach.

According to Microfinance Information exchange (MIX), more than 1200 microfinance institutions around the world have loaned $7 billion to about 30 million low income people. The success and growth of microfinance has attracted traditional financial service providers. Now the mainstream financial institutions are offering microfinance products. The State Bank of Pakistan has been the first central bank in the world to introduce a policy framework for microfinance banks. The central bank has been working closely with all stakeholders to facilitate the growth in microfinance sector (SBP & ILO, 2009).

The performance indicator report compiled by the Pakistan micro finance network (PMN) provide a bench marking tool to share the best practices and standard in Pakistan. These also include the individual analysis of each member performance. Swiss agency for the development cooperation provides support to develop micro leasing products and provider of these services. The leasing to small and micro scale enterprises program (LMSE) project aim to increase earning and employment in the MSE sector in NWFP. Over the years microfinance has emerged as an effective tool for employment generation, women empowerment, and consumption smoothening, all leading towards poverty alleviation.

4.5 Practices of Microfinance In Pakistan

In Pakistan, different practices are being used in microfinance. Three types are famous and mostly used:

Community Based Organization (COB)

COBs are established for execution of infrastructure development activities and resource mobilization through savings and credit. COB’s strategy is initiated by different RSPs and widely in used by Agha Khan Rural Support Program. Now most of rural support programs are integrating microfinance by cobs with other community development activities. NRSP have their operation at national level and approach to almost every part of the country (PMN, 2002).

Solidarity Group Model

Most of NGO MFIs are following group solidarity model that is also known as Grameen model. MFBs and MFI like KASHF foundation are using this model. It is a fastest growing model as most of MFIs are adopting it because of its wide practices round the world (BWTP, p.3)

Individual or /and family based

Some MFIs, and MFBs, with Grameen model, are lending loan to individual and /or ‘family based’. In the ‘family based’ process, loan is given to a family as a whole and there will be two are three guarantors. In this type of loan, social collateral is used as guarantee.

4.6 Entrepreneurship in Pakistan

After independence of Pakistan, and by intervention of military, a hidden cooperation established between military and bureaucracy and they intervened all policies of the country. Policies developed during this era were mainly under influence by this approach and decided to run economy not by public-private partnership but with shadow of only public sector. Due to rent seeking activities, direct corruption was observed by bureaucracy, state owned enterprise, licensed based business and make economy with less entrepreneurial approach.

According to Haque (2007, p.8), “Rather than entrepreneurship, policy planned for investors and investments became the norm. Incentives were offered to attract investment. Such incentives included licensed monopolies in protected markets, cheap land and credit and subsidized inputs.” The meaning of entrepreneurship was misinterpreted by bureaucracy, economic policy makers and government itself and did not give a proper place in economic policies of country. Government and economic experts mislead entrepreneurship and consider entrepreneurship as a part of big industrial activities rather to its genuine meaning and missed entrepreneurship at micro, small and medium enterprise.

Policies for Large Scale Industry

As it has been discussed that government misleads the meaning of enterprise, which is considered as large industry, according to Haque (2007), different policy measure such as tariff protection, import licensing schemes and control on imports has been taken rather productivity or encourage industrialization for growth. This policy leaded to elite and rent seekers in large industry rather than entrepreneur.

Neglect of Micro and SME Sector

For peoples Industrialization means large scale industry and even at government level, most of policies are only favoring to large scale organizations. But from the beginning, small scale firms dominant Pakistan industry, and even business at micro level are contributing a successful role in Pakistan economy. According to Haque (2007, p.12), “Today almost 40 percent of business takes place in the informal sector and still as compared to the large scale industry, the small scale enterprise and industry continues to face unfavorable policies.

The small scale and the informal sector may be mush more dynamic and productive than what government figures have continued to show till today. It is also important to note that the small scale sector is the breeding ground for innovation but continues to attract little research”.

4.7 Poverty Alleviation and Empowerment Strategy

Pakistan Poverty Alleviation Fund (PPAF) is apex institution in country for microfinance and to deal with poverty alleviation and empowerment of poor. PPAF adopt strategy to alleviate poverty and empower of poor by expanding its operation in four fields which are:

Credit and Enterprise Development

Community Physical Infrastructure

Human and Institutional Development

Health and Education

Funds use for activities in poor communities. PPAF execute its plans by their partner in public and private sectors by giving them resources. In following, there is discussion about strategy of PPAF regarding poverty alleviation and empowerment of poor:

Credit and Enterprise Development

PPAF is premier source of funding and, with its partner organizations, covering 1.27 million current microcredit borrowers. PPAF had disbursed 25.2 billion to 45 partner organizations. Credit and Enterprise Development division is responsible to lend regulate and disbursed loan while considering with deep concern about geographical coverage and gender equality. Women borrowers are very low in number in start of PPAF that was 1.74 percent in 2000-1 but with now policy is emphasizing to lend loan to women with equality. (PPAF, 2008)

Figure 5: Borrowers by Loan Figure 6: Borrowers by Gender

Community Physical Infrastructure

For empowering of people, human development and poverty alleviation can be developed by community physical infrastructure with other mechanism. Physical infrastructure make possible to give quality of life and access to different facilities like drinking water supplies, sanitation facilities, irrigation and others.

In eight years of operations, the unit has accepted community demands for over 14,400 infrastructure projects through 49 Pos spanning 115 district of Pakistan. In the current financial year, the unit initiated work on 2,685 new infrastructure schemes, of which the irrigation sector accounted for 752 schemes, while 805,671 and 322 schemes were initiated in the sanitation, safe drinking water, and communications sectors, respectively (PPAF, 2008).

Figure 9: Sectoral & Geographical Distribution of CPI Schemes (FY 2007-08)

Human and Institutional Development

With trainings and sharpening technical skills, financial resources can be utilized with more productivity. PPAF conducted training and skill enhancement programs by this unit for strengthening the institutional and human resource base of partner organizations and participating communities. During the current financial year 67,628 community members including 24,459 women, were trained with PPAF financial and technical support in fields ranging from agriculture and livestock management to enterprise development and vocational skills.

Health and Education

Health and Education is 4th tool to alleviate poverty and make health and education facilities possible to poor. It is response to poverty with combining microcredit, community infrastructure, institutional development and skill enhancement for better livelihoods.

In FY 2007-08 13 health committees and 70 educations committees were formed in PPAF. From last two year, PPAF’s Community Health Centers are providing health services to 81,000 patients, 75 percent of whom were women. While in education sector, total 8,610 enrolments were reported and 71 percent of whom were girls. As of June 2008, 3,627 girls and 2,682 boys were enrolled in PPAF sponsored private sector schools, while another 6,576 girls and 7,000 boys were enrolled in PPAF sponsored public sector schools.

Figure 10: Distribution of Students by Gender Figure 11: Health Care Beneficiaries

(Note: These all above figures are taken from PPAF’s Annual Report 2008).

4.8 Kashf-Some Historical Facts

Kashf Foundation, a non-profit microfinance institution started in Lahore in 1996. It was founded by Roshaneh Zafar after being inspired by the success of the Grameen Bank. Roshaneh wanted to achieve two things with Kashf; one was to alleviate poverty and the other was to work towards women’s empowerment. Therefore, Kashf started with the mission to ‘provide quality and cost effective microfinance services to low income households especially women in order to enhance their economic role and decision making capacity’.

At the start, Kashf was registered under the Society’s Registration Act 1860; however, it is changing the legal status to a non-profit Company by Guarantee under section 42 of the Companies Ordinance, 1984. The reason for the change is to bring the organization under stricter regulation and thus improve its image.

In September 2006, Kashf celebrated its 10 year anniversary with accomplishments such as being one of the first sustainable MFIs in Pakistan, providing loans to over 250,000 poor households with plans to reach 850,000 clients by 2010. Over the years Kashf has received many awards for its spectacular performance, such as the AGFUND International award, CGAP financial transparency record, Social Entrepreneur and OWI by USAID.

Kashf started with micro loans for women; however, with the changing needs of the market it has also started offering larger individual loans for micro entrepreneurs. In the past year Kashf has rapidly expanded its branch network and from 35 branches at the end of 2005, 105 branches at the end of 2006 and 154 branches at the end of 2007. With its systems and processes all streamlined and proven, Kashf is rapidly expanding its outreach.

Kashf started its microfinance programme in Lahore, however, now it has expanded to Kasur, Gujranwala, Faisalabad, Karachi, Gujrat, Kasur, Khushab, Multan, Okara, Pakpattan, Rawalpindi, Sahiwal, Sargodha, Sheikhupura, Sialkot and Toba Tek Singh. The table below will show the performance of Kashf.

Table 1: Performance of Kashaf

Alleviate poverty by providing quality and cost effective microfinance services to low income households, especially women in order to enhance their economic role and decision-making capacity.

4.9 Oorganizational Structure

Kashf is run by a highly qualified and diversified voluntary Board of Directors who meets bi-annually. The structure of the Board is three-tier with executive, non-executive and specialist Board members. Recently, Dr. Ishrat Hussain (the previous SBP Governor) joined the Kashf Board as Chairman. The Board meets twice a year and authorizes budgets, future plans and various other matters.

The organization is led by the President and Founder, Roshaneh Zafar, who is supported by the CEO and the CFO. The operations, human resources, MIS and the Advocacy Department are managed by the CEO, while the Research and the Internal Audit departments directly report to the President. The operations department is the core arm of the organization and responsible for all the microfinance activities. (Organization Chart attached in Appendix).

Kashf’s branches operate as independent units but they all have an identical setup and follow the same policies and procedures. The typical setup of a branch consists of 6-10 Loan Officers (LOs), one Branch Manager, one Computer Operator, an Office boy and a security guard. Each LO is responsible for managing 24-26 centres with 25 members each, which translates to about 600-650 customers. Moreover, each LO has to conduct 3 centre meetings daily. The branches are decentralized and are responsible for managing their own portfolios. The branches report to their respective Area Manager (AM) and each AM is responsible for 4-8 branches and is stationed in one of the centrally located branches in his/her area.

Due to the expansion, a new post of the Regional Manager is being created who will be stationed in the regional office. The regional office will be a monitoring arm of the head office and will be responsible for ensuring expansion, client satisfaction, networking and managing the staff in his respective region.

4.10 Lending Methodology

4.10.1 Group Loans

Kashf’s group lending programme is a Grameen Replication, adopting the classic Grameen Bank model with some adaptations. Kashf provides one basic loan, called the General Loan (GL), for 12 months at a flat interest rate of 20 percent per annum. All members are women and each borrower belongs to a group of five borrowers, and together five of these groups form one centre.

Members repay their loans in bi-weekly centre meetings attended by Kashf loan officers. There is no collateral therefore the centre takes collective responsibility for loan repayment. Each of the five groups has a Group Leader, and there is one Centre Manager and one Centre Secretary. Together these seven women form the credit committee and are responsible for maintaining discipline in the centre.

Kashf lends to married, divorced or widowed female clients. Divorced and widowed clients are encouraged in the Group lending approach so that they can earn for themselves by starting a business or by increasing their current business portfolio. The process of selecting beneficiaries at the grassroots level is done by the clients who are assisted by loan officers, after a process of door to door mobilization has been completed.

Branch staff also arranges community meetings and meet influential people in the target area to find potential clients and inform them about the Kashf programme and products. From the pool of potential clients, individuals who fall within the Kashf poverty criteria of household income between Rs.4,000 to 10,000, have a low asset base and high dependency ratio, are encouraged to organize themselves into groups and centres. Once the centres are formed, application forms for the loan are filled by the LOs and verified by the pair LO.

The documents required for the loan application are copies of the new National Identity Card (NIC) of the applicant and her husband/son, as well as utility bills to check ownership status of their current residence. Clients who own their own residence are preferred to those who live in rented accommodation, because for the latter the owner of the house has to give a guarantee. The loan officers also carry out credibility checks for all new applicants by asking their neighbors and nearby shopkeepers to gauge the applicant’s reputation in the community. Hence, Kashf relies extensively on word of mouth.

The LO and the pair LO make surprise visits during business hours to the applicant’s homes to confirm the information in the forms. Once both the LOs have completed their screening, the Loan applications are passed on to the BM who re-screens all the applicants. The Screening Pattern followed is given in Table 1.

Once the BM completes the screening, a centre recognition meeting is held and the loan disbursed. The cheque are given to the centre manager who gives it to the centre secretary who passes them on to the group leaders. The group leaders give the cheque to their respective group members and hence a sense of ownership and responsibility is developed in the members of the credit committee.

After the loan disbursement, meetings take place fortnightly and the credit committee collects the instalments from all the centre members and two of the committee members deposit the proceeds at a branch of Muslim Commercial Bank (MCB) before the centre meeting. The deposit slip is submitted to the LO at the meeting where the LO gives the deposit slip for the next recovery to the Centre Manager. The recovery is based on the premise that each member will be responsible for the other in case of emergency and non-repayment and thus social collateral replaces the need for physical collateral.

Clients who take the GL also have the option of taking the Emergency Loan (EL) for contingencies. However, the EL is only disbursed if it is approved by the credit committee and they are willing to take responsibility. At the centre meetings, loan officers also discuss various social issues with the clients such as importance of education, cleanliness and immunization, harmful effect of drugs and so on. The social issues are in the social theme booklet designed by the Gender Empowerment and Social Advocacy department.

Kashaf Products & Services

4.11.1 General Loan (GL)

The purpose of the General Loan (GL) is to invest in income generating activities and can be used for an existing business or a new one. The loan size begins with Rs.10,000 and has a ceiling of Rs.35,000 the loan is repayable over 24 instalments in the course of 1 year at a service charge of 20 percent. Successive loan cycles entitle clients to an accretion in loan amounts of up to Rs.4,000 depending on their absorptive capacity.

Table: GL Product Outcome

The total number of GL clients has grown from 133,363 to 282,396, implying an overall annual increase in clients of 112%, compared with an annual growth rate of 80% in 2006. Total amount disbursed has also increased from Rs 2,030 billion to Rs 4,040 billion while the number of loans increased from 133,489 to 282,549 in the current year. In other words, GL has performed well in terms of all indicators, including the outstanding balance, which has grown 89% since 2006.

4.11.2 Emergency Loan (EL)

Emergency Loan (EL) is a service that is available to the existing Kashf clients, who are already availing a general loan. The idea behind this loan is to provide a buffer/support to clients to fulfill any unforeseen expenses. The amount of this loan ranges from Rs.4,000 with a 20 percent flat annual interest rate. This loan is repayable in 12 equal instalments over a period of six months.

The EL has been helpful to clients in relieving periodic financial stresses and enables them to pay school fees, utility bills, health related expenses or accessories for festivals such as clothing, etc. The EL equips clients to meet their personal expenses and saves them from turning to moneylenders and paying exorbitant interest rates to meet such needs. It has proven to be an asset for the programme since it ensures client loyalty and motivates the client to remain with the programme to overcome her poverty in a respectable manner.

The amount of EL disbursed in the year has grown from Rs 341 million to Rs 641 million, implying an overall annual growth rate of 88%, while the total number of loans disbursed has also grown from 92,627 to 170,359 over the same period. Like the GL, the EL has also shown strong performance in terms of numbers over 2006, with the outstanding amount for the product growing at 76% over the year. The key drivers in sustaining the rapid growth in the size of the EL portfolio continue to be its ease of access and pro-client features.

4.11.2 Business Sarmaya Loan (BSL)

The Business Sarmaya loan is intended for the ‘missing middle’ of the market, i.e., both men and women with running businesses who demonstrate a financial need for working capital and/or fixed assets. Small entrepreneurs are provided with access to capital in addition to advisory support for their respective ongoing businesses that can include trade, production and services.

The starting loan size is Rs.30,000 while in the second loan cycle it can be up to Rs.100,000 and is payable in monthly instalments. The individual loan product focuses on clients with higher monetary needs than those engaged in the group lending programme as well as male micro entrepreneurs. Kashf maintains that the Business Sarmaya loan acts as an inducement for existing customers involved in group lending to maintain a suitable credit history and to abide by the procedures of the programme, but it also targets new clients.

Eligible entrepreneurs have to possess a fixed business address, attest to experience of at least 3 years of managing a business and provide their ID cards and signatures of spouse/family. The BSL is marketed through flyers given out in markets and through the old Kashf branches. The LOs for BSL require a higher qualification than the regular LOs as the loan appraisal process is more rigorous and includes detailed financial analysis and projections of the client’s business. One guarantor is also required who gives an assurance about the character of the applicant and also pledges to pay the loan in case the client defaults.

Table: BSL Product Outcomes

The overall clientele has grown from 2,434 to 12,470 clients, translating into an annual growth rate of 412%. At the same time, the amount disbursed has also increased substantially with an annual increase of 386%, while the outstanding portfolio has grown from Rs 75 million to Rs 293 million from 2006 to 2007. The main challenges for scaling up the product relate to improving the quality of client appraisal along with reaching out to more female entrepreneurs. Furthermore, the current gender ratio of this product is very low, as at the close of 2007, only 364 out of the total clients were women, that is a mere 3% of overall outreach.

4.11.3 Home Improvement Loan (HIL)

Kashf Foundation began to pilot a home improvement loan in late 2006. The main purpose of this was to enable clients to enhance the asset value of their dwellings and at times to also improve and diversify their sources of income. Delivered through the same distribution network as the GL, the HIL is a marketed along with the other products to loyal and credible clients who have a demonstrated history with the organization. The amount of this loan ranges from Rs.50, 000 to 70,000 with 15 percent flat annual interest rate. This loan is repayable in 96 instalments over a period of four years.

4.11.4 Credit for Life Insurance

The credit for life insurance coupled with the GL product has provided a unique benefit for the Foundation's clients. Requiring only a nominal one-time premium, this service frees the family of the deceased clients from any further loan repayment liabilities in case of the demise of the client or her spouse, besides providing assistance for burial related costs.

Kashf Foundation was the first MFI in Pakistan to offer a simple life insurance product to its clients, because of which today over 781,440 clients are provided coverage in the 2 sector as a whole (PMN, 2007). The overall coverage for the 2007 grew from 277,448 to 593,454 lives, which translates into an annual growth rate of 114%. Over the past year, the claim ratio has been at 33%, which has been an industrial norm in the sector.

4.11.5 Health Insurance

Kashf Foundation began to pilot a health insurance scheme with the support of the Aga Khan Agency for Microfinance (AKAM) and the New Jubilee Insurance (NJI). The health insurance product provides hospitalization expenses up to a maximum of Rs 25,000 and is currently being offered to the client and her spouse. However, in the future the product will be revised to reflect the needs of the family and women in particular.

4.11.6 Gender Empowerment and Social Advocacy (GESA)

In accordance with Kashf’s mandate for social empowerment, GESA is a part of the consolidated approach towards capacity building. The idea behind the social aspect of the programme is to build social capital among clients through greater awareness of innovative ideas, rights of women and social interaction and networking. In addition to providing microfinance services to clients, Kashf also organizes borrower trainings, holds meetings with male members of the client’s families to inform them about the credit programme, and conducts leadership trainings, reproductive health sessions and gender training with the clients on a quarterly basis, thus keeping alive the gender and empowerment vision of the programme.

4.13 Expansion of Outreach of Kashf

In 2007, Kashf Foundation has pursued an expansion strategy with a vision to establish a sustained footprint in new markets. Over this year, the Foundation has entered 11 additional districts in Northern, Central and Southern Punjab thus strengthening its market position from 11 districts in 2006 to 22 districts in 2007, along with substantially growing its portfolio in Karachi. Kashf Foundation's overall market share has increased from 14% in 2006 to 20.1% in 2007, thus making it the third largest provider of microfinance in the country, while in Karachi it has now become the first provider of choice for low income clients.

4.14 Portfolio Performance

Kashf Foundation's world class performance highlights that not only can a microfinance institution targeting low income female clients be sustainable; it can also be a leader and a pioneer in the field. Furthermore, the Foundation also received a financial award from the Skoll Foundation for its commitment to serving low income female clients. Keeping this in view, most financial indicators for this period have been exceptional.

One indicator however that is worth mentioning upfront, given the recent economic crisis faced by poor households in Pakistan due to the growing food inflation and the increasing energy prices, is the loan performance ratio. Throughout this period, Kashf Foundation's portfolio quality has been stellar with portfolio-at-risk (PAR) at 0.73% at the close of 2007. The strong portfolio performance of the Foundation continues to be one of the key financial drivers for the overall performance of the organization. Figure.22 shows that Kashf Foundation is investing in a diversified portfolio, ranging from manufacturing to trading in a variety of geographical environments, thus effectively managing the risk of its portfolio.

Figure: Sectoral Distribution of Loans

4.14.1 Funding Mobilization

Kashf is working on its long term financing strategy as it plans to provide microfinance to 850,000 people by 2010. The objective of the strategy is to secure adequate funds to fuel the projected growth. The intended steps and sources include commercial sources (financial and money market), privately and publicly placed bonds, funds from international agencies and subsidized funds. The main funding comes from PPAF and DFID, other sources commercial banks, foreign loan, equity.

Figure: Sources of Funds 2007

During 2007, Kashf Foundation has built strong and long term relationships with multiple financial entities and has begun to rely more critically on commercial sources of credit, thus considerably diversifying its sources of funds. During this year the Foundation was able to close two ground-breaking deals with different financial providers worth US$ 24 million, thus placing the Foundation amongst the pantheon of commercially reliant microfinance institutions globally. Over the past year, the sources of credit have changed from 57% of funds coming from PPAF loans in 2006 to a more balanced portfolio mix with 42% of funds from PPAF, 38% from commercial banks and 19% from internally generated equity.

Cognizant of best financial practices, the Foundation has maintained a healthy debt-to-equity ratio for 2007 at 1.8, thus providing adequate cushion to raise further debt in 2008. Furthermore, during this period Kashf Foundation has also continued its strong focus on reducing cash as a percentage of overall assets in order to enhance its investment income over the year. Cash as a percentage of overall assets has been maintained at 3% in 2007.

4.14.2 Financial Returns

The organization's equity rose to Rs 1.45 billion compared to last year's equity of Rs 932 million. The growth of Rs. 494 million in equity resulted from increased revenue generation from loans along with stronger treasury management practices. Furthermore, the total asset base grew to Rs 4.0 billion from 2.0 billion last year, thus enhancing the ability of the entity to generate income at a higher rate, as mentioned earlier.

This was combined by a large expansion in the customer base, improvements in the yield on portfolio along with tight budgetary controls, which also helped to sustain and improve financial returns. Hence, the changes in all these indicators reflected positively on Return on Assets (ROA) and Return on Equity (ROE) for the year 2007, which grew from 8.72% to 12.53% and 18% to 33% respectively, implying that the Foundation has been able to apply its assets effectively to generate a solid return.

Figure: Financial Returns

4.14.3 Sustainability

The operational self-sufficiency (OSS) increased from 154% to 163.54%, witness to the fact that Kashf Foundation continued to expand aggressively during this year as well. OSS illustrates the ability of the program to cover its operational costs from income generated. Financial self-sufficiency (FSS) ratios have also increased from 110.05% to 133.80% due to a lower cost-of-funds (COF) adjustment for 2007 as compared with 2006.

Figure: Sustainability

4.14.4 Efficiency

Efficiency indicators are integral to gauge the performance of an MFI since they reflect whether existing resources are being utilized efficiently to maintain the quality of its portfolio and to service its target market. During 2007, operating efficiency increased from 24% to 25.5% and is strongly affected by the 63% increase in personal expenditures over last year, along with the increase in the cost of funds (COF) for the year, which grew from 4.33% to 7.38% from 2006 to 2007. The increase in COF can be attributed to the greater reliance on commercial sources of funds. However, it is important to note that administrative efficiency which measures the overall personnel and administrative expenses over the average outstanding portfolio, substantially improved over this period from 17.9% to 14.4%, respectively.

This has resulted from improvement in deploying funds faster to the field and ensuring quick and low transaction time to service repeat clients. These measures have in turn ensured that the client exit ratio over the year was maintained close to that of 2006, that is, in 2007 client exit rate was kept at 8%. All the above have been combined with regular monitoring of annual budgets and rationalization of key expenses. In terms of clients per loan officer, vis-à-vis 2006, 2007 saw a minor increase in clients per loan officer. Due to the aggressive growth strategy of the Foundation, a large induction of staff took place. As a result, although the case load of loan officers in mature branches increased, it was offset heavily by the lower productivity of new branches.

4.15 Borrowers of KASHF/Stories of Micro Enterprises

I conducted interviews from seven borrowers to study entrepreneurship and entrepreneurial behavior among microfinance borrowers. These borrowers got loan from Kashf either for starting or for continuation of their businesses. Among these 7 borrowers, all are females. I am surprised that most of them are doing business with experiencing few new things in their production process. In following presentation of two successful stories of micro enterprise from seven interviewees. In analysis section, I will analyze of these businesses and examine that weather entrepreneurship exist on micro enterprise level or not.

Bushra Bibi- Ihsan Chapal

Bushra Bibi having primary education with only 5 grades, started business in with a new idea of embroidering on face of shoes with silk and sell it to big firms in Lahore city like as English Shoes. Few years back, she and her husband were both unemployed. She has 5 kids and total members of family are 7 with husband. When she was unemployed, she started to think about her business.

She had idea about business but due to unavailability of finances she was not able to start it. When she came to know about Asasah, she applied for a loan and after getting first loan she started her business. She introduced embroidered head of shoes and this idea was quit new in market and now this type shoes are imported to UAE, KSA and London. At start, she get loan PKR 5000 and started business. After repayment of her loan, she get loan thrice time more and that were PKR 10,000, 12,000 and 15,000. Recent days, sale of her product is PKR 18,000 to PKR 20,000 and she is now earning profit PKR 8,000 to 10,000. Due to her innovative idea she got prize of PKR 10,000 from Govt of Punjab. Her future plan is to construct outlet for her products.

Ruqia Bashir Muhammad-Pak Traders

She is the wife of Bashir Muhammad. Bashir Muhammad is 35 years old, doing business with name of Pak Traders, producing plastic clips by modeling machines. These clips are used in different machines and equipments and different industries are the buyers of these clips. Before starting of this business, Mr. Bashir was working as an employee in a company where he was getting PKR 3500 (US$ 60) per month, doing work 6 days per week and 8 hours per day. He has 5 dependents, three daughters, one son and wife.

With amount of PKR 3500, it was very difficult to maintain life only with basic human needs. According to her, he had been thinking that he should start his own business even a smaller one otherwise it would become totally difficult to spend life. She contacted Asasah and applied for loan 2 years ago. In a month, PKR 10,000 loan was granted and he started his business. After a few months, he reconsiders his business strategy and decides it is better to bring new ways in his business. For this, he started using the imported raw material used in clips, and bought a new automated machine by investing PKR 18,000 personally with PKR 12,000 borrowed from Asasah.

These steps boosted his business and eventually from profit, he bought Raksha (a three wheal carry bike) which he used to transport his products to end clients. Now his monthly sale is exceeding PKR 52,000 which is contributing PKR 15,000 to PKR 18,000. Ruqaiya has also started a business of making coverlets with PKR 5000 loan. She makes coverlets and sells them in the market and earns a profit.