The literature review being written now will be a blend of previous research articles. The main objective of this literature is to examine the literature on the efficiency of microfinance sector in Pakistan. The relationship between efficiency and the three chosen independent variables, namely outreach, performance and productivity will be the primary focus of discussion.
Basically the fact that they are trying to underline is that in order to increase the outreach of the institutions an intensive growth strategy would have been a good one, as this would have resulted in increased productivity, thus leading to efficient institutes. This is basically a secondary research where the authors have tried to assess the performance of the mincrofinance sector of Pakistan with respect to the outreach of the financial services to the poor.
The methodology that they used is that they used a theoretical model of the six dimensions of outreach that are interlinked and involve a certain trade off with each other. They stated that that primarily microfinance institutes need two inputs, financial and human resource, and then using these inputs the output is to simply provide financial services of poor people at minimum cost and maximum productivity.
The six dimension of outreach used were, Breadth of outreach i.e. number of poor people reached by an MFI and is measured as the total number of active borrowers, Depth of outreach i.e. is the extent to which those poor people are reached who are excluded from the basic financial sector, Scope of Outreach i.e. it is the diversity of product that the MFI has to offer., Worth or value i.e. the terms and conditions which directly affect the borrowers and the sustainability of the MFI, Cost of outreach i.e. weather the MFI is operational self sufficient in a sense of earning enough revenues that it covers it's cost of operations, Length of outreach i.e. indication of financial self sufficiency of an MFI that signifies that fact that the outreach of the MFI will be sustained over time.
The authors also looked upon the other indicators to assess the performance of the MFI, which are the efficiency of a certain MFI and its productivity. Efficiency indicators further include nominal and real yield on gross loan portfolio, avg return on assets and adjusted cost per borrower.
The productivity measures include the number of active borrowers to the number of staff which basically shows how efficiently the human capital is used to provide the MF services. After studying these different factors the authors are of the view that by just growing in terms of size an institution doesn't necessarily means an increase in the outreach to the poor.
There was an increase in the branch network and the recruitments by three folds but still the physical growth could not increase the coverage of the institution. So rather than an extensive growth strategy, focusing on a niche would have been more cost friendly. The increase in total assets of the MFI's has been particularly slow in the last year.
And the little increase there is, that is heavily dependent on the debt, so financial self sufficiency has not been up to the mark. Share of total debt in the financial section in more than 70%, which is just too much.
They basically wanted to asses that weather there is a tradeoff between the two or can they be reached simultaneously. A frontier analysis was used to determine this trade off. A sample of more than 1300 observations was used. MFI's are often loss making. This phenomenon is often a cause of great confusion, as they are no less poor in the world, then how come with such a huge demand base most of the MFI's are loss making institutions.
There is no shortage of international donors or NGO's who are ready to support this cause, then why are the MFI's loss making. Financial sustainability and efficiency are identified to be the main causes of this loss making trend. Commercialization of MFI's has also served as an important variable in this study.
Due to commercialization the MFI's have increased their product range like introducing a wide range of financial services such as saving funds and insurance services. Also it has caused them to deviate from the traditional group lending to an individual based lending. According to another study consulted in this paper it is suggested that individual based lending, although more profitable has less percentage of poor borrowers and the female borrowers in their loan portfolio.
The authors of the paper are trying to determine that which factors are important for the cost efficiency of the MFI's. For this to be calculated a cost function was derived and stochastic frontier analysis was used to determine a cost frontier for a set of MFI's. an important finding was to be the positive or negative relationship of outreach indicators with the cost efficiency of the MFI's.
So different equations were derived taking into account efficiency and outreach both, using the proxies for both the variables. E.g. proxies for cost efficiency were salary of one labor unit, interest expense for holding money and the overall loan portfolio and for outreach two standard variables used were Woman borrowers and ALB.
The data used came from MIX MARKET (2007), a global web based microfinance database. Data for over 435 MFI's was recorded for over 10 years. The conclusion of this paper was that outreach and efficiency are negatively co-related i.e. in simple words if you increase the efficiency of the MFI's the outreach of the MFI's decreases.
They thought that commercial banking sector is just not doing enough when it comes to alleviating poverty form the world. Therefore poverty has been on the rise. Microfinance came up as one solution to provide informal credit to provide credit to the very poor, so that they could make a living.
This study is both primary and secondary in nature. They recognized that there are people in the economy that are economically active but financially active but have no access to funds. The authors recognized Grameen bank as one of the few MFI's who have created such a financial model in which repayment rates are positive and is producing financial profits without the reliance on excessive funding from external sources.
The primary objective of this study was to identify the most efficient practice MFI's. the study was conducted with the help of analyzing the efficiency and its determinants in commercial banking sectors of various countries. The answer to as to why is this analysis important lies in the fact that only if an institute is financially sustainable, it will be only then that it will be able to provide funds to the poor for a considerable amount of appropriate time.
According to the analysis conducted MFI's in Pakistan can be divided into four broad categories, first being the one who have microfinance as a spate product line, second group are the specialized MFI's, third group MFI's relate to the activities of the rural support Programs and the last group consists of the NGO's.
The study included the performance indicators which would be used to compare the different MFI's in South Asia. Some of the important performance indicators included Age of the MFI's, number of personnel, number of active borrower's Gross loan Portfolio, return on Assets, return on equity and operational self sufficiency.
Now the study from the previous literature showed that that Pakistan is performing the worst when we compare to the situation in south Asia with countries like India and Bangladesh. It has a negative average rate of return ad has less than one operational self sufficiency ratio.
The authors after consulting other literature have stated that to measure the efficiency two best models are the Econometric model and the Mathematical programming techniques. In this study analytical modeling (DEA: data development analysis) has been used to analyze the efficiency of MFI's in some selected South Asian countries. Both input and output version of DEA technology have been applied to compare the scores of efficiency on both sides.
The conclusion of the study is that when it comes to the efficiency measure of the MFI's in Pakistan there are three MFI's who are on the efficiency frontier when constant returns to scale is assumed and eight are one the efficient frontier when variable returns is assumed. So to sum up the results which were calculated the results were far below the mean criteria.
Here the topic under discussion is the efficiency of different types of MFI's within Pakistan. The methodology they use is that they use the recorded data to analyze facts. Simple ratio analysis is used to pin down facts and compare the sources. Mainly in Pakistan there are three kinds of MFI's. The Specialized banks/financial institutions, rural support programs and the NGO's.
This is a secondary research in which historical date is being used. Through analysis of the data it is being concluded that the NGO's are the most productive and efficient amongst the three. As compared to a per borrower cost of 40$ for the MF banks, Ngo's have a cost of 23$. Same is the case for staff productivity.
Trend analysis was used to see the timely progress and the productivity fell the most in 2006. Using trend analysis techniques the author stated that operating efficiency improves with the Age/ experience of MFI's. Then that larger loan sizes means better operating efficiency.
He recognized the main reasons for this as lack of dedicated policy framework, narrow institutional base, limited retail capacity and very little financial integration. Lack of specialization is recognized as one of the reason for a poor sustainability.
Asian development bank conducted studies as well and concluded that the sector needs new financial reforms so that objectives such as autonomy, good governance, privatization and sustainability can be achieved. To complement this reform program, Pakistan government came up with the Microfinance sector development program.
This program included activities like setting up a Risk Mitigation Fund of $5 million to pilot micro insurance policies through licensed MFI's. Then there was a support for social intermediation through which MF social development fund was set up. Pakistan was given a fund of $40 million for 25 years and revenue from this investment was to support 560,000 poor houses by 2006.
The effect of these developments is simple, which, is precisely increasing the customer base and serve more poor people. These activities have been able to gain momentum, and the author is pessimistic about the future.
They wanted to analyze the portfolio quality of the MFI's in Pakistan. The purpose of this paper was to present different trends of delinquency over the past three years. Delinquency simply means that the payment which is due is unpaid or overdue. Delinquency has been recognized as one of the main causes of the low productivity of the MF sector in Pakistan.
The indicators used included Par≥30 as a percentage of GLP, Par≥90 days as a percentage of GLP, write offs as a percentage of GLP and delinquency ratios. The information was accessed using graphical representation with brief description or interpretation.
Data used was taken from the PMN (Pak microfinance network) and authors take the responsibility of the validity of the data. Some conclusions were that rural borrowers are more risky than the urban one's. Then individual lending is more risky than group lending and finally that high growth leads to greater competition that leads to deterioration in portfolio quality.
Commercialism was promoted specifically. The author is conducting a secondary research and the main purpose it to signify the amalgamation of Microfinance with charity. Isla's point of view on poverty eradication is discussed thoroughly in the paper. Where it is concluded that ineququate use of Zakat is also a cause of sever need of MF services in Pakistan.
Then the issue remains the same. The limited outreach of MF institutes in Pakistan. The author further declares that one of the primary reason for the failure of MF as a product around the world and in Pakistan is the scarcity of subsidized financial resources. If Zakat is used appropriately then this scarcity can be fulfilled. so since the amount received in Zakat is not to be returned by the receiver, it cannot be compared or confused with the MF services.
The expected outcomes that the author expects are that Zakat and other charity funds should be used appropriately, efforts by international donors should be complemented, poor should be economically active, increase the outreach and decrease the burden of paying high interest rates.
They want to asses the performance, growth and efficiency of MFI's in Pakistan. 15 MFI's were covered in this analysis, which captures almost 99% of the total market. The main analysis in this paper was done on the outreach and financial performance data for 2003 and 2004. All the data consulted was validated and was from audited financial statements from the Pakistan Microfinance Sector.
Peer group frame working is also used to analyze the trends in the industry. The institutions were classified by age, outreach and scale( in a sense of loan portfolio). The article uses the historical and current date to imply the fact that MFI's in Pakistan are not performing up to their potential. The primary reasons recognized were gender biasness, lack o f funds, corrupt political situation and lack of institutionalization.
The paper also takes into account some financial indicators such as return on assets to identify the failures of the MF system in Pakistan. The author believes that lack of transparency is one of the primary concerns of MF sector of Pakistan. But despite all these negative aspects, MF sector is showing growth prospects in the future.
Considering that poverty situation is worse in India than in Pakistan. This article is a secondary research which focuses on the issues that are of strategic importance in aim to institutionalize MF in India. The three main issues discussed were the success measurement of MF services, gender differences with respect to the services offered and implication of developing and NGO.
The author discusses that the success level of the MF sector can be discussed at three levels. I.e. outreach and financial sustainability, income increase/decrease of the customer and development of an economically rich financial local hub. In a country where political corruption has caused great deal of poverty issues, MF has emerged as a reliable source of finance for the poor.
Of course it has some string attached to it, but the author believes that no one is perfect. Considering the fact that Indian MF sector is performing better than Pakistan's it is totally justified.
This research focuses on the performance of the MF sector of Pakistan with respect to the massive investment in the sector. Pakistan has shown promise in the sector. From 2000 to 2005 there had been a constant growth. But there was a problem which was hindering the sector to perform as better as it could. The problem was that the earnings were not as high as they could be.
The interest rate and other service charges charged to the customers are too low for the growth to be continued. This reluctance is due to the already low demand in the sector. The papers states that there has been an investment in the sector, the investment has initiated growth, costs are somewhat competitive, loan re payment is also stable, but that flaw is causing inefficiency.
The paper uses trend analysis and quantitative date to measure the performance. So to sum up the author believes that in order to survive longer the MF sector has to correct this flaw and increase the re investment in the sector.