‘Microfinance sector unable to weather the storm’

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Staff Report

ISLAMABAD: Leader of the business community and former President ICCI Shahid Rasheed Butt on Wednesday said microfinance sector that is key to reducing poverty is under severe stress due to a downward spiral and massive bankruptcies are feared within a short span.
The sector that is pulling the unprivileged segment of society out of poverty is now struggling for its own survival due to the apathy of the federal government, central bank, and SECP, he said.
Shahid Rasheed Butt said that macroeconomic conditions had deteriorated rapidly to cause serious shocks to poor people relying on them. Oil and gas prices have plummeted as global demand shrank, the garment industry has essentially stopped, many migrants have lost jobs and remittance flow can drop sharply while capital is fleeing to safety as stock markets have crashed. Tourism and travel have stopped while poor people are among the first to feel the impact, he added.
He said that microfinance institutions serve around almost 160 million low-income people worldwide through almost $130 billion credit. Globally, microfinance customers are 80 percent women in which 65 percent live in rural areas. They are among the poorest and most vulnerable segments of the societies. The situation in Pakistan is not very different, this sector is serving millions and it should continue to do so, he said, adding that this sector requires high repayment rates to avoid bankruptcy.
The economic slump has resulted in repayment rates fall as borrowers struggle to make ends meet in the face of income shock, he said, adding that some eighty thousand borrowers have asked for relief in the repayment schedule. The microfinance industry cannot ride out this crisis on its own to secure the hard-won gains of the last four decades, he said.