The Success of Micro Finance in Pakistan

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As found by Hartangi (2007) that success of Micro finance depends upon the practices of that specific bank, which finance poor people, by quoting and example of BRI (Bank Rakyat, Indonesia) researcher says that they provide technical and moral support to the people they lend money, and make sure they do good, they also choose different collaterals like motorcycle, cars, cattle, and land etc to secure their loan yet making collateral stronger incase the client fails to repay and credits interesting for lower class community. Beside this, Risk management, internal audit, financial procedures, transparent system, dedicated staff, and clear incentives to staff and clients are the factors which contribute toward the successful lending of micro finances. Obamuyi (2009) says that poor credit culture and low risk management can result in low rate of return, which finally ends with the failure of the scheme. The risk of low rate of return can also be minimized by the assistance provided by the MFIs to develop the small business of clients (Zelealem, Temtime, & Shunda, 2003).


RESEARCH METHADOLOGY

Study type
This study is a correlational study in which relation between income level, living standard, access to education, and empowerment due to micro financing in Pakistan is studied.

Study setting
Study was conducted in natural environment, and no lab settings were used while studying the relationship between income level, empowerment, access to education, and access to health facilities due to MFIs in Pakistan has been studies, which makes this study a non-contrived study.


Unit of Analysis
Different individuals, who obtained micro finances from Micro financial institutions of Pakistan, were asked to record their responses.

Time Horizon
Data was collected from individuals who obtained micro finances from MFIs in Pakistan once in one month time period; there will be no further data collection for this study. The collected responses are one shot, which make this study a cross-sectional study.

Data
This study utilized primary data as well as secondary data. Primary data was gathered from individual who obtained micro finances from MFIs in Pakistan, data was gathered using a prepared research instrument. And secondary data was collected for literature review, from different online research databases.


Data Analysis
Data was inspected, cleaned, transformed and modeled using SPSS V.17.0 to highlight useful information. Linear Regression was applied as per the requirement of the study to explore the relationship between increase in income, living standard, access to education, and empowerment, due to MFIs in Pakistan.

Sampling type
A non probability convenience sampling was done, questionnaire were distributed among customers of MFIs who were conveniently available to the researcher.

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Instrument description
Questionnaire was used as a research instrument for collecting responses from the customers, who have been financed by MFIs. Research instrument was adapted from Ajami, Hussain, & Saleh (2009), and Khan, & Rehman, (2007). Research instrument consist of two parts first part recorded the demographic characteristics of respondents (e.g. Gender, marital status, age group, education level, family members, and initial capital etc), second part of adapted research instrument recorded the responses regarding their experience with the borrowed money and the effect on their income, empowerment, living standard, access to education and financial position.


RESULTS

Demographics/Cross tabulation
Out of 85 respondents 77.6% were males and 22.4% were females, age groups ranged from 20-50 and above, most respondents were from age group of 30-39 and 30-49. Out of 85 respondents most respondents were diploma and BA degree holders. 68.2% of respondents had their family members between 2&5 and 31.8% had more then 5 family members. Only 17 out of 85 respondents had previous business experience, others respondents were new entrepreneurs. Friends/relatives, and personal savings were the main sources of initial capital other then MFIs, finances disbursed by MFIs was the main source of initial capital for 56.6% of respondents.

Count
Age group of the respondent Total
20-29 30-39 40-49 50 and above
gender of the respondent female 0 7 10 2 19
male 4 41 20 1 66
Total 4 48 30 3 85
Table 1. Gender * Age group Crosstabulation

In cross tabulation it has been found that females who obtained resources from MFIs were among the age group of 30-39, 40-49, and 50 and above, none of the female was from first group which was 20-29, where as males, who obtained resources belonged to all four age groups.


Count
source of initial capital Total
personal savings friends/relatives MFI
previous business experience of the respondent No 11 18 39 68
yes 3 5 9 17
Total 14 23 48 85

Table 2. Previous business experience * source of initial capital Crosstabulation

It has been observed that customers with no previous business experience have extensively used all the three means of initial capital among which savings and MFIs were at the top, they also used personal savings to start up their business, customers with the previous business experience have also used MFIs and their friends/relatives as a source of initial capital.

Count
rate charged by MFI is reasonable Total
SD DA N A SA
gender of the respondent female 0 6 5 6 2 19
male 3 18 26 16 3 66
Total 3 24 31 22 5 85
Table 3. Gender of the respondent * rate charged by MFI is reasonable Crosstabulation

A number of males and females were dissatisfied with the rate charged by MFIs for their finances, mostly respondents remained neutral and 27 out of 85 were satisfied with the rate being charged by MFIs.


Count
increase/decrease in income of the respondent Total
SD DA N A SA
previous business experience of the respondent No 2 16 36 13 1 68
yes 0 3 10 4 0 17
Total 2 19 46 17 1 85


Table 4. Previous business experience of the respondent * increase/decrease in income of the respondent Crosstabulation

It is observed from the study that a number of respondents who had no previous experience of the business found it difficult to increase their income, 36 of them remained neutral and 13 out of 68 recorded an increase in their income, where as only 3 out of 17 respondents, who had some previous business experience had recorded no or low increase in their income, 10 remained neutral and 4 respondents have recorded increase in their income due to the finances provided by the MFIs.


One sample t statistics of different variables
Procedure for obtaining loan, operational assistance, rate charged by the MFIs, and employment opportunities are the four different variables taken for one sample t-test, average level of satisfaction taken was (2.5) to test the satisfaction level of respondents to the four different variables given above.


One-Sample Statistics
N Mean Std. Deviation Std. Error Mean
procedure for obtaining loan from MFI is easy then conventional banks 85 2.9882 .76367 .08283
operational assistance from MFI was helpful 85 3.0588 .47190 .05118
rate charged by MFI is reasonable 85 3.0235 .96333 .10449
increase/decrease in employment opportunities 85 3.0588 .44596 .04837
Table 5. One sample T-test statistics

To evaluate the level of satisfaction with the four different variables researcher developed a hypothesis and agreed upon a level of significance (2.5) for rejecting/accepting a hypothesis. Respondents recorded their perception on a scale from 1-5 with 1 strongly disagree to 5 strongly agree. It can be interpreted from the above outcome that overall respondents are satisfied with the procedure of taking loans, interest rate charged by MFIs, operational assistance from the MFIs, and employment opportunities arrived from the financing activities of MFIs.


One-Sample Test
Test Value = 2.5
95% Confidence Interval of the Difference
t df Sig. (2-tailed) Mean Difference Lower Upper
procedure for obtaining loan from MFI is easy then conventional banks 5.894 84 .000 .48824 .3235 .6530
operational assistance from MFI was helpful 10.918 84 .000 .55882 .4570 .6606
rate charged by MFI is reasonable 5.010 84 .000 .52353 .3157 .7313
increase/decrease in employment opportunities 11.553 84 .000 .55882 .4626 .6550
Table 6. One sample t-test

To examine the statement “Procedure for obtaining loan from MFI is easy then conventional banks”, researcher developed a null hypothesis that procedure for obtaining loan from MFI is not easy then conventional banks, which was rejected and showed that respondents are happy with the procedure of obtaining loan from the MFI and is easy then conventional banks. All other null hypotheses were also rejected which shows that respondents are satisfied with the rate charged by MFIs, operational assistance, and increase in employment opportunities due to finances of MFIs.


Relationship of Increase in Income and Increase in Savings


Correlations
increase/decrease in income of the respondent increase/decrease in savings of the respondent
increase/decrease in income of the respondent Pearson Correlation 1 .317**
Sig. (1-tailed) .002
N 85 85
increase/decrease in savings of the respondent Pearson Correlation .317** 1
Sig. (1-tailed) .002
N 85 85
**. Correlation is significant at the 0.01 level (1-tailed).
Table 7. Correlation in Income and Savings

Generally people take loans to support their economic conditions or to boost up their business and to produce positive income streams, once income is increased, they try increase their saving so that can be used in future in case of unexpected situation and can also be used to improve their living standards. In this research article researcher tried to find out the relationship between increase in income and increase in savings, using Pearson’s correlation test. In SPSS Pearson’s correlation tested two hypotheses stating “there is no relationship between level of income increased and level of saving increased” and “there is relationship between increase in level of income and increase in level of savings”. After applying test it is clear that there is a significance relationship between increase in level of income and increase in savings, so if income level increases, increase in saving will also occurs.





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