Powering Innovations in Microfinance

Conference on Microfinance
Asian Development Bank, Manila, Philippines
July 24-25, 2008

Experience, Issues and Challenges in

Agricultural and Rural Development
By
Malik Fateh Khan

National Rural Support Programme, Pakistan

 Pakistan – An Agrarian Economy

‰ Pakistan’s 796,095 sq km territory include wide

variety of landscapes, from arid deserts to lush
green valleys to stark mountain peaks
‰ Geographically, Pakistan can be divided into three
regions
1. Low lands along the Indus river in
the south and east
(Province and Punjab and Sindh are
well irrigated)
2. Arid Plateau of Balochistan in
south west
(Covers almost half Pakistan’s
territory – very dry and stony
plateau, sparsely populated)
3. Mountains of the north
Cont….
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NRSP Pakistan 3
‰ Climate varies according to elevation
‰ April to September are pleasant months in mountains-
bring oppressive heat to the low lying plans- temp. can
exceed from 40 Celsius (100 F)
‰ December to February are the coolest months – low land
temp. 10-25 degrees C (50-77 degree F)
‰ Population 163.8 million with annual growth rate 2.16 %
‰ Total labor force is 44 million (30 million rural and 14
million urban)
‰ Estimated unemployment rate is 8%.
‰ Nearly 34% population is living below poverty line
Cont…

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‰ Agriculture and livestock account for 25% of
GDP.
‰ Employs 48% of labor force
‰ In 2004-5 the Agri sector registered an all
times high growth of 7.5 % due to
favorable weather conditions
‰ Provides livelihood to 68% of the country’s
population of rural areas.
‰ Major crops are wheat, rice, cotton, sugar
cane, maize and pulses
Cont…

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‰ Pakistan’s agriculture base is 79.6 million hectares,
of which 22 million hectares are cultivated area
‰ 18 million is irrigated through canals, having the
world’s largest canal irrigation network. 8 million
hectares are rain fed and rest is unfit for cultivation
‰ World’s largest producer of orange varieties
‰ Ranks among the top five producers of mangoes and
dates
‰ Fifth largest milk producing country in the world

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Real Agriculture GDP in Pakistan 1989-90 to 2004-05

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 Relationship between Agriculture Growth and Rural
Poverty

‰ Farming, livestock and non farming

activities are the major sources of
employment and income in rural areas.
‰ Incidence of poverty is found to be higher
for those who depend solely on livestock
and lower for those having both farming
and livestock activities.
‰ Majority of the non poor depend on crop
while poor depend on livestock
‰ Poor not only tend to be landless or small
holders but also have more difficulty in
managing risks because of inability to
diversify their production
‰ Crop income in rural Pakistan account for
nearly 50% of total income but account for
only about 27% of total income for very
small farm households

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 Relationship between Agriculture Growth and Rural
Poverty

‰ Wages and salaries and

transfer income are other
significant source
‰ Incidence of poverty is low
in zones where the
percentage of incomes from
wages and salaries and
transfer of income is high
‰ Poverty alleviation
strategies aim at providing
gainful sources of alternative
employment to over 60%
households (56.61% with no
land and 5.12 with less than
one acre) should receive
much greater focus

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 Land trends in rural areas and share of different sources

Wages & Transfer Crop Rental Livestock Total monthly %

salaries income income income income income Households
No land 76.25 20.11 1.43 0.74 1.47 100 56.61
Up to 1 acres 45.46 24.07 26.73 1.00 2.73 100 5.12
Up to 5 acres 23.44 10.31 61.16 2.53 2.56 100 18.01
Up to 12.5 acres 9.40 4.33 82.44 1.64 2.20 100 13.95
Greater than 12.5 4.54 2.06 89.10 2.95 1.35 100 6.31
acres
All households 35.81 11.14 49.49 1.73 1.84 100 100.00

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 Agriculture and rural development

Agriculture contributes to development

in many ways;
‰ Agriculture as an economic activity
‰ Agriculture as a livelihood
‰ Agriculture as provider of
environmental material

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Four policy objectives of the agriculture-for-
development agenda form a policy diamond

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Agri. Based economies, participation and income
levels from Agriculture

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Government’s initiatives in Agriculture and
rural development

‰ Successive Governments in Pakistan

introduced and implemented different
programmes and projects with a focus
on:
‰ Development of agriculture
‰ Institutional changes in the land
system
‰ Expansion of rural employment
opportunities through expenditure on
social infrastructure (water and
sanitation, education and health care)
Cont…

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‰ In addition to the existing line Departments,
new institutions were set up for agriculture
development
‰ Agricultural commissions
‰ Pakistan agricultural research
council/centers
‰ Agriculture development corporations
‰ Provincial seed corporations
‰ Water and power development authority
‰ Agriculture development bank of Pakistan
Cont…

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 Government’s recent Initiatives
‰ Pakistan Poverty Alleviation
Fund (PPAF)
‰ Khushali Bank
‰ Devolved Govt.
‰ Khushal Pakistan Progamme
‰ Citizen Community Boards
‰ Khushal Pakistan Fund
‰ National Program for
Rehabilitation of water
courses
‰ Education sector reforms
programme
‰ Initiatives for the
development of livestock
‰ Health and family Planning
Programmes
‰ Micro finance institutions

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‰ Land reforms (1959,1972, 1973 and 1977)
‰ Government resumed 1.58 million hectares and
redistributed 1.30 million hectares to more 272,000
beneficiaries
‰ Resulted into some positive and long lasting impacts on
the rural lives, socio-economic development of tenants
and better income distribution among the most
disadvantaged entities of society
‰ Had positive impact on the level of productivity and
employment.
‰ Provided far greater security of tenure than existed
ever before
Cont…..

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‰ Bottlenecks/ short comings were :
1. Substantial part of the distributed area was not of high
quality
2. Land less wage workers did not benefit directly in the
sense of gaining land for cultivation
3. Absence of a follow-up or support system such as the
distribution of farm credit, inputs and the establishment
of new or encouragement of present organizations
4. Land fragmentation, especially of small holdings has
become very serious problem
Cont….

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‰ Issues/short comings in Agriculture:
1. Non availability of irrigation water and low water use
efficiency due to unlined water channels
2. Government support prices are not competitive with
market
3. Poor Agri. Extension and research services
4. Farmers are forced to sell their produce at lower prices
due to ban on district to district movement and
involvement of middle man
5. Lack of coordination between Federal and provisional
agencies, research and extension services.
6. Expensive Agri. Inputs and farm machinery and their on
time availability
7. High electricity rates for lift irrigation
Cont….

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 Causes for Low farm Yield

The per hectare yield of major crops like wheat,

rice, cotton, sugar cane and maize is lower than
the potential the major factors are:
‰ Soil preparation { Irrigation
‰ Seed cultivar { Water lodging and salinity
‰ seed rate
{ Nutrient application
‰ Sowing time
{ Plant protection
‰ Plant density

‰ Modern Technology
‰ Investment
‰ Marketing system
‰ Inputs availability
‰ Credit
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‰ Rural development Programmes
1. The village aid programme 1953-
962
2. The rural works programmes
1963-1970
3. The integrated rural development
programme 1972-1977
4. Peoples works programme 1973-
977
5. Rural development programmes
(Prime Minister’s 5 point
programme, Tameer-e-Pakistan,
Khusal Pakistan etc.) 1978-1988
and 1990-2007
6. Devolved Local Government
System (2003- to date)
‰ Cont…

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‰ Impact
1. Creation of infrastructure such as
roads, bridges, dams, irrigation
channels, drains and embankments in
the rural areas
2. Creation of a nucleus of planning and
development at the local (union
council) level and local leadership
3. Improved agriculture technologies
4. Reduced unemployment in rural areas
5. Linked the villages with mainstream
of development activities
6. Provision of agri. Machinery, seed,
fertilizer and other agricultural inputs

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‰ Bottleneck and short comings

1. Followed blue print approach to achieve the physical targets

setup by Govt. departments/agencies
2. In many cases the implementation was half –hearted and
usually very costly
3. Schemes and programmes were abolished or terminated as
result of change in Govt. without adequate assessment or
rational for new scheme
4. Generally fell far short of their intended objectives and
physical targets
5. Rarely assessed for their impact on the lives of the poor and
marginalized groups in rural areas.
6. Lack of coordination between various line agencies and
departments
7. Political dominated programmes ignoring peoples capacity for
self reliance by making them more dependent on
government.
8. Majority of the projects had no local contributions thus
resulted into lack of ownership
9. Low quality physical work and services

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 Emergence of Rural Support Programmes- Concepts of
participatory and community driven rural development

‰ From the experiences of last four

decades three important lessons can
not be ignored
1. Successive governments failed to deliver
on their basic responsibility particularly in
providing adequate social sector services
due to political volatility, week governance
and corruption
2. Exclusion of poor from the mainstream
developments. Even in the best years of
economic activities the so called “trickle
down” effect remained elusive, with most
of the benefits of development going to the
better off.
3. Frequent wars and continued tension on
the borders with India and the situation in
Afghanistan resulted into allocation of
major resources for defense and combating
law and order situation
Cont….

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‰ Circumstances led the stakeholders in Govt. and
civil society to seek development solutions out
side the public domain with an objective of
supplementing and complementing the Govt.
efforts to combat poverty
‰ Filling the gap in service delivery in case of
weak and non existent government services by
seeking innovative solutions in partnership with
communities
‰ Focus on helping poorer, build their resources
and skill to be able to participate more actively
in main stream development

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 Rural Support Programmes (RSPs) in Pakistan

RSPs are working in 93 out of 107

Districts in Pakistan. The RSPs
are:
1. Agha Khan Rural Support
Programme (AKRSP) – 1982
2. Baluchistan Rural Support
Programme (BRSP) - 2001
3. Ghazi barotha Taraqiatin Idara
(GBTI) – 1995
4. Lachi Poverty Reduction Project
(LPRP) – 1997
5. National Rural Support Programme
(NRSP) – 1992
6. Punjab Rural Support Programme
(PRSP) – 1998
7. Sarhad Rural Support Programme
(SRSP) – 1989
8. Sindh Graduates Association (SGA) –
1972
9. Thardeep Rural Development
Programme (TRDP) – 1987
10. Sindh Rural Support Organization
(SRSO) – 2003
Cont…
NRSP Pakistan 26
‰ Distinguishing common
features of these new
generation Programmes are:
1. Their participatory approach;
2. Social mobilization;
3. The initial project area is
unpromising in terms of location,
economic opportunities and has a
high incidence of poverty;
4. Minimal role of foreign assistance;
5. Galvanizing role of the
initiator/charismatic leader needs to
be supplemented by a process of
institution-building;
6. A remarkable ability and desire to
diversify activities, initially sectoral
or parochial, become more
encompassing.
Cont…

NRSP Pakistan 27
 What is Social Mobilization?

‰ Social mobilization is based on the

assumption that poor and asset-less have
a tremendous capacity to do many things
themselves.
‰ Social mobilization means mobilizing
poor for harnessing their potential.
‰ Social mobilization focuses on poor
and poverty alleviation and not on
projects.
‰ Social mobilization is demand
responsive and does not talk about pre
conceived packages.

NRSP Pakistan 28
 NRSP Assisted Area of Operations China
Northern Areas

Swat
Afghanistan Malakand
Muzafarabad
Mardan Jammu & Kashmir
Swabi
Rawalakot Disputed Territory
ICT Pallandari
Attock
NWFP Rwp
Kotli
Chakwal
Jhelum
Mianwali
Khushab
Sargodha
Bhakkar

PUNJAB
Sahiwal

D.G Khan Khanewal

Muzafarghar Vehari
Multan Bahawalnagar
Lodhran

Iran Rajanpur
Lodhran
Bahawalpur India
RYK
BALOCHISTAN

Sanghar

Awaran Nawabshah
SINDH
Turbat
Lasballa
Gwadar Hyderabad
Mirpur Khas

Badin
Thatta

Arabian Sea
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 NRSP’s approach
‰ Harnessing people’s potential to help
themselves
a. Helping people to organize themselves
b. Identifying true and genuine activists
c. Training and capacity building of village
activists on a very large scale to
substitute a large army of paid extension
workers.
d. Identifying and prioritizing what people
are willing to undertake in terms of
opportunities and not demands.
e. Undertaking feasibility of identified
opportunities
Cont…
NRSP Pakistan 30
f. Facilitating, arranging and securing flow of required
resources for undertaking identified opportunities.
g. Monitoring, lobbying on behalf of communities,
establishing linkages between communities and
government departments and others such as District
Councils, Union Councils, NGOs and Donors.

NRSP Pakistan 31
 Why Poverty in Pakistan?

‰ Massive investment by the

Government through Annual
Development Plans but low impact.

‰ Government makes huge

investments but does not create a
receiving mechanism for delivery of
goods and services.

‰ Creating a receiving mechanism

in the community requires “Social
mobilization entailing”.

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Steps for Poverty Alleviation
‰ Identifying poor people by the poor
‰ Organizing the poor by the poor to bring
unity
‰ Create environment that potential of the
poor comes out by building their capacity
(training , exposure visits etc)
‰ Showing them a way how to access capital
‰ Knowledge should be provided / create an
environment so that they select right type
of livelihood
‰ Building the capacity of poor people to
fight against social evils/ issues (attitudinal
change)
‰ Creation of “SAFETY NETS” as Poor
work under many risks.
If we can understand “HUNGER” only then we
can understand poverty.

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 Indicators of social mobilization
Willingness of the people to develop
1. Unity of the community (How strong is the
CO?)
2. Capacity of the people to identify their bottle
necks/ problems which effect their lives
3. Capacity of the community to find the root
cause of the problems
4. Capacity of the community to “PLAN” to
over come the bottle necks / problems
5. Capacity of the community to pool up the
resources (external and internal) to
implement the “PLAN” to solve the problems
6. Implementation of plans by the people (not to
be implemented by contractors or high jacked
by others
7. In social mobilization, problem will come.
(The capacity of the people to overcome those
problems)
8. Results of social mobilization should go to
majority of the needy people (equity)
9. Sustainability of above indicators

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 Preparation of Poverty Profile

Communities themselves
classify each household
in the village into five
categories:

™Better Off
™Well to do
™Poor
™Very Poor
™Destitute

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Examples of Poverty indicators used for preparation of
Poverty Profiles as perceived by the community
Details Rich Middle Poor Very Poor Destitute
Landholding >10 acres <5 acres 0 0 0
irrigated
Tractor Yes No No No No
Bank balance Upto 1 lac Does not need Needs credit Needs credit Needs credit
credit for emer-
gency needs
Livestock >10 <5 1-2 0 0
House Large & concrete Middle & concrete Small & concrete Small & concrete Small & mud
but with insufficient
accommodation
Transport Yes, car or Yes, motorbike Yes, bicycle None None
motorbike
Servants Yes No No No No

Regular income Members of Yes Shop, milkman Daily wages Zakat, occasional
households in farm worker labour

service/business

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 Preparation of Portfolio of Opportunities

Levels Plans Identified Interventions

4 Household Level Income Generation
Group Level Land Improvement
Joint Enterprises
Collective Supplies
Village Level Social Sector Needs
such as
- Drinking Water Supply
- Schemes and Sanitation
- Health and Family Planning
- Education
- Infrastructure Needs
- Line of Credit
- Training
- Line of Credit
- Training
- Technical Assistance
and Marketing
- Engineers’ services,
- Proposal writing, Linkages,
- Fund raising

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NRSP’s Micro finance program for agriculture development

‰ NRSP is largest both in terms of outreach

and access to the poor communities for
micro credit
‰ NRSP’s total disbursement as of June 08 has
been Rs 27.940 billion (US $445.5 million)
‰ Repayments are tied with cash flow of the
farmers- bullet loans repayable upon
harvest.
‰ Even in case of livestock, repayments
largely depend on successful cropping,
hence are linked to harvest period on
average 6-8 months time.

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 Largest Providers of Micro credit (Active Borrowers)

S MFP Active Market Share

# Borrowers (% of active
(31 March 08) borrowers)

1 NRSP 495,503 31.1

2 KB 323,131 20.3

3 Kashf 312,439 19.6

4 FMFBL 122,507 7.7

5 PRSP 74,172 4.7

Source: Micro Watch Issue7: Quarter 1 (Jan-March 2008)

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 A. Top 5 MFPs: Increase in Active Borrowers (Net)

NRSP

FMFBL

KASHF

PRSP

OLP

0 10 20 30 40 50 60 70 80 90 100
Increase (000’s)

Source: Micro Watch Issue7: Quarter 1(Jan-March 2008)

NRSP Pakistan 40
Characteristics of NRSP’s micro
finance for agriculture
1. NRSP is a multi sector
development organization
2. It carries out various
development activities
through social mobilization
3. Rural communities are
organized into community
organizations (COs)
comprising 15-25
households represented by
men, women or both
4. The COs are used as
platform for identification
and implementation of
various programmes
including micro finance

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 Factors contributing the success of NRSP’s Programme

‰ Proper situation analysis

‰ Detailed survey of the new
area is carried out before
entry
‰ NRSP staff gets demographic
information about the area
with information regarding
previous credit history,
behaviors and economic
status of the population.
‰ Improved targeting strategy
‰ Small farmers desperately
need financial services for
purchasing agricultural inputs
on time.
‰ Timely provision of micro
credit to such needy persons
creates loyalty among the
clients for NRSP
‰ Upon harvest they give first
priority to NRSP to return the
loan.
Cont…

NRSP Pakistan 42
‰ Credit plus initiatives
‰ NRSP’s micro finance clients also have access to
other services such as:
‰ Technical assistance for agri and livestock
‰ Skills trainings
‰ Health and education
‰ Hospitalization and accidental death insurance
‰ Physical infrastructure services at the village level
i.e. drinking water, sanitation, street pavements,
link roads, lining of water courses etc.
‰ Develop beneficial partnerships between organized
communities and other agencies both public and
private.

Cont….

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‰ Savings
‰ NRSP promotes culture of
savings as a preemptive
measure to sustain the
economic shocks due to
crop failures, chronic
health issues and natural
calamities etc.
‰ Build the capacity of the
activists through
community management
skills training where
communities are educated
in record and book
keeping and managing
bank accounts

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C. Largest Providers of Micro-Savings (Active Savers)

Active Savers Market Share

MFP
(31-Mar) (% of Active Savers)

NRSP 848,232 49.5

PRSP 333,714 19.5

TRDP 214,141 12.5

SDF 105,664 6.2
FMFBL 97,488 5.7

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‰ Character assessment of each client
1. For insuring timely repayment of the loan it is
Client’s character that actually matters
2. NRSP staff is trained to assess client’s
willingness to pay, his/her conduct in the society
and seriousness in utilizing the credit for stated
purpose
3. Appraisal is done at the CO as well as at
household level
4. Client’s CO and his/her family members are
informed about the loan in order to exert social
pressure for timely repayment
Cont…

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‰ Close contact with the
clients
1. One room small office at
village level called the village
branch (VB) is established in
the programme area
2. VB is operated by 2 local field
workers (FW)
3. FW is responsible for loan
appraisal at household level,
participation in the CO
meeting and collecting
repayments
4. VB is a low cost mechanism to
maintain frequent contact
with all NRSP clients

Cont..

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‰ Village Banking
1. Is a tool to build the managerial
capacity of community
organizations (COs)
2. COs pool their resources and
savings in their bank account
3. Get additional financial resources
from NRSP as whole sale credit at
concessional rates
4. Difference between the cost of
funds and the amount charged is
used by CO for the operational
expenditure including salary of an
accountant
Cont..

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‰ Continuous Monitoring and Capacity
building of the staff
1. System of continuous monitoring established
with competent supervisors
2. They visit all field areas frequently and meet
NRSP staff and clients
3. The loan tracking software provides a number of
reports at different levels to monitor
disbursement and recoveries from different
angles
4. Each staff member goes through a number of
class room and on job training programmes
5. Training curriculum is regularly updated based
on feed backs from the community, field staff,
supervisors and other MFIs work

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 Risk and Challenges in Rural Micro Finance
Risk and challenges in agriculture finance can be divided
into two categories i.e. Economic Risks and social
risks
‰ Economic Risks
‰ Being bullet loans, repayable upon harvest are
prone to many risks which may occur at the time of
repayments:
1. Inability of the farmer to earn income due to crop
failure as result of pest attack
2. Inability of farmers to earn income due to crop failure
because of natural hazards e.g. floods, drought and
unfavorable weather conditions
3. Inability of farmer to earn income due to lower price
of their produce
4. Delayed payment by the traders/ middle men and
mill owners resulting into overdue/defaults
Another major challenge for MFIs engaged in rural
micro finance is their operational sustainability
Cont…

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‰ Social risks
‰ The targeted agriculture finance program implemented by
Agriculture Development bank of Pakistan and different
agencies have contributed to a bad repayment culture in
rural areas due to poor management of such programmes.
‰ The people belonging to same cast living together in a
village create social / political pressure for all programmes
in their favor creating difficulties for MFIs
‰ Engaging/ retaining women staff is also another challenge
for MFIs working in the rural areas
‰ The charging of interest rates on credit is considered
against the religion Un Islamic) by most of the rural
societies
‰ Religious activists/leaders of the religious political parties
create problems for MFIs to smoothly operate in their areas
of operation
The challenge for MFIs working in Pakistan is to
develop micro finance products based on the
Islamic principles of lending

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 Impact of Rural Community
Development in one of the NRSP
Programme Districts
‰ Formation of men and women community
organizations for sustainable development
‰ Women empowerment
‰ Human resource development
‰ Significant positive impact on yearly income
‰ Annual Income of participating household was
61% higher than the non participatory
household
‰ The average sugar cane yield per acre was 27 %
higher while the income was higher by 38 %
‰ Monthly per capita income of participating
household was 55 % higher.
‰ Creation of more household assets
‰ Access to credit facilities
Cont…

NRSP Pakistan 53
‰ Livestock health improvement
‰ Improvement in milk yield
‰ Facilitation in obtaining national Identity
cards.
‰ Increase in primary school enrollment
particularly of girls.
‰ Quality education and improved health
services
‰ Physical infrastructure development
‰ Productive linkages development
‰ Improved marketing

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Challenges in community development efforts in Pakistan

1. Development Plans are not implemented

with a consistent approach.
2. Security: internal and external threats
negatively affects the development
process
3. Less investment in social mobilization that
hampers social capital development
4. Less participation / involvement of women
in the socio–economic development
process
5. Low literacy rate particularly amongst the
women
Cont…
NRSP Pakistan 55
6. Inequitable distribution of land
7. Lack of access to credit facilities by
the small farmers and landless in the
rural areas.
8. Poor health facilities / services
9. Access to justice
10. Poor physical infrastructure
11. Natural calamities (drought,
earthquake, floods etc.)

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Thanks

NRSP Pakistan 57