Pakistan's economy has been crippled by terrorist activities and poor law and order, especially impacting rural communities through lack of infrastructure investment and poverty increases. Microfinance is seen as integral to helping rural communities improve their lives. While Pakistan's microfinance industry is ranked third best globally, more funding is needed to expand services to 10 million clients from the current 4 million. The document proposes converting Pakistan Poverty Alleviation Fund into a for-profit organization to attract commercial funding for microfinance institutions and tapping private sector institutions to provide inputs and market access to farming communities. Bringing funds from both private and donor sectors through a long-term strategy is needed to improve rural economic conditions.

1. Solution to Pakistan’s Economic Situation
Introduction
Pakistan is sixth largest country in terms of population1
, marred by poor law and order situation, for the
last 2 decades. The terrorist activities have literally crippled the economy of the country and the poor
communities living in the rural areas of the country have been worst hit in this regard. This is primarily
because the government does not have many funds for investing in infrastructure, or other Community
Physical Infrastructure (CPI) schemes. This non-availability or reduced funding has resulted in an increase
of poverty rates all across Pakistan, especially in the rural areas of the country.
The financial inclusion ranking of Pakistan has also dropped considerably, which is considered to be on
one of the major factors which help poor communities to improve their lifestyle. There is a dire need to
explore different avenues to bring in funds for initiating new and reinforcing existing poverty reduction
schemes across the country.
Microfinance is an integral component which can help poor communities, especially in the rural areas of
the country to transform their lives for better. Pakistan’s microfinance industry has been ranked by
Economic intelligence unit as the third best market in the world2
, which speaks volumes about the success
it has achieved in reducing poverty and improving financial inclusion agenda of the country.
In this regard, World Bank, IFAD, KfW have put a lot of subsidized money in order to help the microfinance
sector in provision of financial services which can help bring sustainable improvements in the lives of poor
communities. Pakistan Poverty Alleviation Fund (PPAF) is one of these institutions which was used as a
main outlet, where all of the aforementioned funding used to come, which was then lent out by PPAF to
its partner institutions across Pakistan. PPAF’s total microfinance portfolio in this regard came down to
approximately 18 Billion. There is a dire need for more money in the sector so that microfinance
1
https://www.infoplease.com/world/population-statistics/worlds-50-most-populous-countries-2016
2
https://tribune.com.pk/story/619367/enabling-the-poor-pakistan-ranks-3rd-in-favourable-microfinance-
environment/

2. institutions, especially the non-bank microfinance institutions (MFIs), could expand their services and
raise the client base from current 4 Million3
clients to 10 Million clients in coming 4-5 years.
Solution
In order to grow Pakistan’s microfinance sector, there is a dire need to explore different avenues. These
options and avenues are explained briefly in the following:
1. Creation/converting PPAF, which has been a central entity in lending out funding to MFIs, to a for
profit commercial organization, which can then attract money from commercial avenues, and
lend out to MFIs, to achieve scale. In this regard, different multilateral and bi lateral development
partners can be asked to invest and create such an organization. In the past different bi lateral
and multi-lateral institutions have shown interest in creating this kind of an organization. These
donors may include World Bank’s IDA program, UK Aid (DFID) and German Development Bank.
2. Private Sector institutions is another source, which can be tapped to bring in funds for Pakistan’s
microfinance sector. Such organizations can be involved in evolving and revolutionizing the
traditional value chains of different sector, including agriculture, livestock, Micro, Small and
Medium Enterprise section. These corporate institutions can be used to provide inputs to
communities, engaged in production of different food items (crops) and allied industries.
Similarly, they can also be used to provide market access to the farming communities across
Pakistan for selling their resultant agri or livestock yield.
Conclusion:
In order to bring Pakistan’s rural economy back on track, there is a dire need to bring funds both
from private sector as well from donor agencies across the world, as have been mentioned above. A
holistic and long term strategy is require to achieve this feet, so that prosperity can be brought to
Pakistan’s poor communities.
3
http://www.microfinanceconnect.info/assets/articles/a7c500e5c71b8b5dd3dd392f862d6044.pdf