Solving Poverty through Management: Experience in Pakistan

Abstract

There has been a consensus in the development literature that the poor have received insufficient credit from the formal financial sector. This is because the department rated the poor as a dangerous borrower because of the lack of appropriate collateral. This provides, therefore, the rationale for promoting the policy position of the microfinance sector to strengthen access to credit for the poor. Microcredit is expected to reduce poverty by increasing household income.

The purpose of this paper is to contribute to this debate. It is achieved by investigating the impact of microcredit on poverty in Pakistan. This paper uses the 1985-2015 time series data to assess the relationship between the human development index as a representative of poverty and its socioeconomic characteristics and microfinance visits. The error correction model is used to estimate the relationship between microcredit and household demographic variables and family poverty. Data analysis shows that there is a positive correlation between the human development index and small business credit, which is conducive to all previous expectations

Thus, this evidence provides support for the "positive impact" of the debate and provides some guidance on how policy reform should focus on strengthening the performance of the Pakistani microfinance sector. In addition, the evidence for this study provides some guidance on policy reforms to improve Pakistan's microfinance performance.