OPD SUPPORT PROGRAM

POVERTY, INCLUSIVE FINANCIAL SERVICES AND PAKISTAN

Poverty has been a major challenge for policy makers in Pakistan. In line with the national poverty line, the proportion of poor in Pakistan based on 2011 data is 12.4%, which declined from 23.9% in 2005 (GoP 2014). The poverty estimates based on US$1.90 and US$3.10 a day for the same period are 8.3% and 46.0% respectively (OPHI 2016). However, the estimates for the newly adopted Multidimensional Poverty Index (MPI) suggest that 44.2% of Pakistanis are poor (World Bank 2016). Even though since 2005 the GDP has been growing an average 5 percent a year, it is not enough to alleviate absolute, relative, situational and generational poverty. The evidence suggests that economic growth without equity considerations will not eliminate poverty (SPDC 2015).
The provision and access to credit and financial services is seen as one of the short to medium-term strategies for poverty alleviation. In particular, micro-financial products address the relative and situational poverty and offer low-income families opportunities to improve their income. Access to affordable financial services, evidence suggest, reduces poverty. In Pakistan, only 14% of the people have access to the formal financial institutions while the informal financial arrangement such as committees, shopkeepers, moneylenders, hawala/hundi money transfers serve the needs of 36%3. The situation demands an institutional change in the financial service. Micro-Finance institutions (MFIs) can bring the desired change by developing affordable financial products that serve the need of the poor and include them in the mainstream economic development.
Increasingly, the global institutions such as the World Bank and the United Nations see MFIs as an important part of the global strategy of poverty reduction. Evidence suggests that at the end of 2013, the microfinance community reached 211 million clients, 114 million of whom were living in extreme poverty4. However, MFIs have still been finding it challenging to innovate new products and strategies of reducing extreme poverty. This is also the case in Pakistan.
Increasingly, the global institutions such as the World Bank and the United Nations see MFIs as an important part of the global strategy of poverty reduction. Evidence suggests that at the end of 2013, the microfinance community reached 211 million clients, 114 million of whom were living in extreme poverty4. However, MFIs have still been finding it challenging to innovate new products and strategies of reducing extreme poverty. This is also the case in Pakistan.
In Pakistan, three different groups of organizations- Microfinance Banks (MFBs), Microfinance Institutions (MFIs) and Rural Support Programs (RSPs) - provide micro-credit services to low-income groups and individuals. The estimated worth of the microcredit portfolio is over PKR 104 billion with 4 million active borrowers,. This represents only 19.5% of the total market potential of 20 million individual borrowers in 20165. The micro-credit industry in Pakistan is still in its early years. However, with the emerging national level regulatory framework, the professionalization of MFIs’ organizational governance and management structures and the Triple Bottom-Line sustainability framework together can accomplish the reduction in poverty in future. OPD aims to be an active part of that future.

Microfinance Program

Development has different dimensions. It is impossible to realize the objective of development without raising a sense of multidimensionality of the concept. People, who are strangled by the clutches of hunger and whose sole aim is to make two meals a day a reality, can’t be asked to become self less workers for the social uplift, to think globally about the empowerment perspectives, the riddles of universal education and health facilities.
In the harsh light of realities gratification of immediate needs take the prime importance. In this scenario it is easier to mobilize people for any cause if there is some tangible benefit for their self. Microfinance is one of those development interventions that offer people immediate gratification of their needs. It becomes a main tool for mobilizing community for the development causes.
Gujranwala is a fast growing industrial district. A lot of small manufacturing units are working in the city and ever expanding slums around the district. Most of the people came here from surrounding villages for better employment. They worked hard, learned the skill, saved money and initiated small manufacturing units in their homes. Now the city has become a hub of every type of cottage industry be it traditional cottage industries like small loom units, embroidery, carpet making etc or small manufacturing and engineering units. Gujranwala has become an amalgam of quite a few big and numerous small industries. Even today a large number of people come in the city every day to work in those big and small industrial units and go back to their villages by the end of the day.
The small business units are family units with the family head looking after the over all management of the business like marketing, strengthening market linkages, product selling and recovery etc. Wife manages the affairs related to the running of business like how much inventory is required, defaults identifications in machinery etc., while all the family collectively do the manual labor to save the labor cost
These people businesses are most insecure kind because one hitch in the economy likes strikes, spell disaster for them and push them below the poverty line. Once they go down the uplift is very difficult if not impossible. For endurance they do effort and often trapped by local money lender.
For now microfinance seems the best possible option for this large section of society to keep them afloat the poverty line. OPD opted for this mode of support for its intervention communities to make them self reliant much before the present hue and cry about micro finance, in 1993. Since then the microfinance section has evolved over time in different dimensions catering a range of people.
The OPD signed its first partnership agreement with the PPAF in May 2002. Since then, the OPD has provided loans to low-income entrepreneurs, disbursed financial capital, and invested in improving its governance, human resources, management structures and capacity to monitor, audit and review efficiency and effectiveness of its micro-credit program. In partnership with PPAF, the OPD has introduced the Triple Bottom-Line (TBL) framework of managing sustainability, which emphasizes that organizations must produce social, environmental and economic value. The OPD is committed to perform its economic, social and environmental role in low-income communities.

Program Strategy

The program strategy includes financial product, outreach, pricing and competitors. The section explains the type of financial products that the OPD currently offers, existing clients, and value of outstanding portfolio, target groups, gender disaggregation data, geographical coverage and productive sectors. Similarly, product pricing highlights interest charged and fee structure, method of interest calculation, operating costs and income. This section also provides a competitors’ review in the district that constitutes the perspective and the context in which the aforementioned information offers comparative understanding

Products

The OPD offers three types of financial products to low income entrepreneurs and businesses, i.e. working capital loans, social franchise loans and microenterprise loans. All three products are designed to address the needs of low-income entrepreneurs. The OPD is currently evaluating the economic and social performance of its products, based on the market intelligence and changing demands of its primary stakeholder- low-income entrepreneurs. The current number of loans under working capital, social franchise and micro-enterprise are 5,724, 34 and 106 respectively. Further details of these products are presented below.

Program Strategy

The program strategy includes financial product, outreach, pricing and competitors. The section explains the type of financial products that the OPD currently offers, existing clients, and value of outstanding portfolio, target groups, gender disaggregation data, geographical coverage and productive sectors. Similarly, product pricing highlights interest charged and fee structure, method of interest calculation, operating costs and income. This section also provides a competitors’ review in the district that constitutes the perspective and the context in which the aforementioned information offers comparative understanding

Products

The OPD offers three types of financial products to low income entrepreneurs and businesses, i.e. working capital loans, social franchise loans and microenterprise loans. All three products are designed to address the needs of low-income entrepreneurs. The OPD is currently evaluating the economic and social performance of its products, based on the market intelligence and changing demands of its primary stakeholder- low-income entrepreneurs. The current number of loans under working capital, social franchise and micro-enterprise are 5,724, 34 and 106 respectively. Further details of these products are presented below.

The OPDSP Financial Products
  Humqadam Madadgar Apna Qarobar Khudqafeel
Basic Criteria As per OPD Policy As per OPD Policy As per OPD Policy As per OPD Policy
Period Of Loan 12 months 12 months 12 months 15 months
Loan Range Rs.20,000-40,000 Rs.30,000-50,000 Rs,45,000-75,000 Rs,60,000-90,000
Repayment Procedure Instalments every 30 days Instalments every 30 days Instalments every 30 days Instalments every 15 days
No of instalments 12 12 12 30
Purpose of Loan 1- Productive loans for small legal business

1- Registered education entities for improving quality.

2-Legal family health centers

1- Strengthen small and medium enterprise 1- Strengthen small and medium Fast Food Point
                             

Outreach

The OPD focuses on entrepreneurs (both men and women) living and doing business in low- income areas in and around Gujranwala city. The five branch offices are located in Distt Gujranwala (Four branch offices in Tehsil Gujranwala, i.e. Satellite Town, Shaheenabad,Khiali, Wazirabad ) and Tehsil Kamokee (one branch office). The OPD’s clients engage in commerce, retailing, small-scale trading, handicrafts, small-scale manufacturing, light engineering workshops and the service sector, livestock, poultry and fish farming.

Pricing

The OPD has adopted a uniform pricing strategy for all of its financial products. The pricing includes 20% service charges on a flat rate basis, 1% processing fee charged up front (reduced from 3% from April 2016 in line with PPAF’s recommendation), 1% contingency fee to underwrite the loan amount in the event of a client’s death. In addition, PKR100 are also charged as up front application fees. The pricing is in line with other mainstream MFIs in Gujranwala. The OPD’s income from its microcredit portfolio covers 100% of the operating costs.