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HomeISFIRE Vol 12– Issue 4 August 2022How Microfinance Can Be Used To Create Livelihoods

How Microfinance Can Be Used To Create Livelihoods

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Background
Poverty is a global issue, and not a national one. However, the issue runs deeper in the developing and underdeveloped countries but even the developed countries cannot claim that they are 100% poverty-free. It is spread unevenly among urban and rural areas. Poverty or lack of access to the financials has always been the most telling problem; be it economic or social. It not only affects the individual, but the society as a whole, and in a very destructive way.
Poverty is not only a hurdle in human development but also in the economic development of any country. To fight poverty and provide financial services to those who are either neglected by commercial banks or financial institutions, Microfinance is among the most effective means. For the past few years, MFP’s world over, including Pakistan, have adopted more holistic approaches and product offerings in an effort to reach the social impact targets of poverty alleviation and beyond. In Pakistan, the microfinance landscape, what once started off with a small number of institutions offering basic microcredit to the unbanked population has evolved into a complex microfinance market. This sector has experienced a promising year and recorded continuous growth across credit, deposits, and savings.
According to the data, there was a 10.4% growth in the microcredit portfolio, even though the number of borrowers increased by only 1.1%. In Quarter 3 of FY2022, there was a significant growth of 14.9 percent since June 30, 2021. W.r.t deposit base, there was an impressive growth of 13.7% (Source- Pakistan Economic Survey 2021-22).
Before the organised and structured financial institutions, the poor usually used to get loans from informal sources. Friends, relatives, shopkeepers, and landlords were the common sources of loans. Due to the lack of income, and the need to fulfill basic living requirements, they were forced to use informal mediums. Thus, the need for a formal financial institution was always there.
The uptake in the Pakistan microfinance sector has occurred on the back of various initiatives and developments over the past decade. The emergence of new players, branchless banking initiatives, product innovation, enhanced geographic footprint and access to credit guarantee schemes for SME financing have all played a major role in stimulating sector outreach. However, the critical success factors that have proven to push the market forward have been recent advancements in technology.product innovation, enhanced geographic footprint and access to credit guarantee schemes for SME financing have all played a major role in stimulating sector outreach. However, the critical success factors that have proven to push the market forward have been recent advancements in technology.

Role of Technology and Innovation
Although access to financial services is low in developing and underdeveloped countries, the penetration of the mobile phone is on the rise. With the advancement in technology in financial sectors, now the underserved population can access mobile credit, savings, payment, and e-wallet solutions easily.

They can do any sort of transaction from anywhere and without the hassle of going to the branch. With the recent advancement in technology, now people will be able to open an account using their phones. Microfinance sectors are also working on the idea that if a person does not have access to the phone, MFI are offering them (those who are taking the loans) the smartphone at a certain price and with the loan amount, people will be able to repay the amount of mobile phone. Mobile phones can be used to apply or further loans, other transactions etc. Apart from that, in areas where there is no presence of branches, microfinance banks have assigned a local merchant. The agent uses POS terminal that connects to the subsidiary banking network.

U BANK HAS BEEN FOLLOWING THE GUIDELINES SET FORTH BY THE UN SDGS; ZERO HUNGER, ECONOMIC GROWTH, INDUSTRY INNOVATION AND INFRASTRUCTURE AND REDUCING INEQUALITIES.

For females, there always have been a lot of challenges in accessing the financial services. The microfinance sector is working on developing female-specific products, keeping in mind the constraints. The major challenges include visiting the branch, male staff at the branch etc. MFPs are working to overcome the challenge of going to the branches. Instead, such a mechanism will be developed that even for the biometric, they will not have to visit the branch.
The advancement in technology generates income and reduces poverty. People have easy access to the systems, processes are more efficient, without the cost of physical presence of the financial institutions, and people have access to expanded economic networks.


Role of U Bank
U Bank has always been at the front in creating the impact by offering different products and services to the underserved population. To continue the bank’s commitment towards creating a lasting social impact in the lives of its customers, U Bank has been following the guidelines set forth by the UN SDGs; zero hunger, economic growth, industry innovation and infrastructure and reducing inequalities.

The bank wants to contribute to positive trends in our national indices on indicators such as economic growth, education and enrolment, health and nutrition and poverty alleviation etc. To ensure that their products are creating an impact, U Bank, the first of its kind, has taken an initiative to regularly interact with its customers and conduct research studies to understand how loans have impacted their customer’ lives and businesses. Based on the findings, U Bank gets a clearer picture of how they can keep making progress on its social impact agenda.
U Bank has made sure that even if a man/woman wants to start his/her business or need finance to run a business at home, he/she gets the services in an efficient and timely manner. Customers can contact the bank, and RO will take all the necessary devices with them to the customer. All the processes will be done there and then, and data will be added to a tab. Customers will not have to visit the branch multiple times. Once the loan gets approved, only then the customer will have to visit to collect the amount. To make things easier, customers can repay the loan amount using a digital app.
There are quite a lot of success stories of U Bank and its customers. With the intention of serving the best to the customers, U Bank has a team of customer support. Bringing the customer on board is the first step, but to retain the customer for a longer period of time is an art. U Bank takes pride in claiming that the customers have been using the services for a long time and U Bank has impacted their lives in a positive way.

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