DAWN Archive: Micro-finance in Pakistan

A Micro-Credit Success Story
By Zofeen T. Ibrahim

When Shamim Akhtar’s 20-year-old daughter developed an acute case of ulcers, last year, and had to be hospitalised, she had little choice but to approach a neighbourhood moneylender and borrow Rs20,000. Her husband was unemployed at that time.

At 200 percent interest rate, it meant that she had to pay Rs.2,000 to the moneylender every month. In 18 months she had paid Rs36,000 as interest, but the principal amount she owed the moneylender remained unchanged.

A couple of months ago, she heard of Akhuwat, a Lahore-based non-profit organisation that gives out interest-free loans to the poor, and even settles the outstanding amount. The NGO calls it “liberation loans.”

Now Akhtar is one of 400 people, mainly women, which Akhuwat has liberated from the clutches of loan sharks. “One of their managers came with me to the money-lender and paid him off at one go. I’ve never felt so relieved. I now pay them Rs1,000 every month and will be able to clear my loan in 20 months.”

“We really target the poorest of the poor, the ones who cannot even access micro credit,” says Amjad Saqib, the executive director. Their philosophy is based on Islamic teachings: the principle of Qarz-e-Hasna or helping someone in need with interest-free loans, which are preferred over charity.

“Most micro credit professionals regard Mohammad Yunus as the brain behind micro crediting; we believe this practise to be 1,400 years old, from the time of Prophet Mohammad (Peace Be Upon Him), who inculcated the spirit of brotherhood, that poverty can be eliminated if we are willing to share our resources with the needy,” he explains.

Where does Akhuwat raise its funds from? “From Pakistan. Unlike most NGOs that depend on international funding, it taps the spirit of volunteerism and tradition of giving that is central to Islam,” he explains. A national survey of individual acts of charity conducted by the Pakistan Centre of Philanthropy revealed that “an equivalent of Rs70 billion in monetary donations, volunteer time and gifts in kind were given out in 1998.”

From a start-up donation of Rs10,000, Akhuwat’s kitty had swelled to Rs70 million in just five years, with even President Pervez Musharraf contributing Rs200,000 and his mother Rs100,000. “Anyone can become a life member by donating a sum of Rs10,000.This amount is credited for one year, returned to the credit pool and lent again, and the donor this way, saves many families from abject poverty by just this initial amount.”

All eight Akhuwat branches function from within the premises of mosques. According to Saqib, the decision was deliberate. “For far too long, we limited the use of mosques to just prayers. In between, they are just desolate. With our offices in mosques, we have saved tremendously on operational costs. We don’t pay rent or utility bills,” he explains.

For now, the Rawalpindi Chamber of Commerce and Industry, inspired by Akhuwat, has said it will start its own program by March, while in Peshawar; another organisation has already begun lending to the poor without interest. In Multan, meanwhile, a church-sponsored initiative is about to take off.

Originally published in Daily DAWN's in-paper 'The Review' magazine's Feb 16, 2006 issue.