Less than 25% of Pakistani women use microfinance loans

ISLAMABAD: Less than 25 percent of Pakistan’s women entrepreneurs are microfinance borrowers as most businesswomen rely on savings, personal assets and family loans for capital.
A World Bank report on “Are Pakistan’s Women Entrepreneurs Being Served by the Microfinance Sector?” released Wednesday finds that discriminatory lending practices are pushing Pakistan’s women entrepreneurs to look beyond microfinance providers (MFPs) for loans.
The report also finds that loans do not always benefit women borrowers. Men, who need loans, including those who have defaulted in the past, have begun to use women to access credit. Between 50 to 70 percent of microloans to women in Pakistan may actually be used by their male relatives. In such cases, women borrowers remain wholly accountable for these loans.
“Access to finance remains one of the biggest challenges for Pakistani women who want to start and grow a business,” says Rachid Benmessaoud, World Bank Country Director for Pakistan. “But strict guarantor requirements and the practice of offering business loan products exclusively to men have only widened the gap between Pakistani businesswomen and the microfinance sector.”
Microfinance loans for businesses are largely unavailable to women entrepreneurs, especially unmarriedwomen who are considered high-risk borrowers. MFP requirements make it difficult for businesswomen to secure loans without men as guarantors. Nearly 68 percent of women borrowers required a male relative’s permission in order to qualify for any kind of loan. In addition, nearly all MFPs require women clients to provide two male guarantors in order to access a business loan- and at least one of the guarantors should be unrelated to the borrower. MFPs do not accept women guarantors for these loans. Finding unrelated male guarantors can be a challenge for many Pakistani micro entrepreneurs who could be constrained by limited mobility and social barriers.
“Group loans are often the only option for women entrepreneurs, which isn’t ideal because they are expensive, time consuming and unsuitable to their business needs,” says Mehnaz Safavian, a Senior Economist at the World Bank. “Since only small loans are available under group lending, women clients often have to borrow from more than one MFI for their capital needs, which means more transaction costs.”
The report identifies steps the microfinance sector can take to expand its outreach to women entrepreneurs. The challenges are daunting, but investment in financial literacy and better designed products can give more women entrepreneurs the resources they need to grow their business. As a driver of microfinance policy, the State Bank of Pakistan can also further inclusion in microfinance by setting standards for consumer protection of women borrowers, advocating for transparency in gender reporting and discouraging discriminatory practices and policies.