Serving the Poorest of the Poor: The Poverty Impact of the Khushhali Bank’s Microfinance Lending in Pakistan

Is it possible for microfinance institutions to simultaneously pursue profits and poverty reduction?

Our study explores this question by analyzing the impact of the Khushhali Bank, the largest retail microfinance bank in Pakistan. Khushhali Bank has shown that it can scale up outreach while remaining focused on the core goals of operational and financial sustainability. Using primary data collected from over 2,000 rural and urban households across Pakistan, this study examines whether the bank has also had an impact on economic or social measures of poverty, including empowerment of poor women, or income generating activities run by those households.

This study was originally presented as a draft at a seminar in Pakistan in September 2005. It has now been revised and published as a monograph.

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1. Khan Hidayat Ullah
   (posted 23 November 2006 / 10:14:28 PM)
   
   Econometric Model Selection:
   
   I went through your paper and really liked the approach adopted by you while found your results interesting as well.
   
   I have one comment to make. When it comes the components of microfinance pertaining to the term of loan, e.g., amount, duration and repayment mode, in practice these factors are determined by the both the borrower and lender through negotiation between line staff of MFI and Managers of CBOs. This results into adoption of resolution by members in joint meeting held by field staff MIF and CBO.
   
   Keeping these factors in view, the claim that an explanatory variable relating to terms of micro-credit is exogenous becomes doubtful. This creates endogenity problems in the model and the results which are estimated by this model can not be claimed as unbiased.
   
   In you model you have used variables like amounts of loan and times of loans borrowed in past, which brings in endogenity problem in the model and leads to biased estimates, if I am correct? I would like to know how you addressed this problem in your econometric model. If not what kind of instrumental variable you intend to use in order to deal with situation will.