The opinions that the various groups harbour regarding MFIs and their clients discussed in the last section can be evaluated by their attitude towards the respondent HHs and Kashf employees for their (potential) membership and employment with Kashf. Any kind of threat, warnings or provocations encountered by Kashf clients, or by non-borrowing HHs who seek a potential membership with Kashf, is presented in Table 5.5.
Table 5.5: Component 3: MFI borrower information and threats/ warnings/ provocations encountered by the respondents
Borrower HHs Control Group Difference in sample means
(p-value of t-test)1
N 43 35 12 9
Reported by women men women men
Male guardian/ husband knows of borrower
status 42
2 35 - - -
MFI status confidential (not made public to
peers) 3 2 - - -
(Potential) MFI membership has been a cause of threat/ provocation from
extended family 6 1 2 1 0.0519
community chief/ headman 1 1 0 0 -0.0256
neighbours/ peers 6 5 1 0 -0.0952
religious factions 6 6 1 1 -0.0586
local moneylenders/ traders 2 2 0 0 -0.0519
public officials 1 1 0 0 -0.0128
local politicians/ councillors 1 0 0 0 -0.0259
Other MFI loan officers 7 6 0 0 -0.1688 **
1. The p-value refers to a t-test of the difference in the means for borrower HHs – non-borrower HHs); *p<0.1, **p<0.05 and ***p<0.01 (two-tailed).
2. A case of the male nominee being the brother in law and not the husband, who opposed MFI membership.
The previous section highlighted that borrowing in general is an act that many would want to avoid. Similar to the number of cases in India, there were an equal number of respondents in Pakistan who wanted to keep a low profile by keeping their borrower status confidential to their extended family and peers. Five respondents (3 HHs) admitted to hiding their loan status from family and peers in their communities. These statements were backed by Kashf staff (see Table 5.6), who admitted that some members preferred to hide their MFI membership status from their families or relatives. Similar to the situation in India, borrowing was not something which a HH would want to be associated with. Within the communities, humility and living humbly, even
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hand to mouth, was a status which would still be looked upon with empathy and appreciated by many. However, the appearance of living beyond one’s means and taking up loans might be interpreted as a sign that the family was extravagant and not in control of their lives. As one respondent in the district of Lahore put it, in the words of a common old adage, one should not go beyond his means or capacity.
Apart from this perception of borrowing, respondents from both the sample groups reported having encountered unpleasantness in the form of threats and warnings of one sort or another, directly from extended families, neighbours and peers, MFI loan officers, the religious faction, public officials and moneylenders. However, of all such encounters the most active and bothersome were those with the religious foremen within the communities. This was confirmed by the loan officers of Kashf. Of the 11 loan officers and managers interviewed, 10 reported members of the religious faction specifically as a group hindering them in their work when in the field (see Table 5.6). According to one loan officer:
“… [As employees of the MFI] when we are in the neighbourhoods on work, we are harassed by the members of the religious faction and their supporters; who follow us in the streets within communities and call us names like ‘dozakhi’
[meaning dweller of hell in the hereafter] and give us a difficult time in doing our work”(interview with Kashf loan officer, Lahore, Punjab, Pakistan).
Obviously, these religious groups were a cause of such nuisance as they believed they were the community’s moral police, and obligated to make sure that immoral acts (interest-based loans) were curbed and discouraged. This risk of harassment associated with religious influence within communities is a real one in Pakistan (Haq and Khaliq 2011). One such strong opinion was handed down by a non-borrower’s young son who was active in the local community with a group who possessed anti-MFI sentiments:
“Riba [charging interest] is a great sin… banks may do that on a state level, but we in the local communities will not have it tolerated when this [ideology/ practice] creeps into our neighbourhoods and streets. I and like-minded fellows often discuss this and have many times tried to persuade them [loan officers of MFI] to stop their activities.... there are also other Sharia-compliant alternatives to microfinance”
(interview with male non-borrower, Sheikhupura, Punjab, Pakistan).
Upon further probing, the respondent claimed that MFIs were also operating on the local markets in communities offering loans which were compliant with the Islamic economic laws. The respondent did not name any particular MFIs, but insisted that such MFIs were not only Sharia- compliant in the range of products that they had to offer, but also made sense for low-income
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communities like theirs as they were cheaper. Elaborating on this, he referred to how some MFIs used local mosques as their operating base within communities offering interest free loans based on the concept of Qarz-e-Hassana. Qarz-e-Hasana is an Islamic benevolent loan, which is
basically based on the principle of “spending in the path of Allah without expectations of return in this world. If the party to which the loan is given is able to repay, then one might get the loan back, but otherwise not” (Zaman 2013: 12). The respondent also stressed the point that such Sharia-compliant lending and borrowing practices would find general acceptance within the communities without much opposition, as they were in accordance with the beliefs of the majority within the communities, and would not discriminate against minorities either. This helps explain the fact that more control group HHs were part of credit associations like ROSCAs (see Table 5.2) than borrowers with conventional MFIs. As ROSCAs pool savings and technically operate interest-free, few people would have reservations toward becoming a member in a ROSCA for religious reasons.
Relating all this later to a colleague at the Economics Department of the Punjab University in Lahore, I was able to gather further insights on how MFIs with Sharia-compliant microfinance loans were operating within Punjab and Pakistan for over a decade. Akhuwat is an NGO MFI in Pakistan, one of the largest in the country with branches all over Pakistan. It provides interest free microfinance to the poor, with the aim of enhancing their standard of living by creating a system based on mutual support in society (Akhuwat 2015). A look at Akhuwat’s website confirms that they offer loans which are interest free (Sharia-compliant). It operates from religious venues like mosques, usually addressing crowds after Friday prayers, and seeks to inspire and harness the spirit of volunteerism in society (Akhuwat 2015).5 The interesting point here is that MFIs that offer products which are more Sharia-compliant will eventually compete for the same clientele as MFIs that do not. This alternative is always better for the borrowers, as there is no interest and no pressure to return the money. However, credit may be in short supply for many of the borrowers, as there is no obligation to return the money needed to continue lending. Furthermore, more conventional MFIs like Kashf are perhaps more established and have a loyal clientele who are otherwise satisfied with the services being offered to them. This clientele might not be willing to switch easily to alternatives like Akhuwat.6 Yet there might be indirect support and pressure from within the communities on behalf of Sharia-compliant MFIs,
5 The MIX market also lists Akhuwat as the 3rd largest in Pakistan in terms of active borrowers and 7th largest in terms of loan portfolio (larger than Kashf in both the terms).
6 Disclaimer: Akhuwat is just an example being quoted as a possible alternative to conventional MFIs mostly because of the scale of its operations which is compatible with Kashf. At no point whatsoever was Akhuwat mentioned by the respondents of the survey in any context regarding the operations of Kashf or other MFIs whatsoever.
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either voluntarily or perhaps even with support from MFIs to those who endorse them. Understandably, the fact that Sharia-compliant MFIs operate from religious sites such as mosques would make them more approachable and perhaps more popular with local communities that are predominantly Muslim. The respondent in Sheikhupura, who was very vocal in expressing his displeasure at conventional MFIs like Kashf that operate through interest- based loans, denied all claims of support from such alternative Sharia-conforming MFIs or their supporters for his efforts in confronting conventional MFIs. However, MFIs with products for the local communities based on conflicting ideologies or principles, may confront strife or opposition amongst the supporters or employees of rival MFIs, due to their motivation to endorse MFIs that are more in accordance with prevailing beliefs or culture. Therefore the imam who opted for an MFI loan despite his stance against interest-based loans, could be a part of such a Sharia-compliant MFI, due to their close associations to mosques. Unfortunately, this could not be verified.
Beyond the issue of ideology, in general, women respondents reported a higher rate of provocations and threats from the extended family than did men. In addition to the extended family, neighbours and peers were also among the major provocateurs militating against MFI membership. The main reasons cited for these provocations were opposition on religious grounds and envy. As stated in the previous section, the respondents from the borrower HHs, especially men, had a much more pragmatic attitude and were less intimidated by such issues as loss of face or fear of religious leaders. As long as they themselves were convinced of the decision to opt for a loan, and secure in the fact that they did not have to fear the loss of authority in the home, it did not matter that the official recipients of the loans were the women. One such respondent from Gujranwala stated:
“We were already married seven years when my wife first suggested that we borrow from Kashf to invest in a motorbike for speedy delivery of the milk from our cows. My parents and brother were extremely unhappy about the decision as they thought my wife would then make claims [on the revenue generated from the sale of
the milk]. I knew that even if she did, the money would be invested back in our children and we would be able to deliver milk faster especially in summers [to
avoid the milk from going bad] and make more money” (interview with male
borrower, Gujranwala, Punjab, Pakistan).
Credit appropriation by women within social institutions like the HHs or communities is usually followed by a pattern of rivalries and envious struggles within these units, and this pattern has been commonly observed (see Guerin et al. 2010 and Maclean 2010). In the case of joint HHs
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like that of the respondent, some relatives feared that his wife opting for a loan would affect the households’ decisions like resource allocation and management, and were concerned that the wife would bargain and negotiate a new place in the pre-existing familial hierarchy due to her contribution to the household budget (see Guerin et al. 2010). The loan materialized despite opposition from the senior members of the immediate joint family, because the male guardian in this case felt secure enough in his position and convinced of the net benefits of the loan to his HH.
On the provider side, Kashf employees have also had a tough time conducting their operations within the communities. Table 5.6 presents some statistics on this.
Table 5.6: Responses from Kashf employees concerning problems/ hindrances they face
N 11
When in the field always cautious/ wary of attitude/ surroundings/ people/ language 11 Have faced difficulties/ were hindered in approaching clients from different groups 10 Clients prefer to keep membership secret from extended family/ neighbours/ peers 8
Groups specified as causing trouble/ difficulties that hinder employees in their work
Members of the religious faction People of the locality (local leaders) Family members of the borrowers
Loan officers/ employees of other MFIs/ banks Advocates/ lawyers
Landlords/ rich powerful men and their devotees OD clients 1 10 8 3 3 3 2 2 Clients have been hindered in paying instalments due to external (third party) influence 6
External influence (3rd parties) specified via client complains as hindrance in timely payments
Moneylenders Loan misuse
Envious family (jealousy) OD clients
2 2 1 2
Trouble or support from government agencies in general and during crisis
Trouble Support None 8 1 3
Specification of government agencies/ employees who cause trouble
Local politicians/ nazims/ councillors Police officers
Public prosecutors/ advocates
4 2 2
1. OD (over draft) clients are clients who are current defaulters of loans disbursed in and before 2008 and the delinquency crisis resulting in major default from clients of Kashf.
From the discussion in the previous sections, it comes as no surprise that topping the list of troublemakers within the communities, as identified by the Kashf employees, were members of the religious faction. Almost all loan officers interviewed referred to one encounter or another by the religious faction or their supporters, which caused the loan officers difficulties in their work. Other groups identified for such behaviour were people of the locality and neighbours, family
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members and loan officers from competing MFIs, advocates and lawyers were specified as a group on the list of trouble makers. The trouble encountered from the categories “people of the locality or local leaders”, “advocates and lawyers” and “OD clients” have been mostly associated with the crisis that the microfinance sector faced in 2008/2009 in Pakistan. In this context, one Kashf branch manager stated that:
“…since MFIs in Pakistan work in a very volatile and strenuously increasing competitive environment, any rumours from any faction, especially legal advisors,
local political leaders or police and government employees about MFIs’ ‘helplessness to take any legal action in case of default’ or loan write offs have
proved to have grave consequences for the MFIs” (interview with Kashf branch
manager, Punjab, Pakistan)7.
The statement from the branch manager of Kashf above was made in reference to the delinquency crisis in the years 2008/9. At the very centre of this sector crisis was Kashf, where clients all over Punjab and Pakistan stopped repayments due to aggressive and harmful interventions from several actors that initially started off in the district of Sheikhupura, Punjab, and then spread uncontrollably to all parts of the country (see Burki 2009). The spark for this mass default is said to have been a local politician, who is reported to have promised his support in having the loan of a woeful MFI client who was behind in her/his repayments to Kashf cancelled. The politician had basically used the woeful client’s plea for intervention as an opportunity to gain political mileage from the local community members before the upcoming elections. The following section will discuss the crisis in more detail.
Microfinance Delinquency Crisis 2008/ 2009
According to a report commissioned by the Pakistan Microfinance Network (PMN),
“Groups of borrowers of one of Pakistan’s largest microfinance provider (MFP) – referred in this report as MFP-X – refused to repay loans amidst rumours of mass loan write offs” (Burki
2009, p.1). The “MFP-X” in the commissioned report is Kashf as confirmed by several interviews with the Kashf employees and clients. The facts of the whole story as stated by the interviewed respondents of this study and those stated in the report conform perfectly. Kashf management itself would not confirm this. However, one senior executive staff member did provide a cue, in a discussion, to refer to this commissioned report by Burki 2009.
From discussions with the Kashf employees and clients, the crisis was reported to have
7 The branch manager wished to remain anonymous for this statement, so the district of the branch is intentionally omitted.
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started in the administrative unit of Muridke of Sheikhupura district, where a local politician backed borrowers of Kashf in resisting repayments, encouraging the clients to default. This was then exacerbated by all kinds of goons who saw some window of opportunity to benefit in economically by lending their supports to rival MFIs, local elites and rich landlords, moneylenders and politicians who jumped on the bandwagon to advance their vested interests. One of the most prominent channels employed to dissuade Kashf’s clients from going about their regular course of action were spreading mass rumours of the death of Kashf CEO, who had allegedly written off all loans before her death (Burki 2009). According to multiple respondents in Muridke, Sheikhupura, for this purpose several hundred copies of bogus newspaper articles in the local daily newspapers were doing the rounds in the locality, allegedly with Kashf’s CEO’s last interview on her deathbed. This wreaked havoc upon Kashf’s normal operations. The lending mechanism of Kashf before 2009 was group lending, but during the crisis “unzipping” of the groups occurred. This is a phenomenon described by Matin (1997) as when the entire group, burdened by excessive or multiple default, sees no further hope of continuing loans and decides to default en masse8 (Wright and Rippey 2003, p. 4).
All the claims related by the survey respondents in Sheikhupura were corroborated in the report by Burki (2009, p. 12): “...the rumour was spread through word of mouth carried by borrowers social network, and through province wide sale of photocopies of an article of local newspaper, being sold to borrowers for PKR 500 (USD 6.25) to PKR 3000 (USD 37.5) per copy.”A potential defaulter, having instalments of several thousands of PKR open, would have been tempted to pay just 500 PKR for the paper, in the hope of securing it as a piece of evidence for not having to pay back, or to convince the rest of his group members to defect from regular repayments. For those offering these, inciting default products was therefore a lucrative business to make high profits as long as the opportunity was there. Likewise, several other opportunists, including advocates and legal representatives, started offering services of legal action for a fee to all the defaulters in the court of law. Like the producers of the fake newspaper articles, these professional groups probably saw a window of opportunity to make money. Still other defaulters were supported by local government officials and union councils. The reasons for such support, however, are unclear and open to interpretation; this may have been due to social or familial associations, or to economic favours and compensation for such support.
The report also listed a number of other factors contributing to the crisis, like the rapid growth of the microfinance industry, increasing competition and overlap, and multiple
8The term “unzipping” was used by Rutherford first in 1992 and cited in Burki (2009), Wright and Rippey (2003) and Matin (1997); however none of them list the original source in the references.