Low population density, small average loans, and low household savings, which increases the transaction cots per monetary unit of financial intermediation. Lack of infrastructure, limited social services like education and health, and low integration with complementary markets results in highly fragmented financial markets that involve high costs of overcoming information barriers and limited risk diversification opportunities. Seasonality of agricultural production and sensitivity to natural disasters heighten the probability of covariant risks (in prices and yields) affecting client incomes and add to the cost of rural financial intermediation.

The microfinance program thus aims at easy accessibility of the rural poor to credit, which is believed to increase a household liquidity both in short and long run. The availability of lump sum cash in the form of loans increases the purchasing power of the target household for responding to economic opportunities and also avoiding the risk of making a sale of a productive asset in case of any income shock.

SRSP provides loans to individuals against group guarantee. Small loans required by the members of the Community/Women Organisations are given through a transparent process of identification of deserving members (with a primary focus on poorest of the poor) by these groups. A group generally has a president, secretary, an activist and around 30-35 members from a village. To apply for a loan, the group comes up with a written resolution in its general body meeting, which is also attended by a Social Organiser/Credit Officer of SRSP. In the meeting, a group recommends x number of borrowers for loan disbursal by the SRSP. Borrowers' social as well as technical appraisal is carried out accordingly. Normally 25-35% of the group members avail the credit facility. Groups that have been formed by SRSP also manages its members savings, for which it usually have a bank account and of which loans to the group members are also issued internally charging, either at low mark up or sometimes at no mark up at all. The group also linkup their members with other external sources, other then SRSP in order to meet their financing need for productive purpose. As of December 31, 2004 over 245 million rupees have been disbursed to around 20,000 clients with an average loan size of Rs. 10,000 per borrower. 28 percent of the total clients are women. The credit facility is being accessed for various income-generating activities. The districts where the microfinance programme is operational include Peshawar, Nowshera, Abbottabad, Haripur, Mansehra and Battagram, Kohat, Karak and Hangu, The main donor to support microfinance operations in the eleven districts of existence is the Pakistan Poverty Alleviation Fund (PPAF), which provides a running finance facility of Rs. 100 million for credit disbursement to SRSP. There is no cap on the mark up that SRSP charge from its clients as the PPAF highly encourages a self-sustained microfinance programme for long term access of the poor to credit in the province.

Loan Products For Rural MicroFinance

Designing loan products was challenging as it always involves balancing the demands of the target market with lending agency’s concern for risk management and attaining financial sustainability. We have experienced that the interests of the borrower and the lender are often in conflict while offering any lending services. Borrowers prefer no or low interest rates, loans with large amounts and for longer period, which if offered makes impossible for the lender to attain financial sustainability as well as maintaining the loan portfolio in a good shape. The products on offer are designed in a manner that it takes into account a member weekly savings capacity. Women members of the group apply for the loan against the group guarantee. Group size ranges from 3-5 members in urban while 15-20 members in rural groups. All loan products entail a fixed loan-processing fee (irrespective of the loan size). Except Emergency Loan, which is designed to save a member from the sale of a productive asset in case of an income shock, the rest of the loan products are offered with a mark-up of one percent per month charged on flat rate method. Loan period varies from 10 to 32 months. Loan graduation to higher ceilings is offered against all loans based on a client outstanding repayment behaviour and capacity. With the beginning of 2006, three new loan products were added to the product list. The eligibility requirement for receiving loan encompasses the following requirements:

• The perspective client has to locally reside;
• She shall be in good health and her age shall fall between 18 – 60 years.
• Availability of National Identity Card is must;
• She shall be willing to stand as guarantor for her group members;
• She shall allow staff members to carry out her household and business (if any) appraisals; She shall regularly attend and save in weekly meetings if she is a member to a Saving Group.

Loan Products Details

Managing Loan Costs

We also strongly believe in a direct relationship between a well-trained staff and high productivity, therefore at SRSP substantial attention is focused on prescreening staff. Relaxation in qualification is acceptable. Generally potential credit officers are preferably to be graduate or less (higher qualification means higher salary expectation). The selected candidates training lasts for two cycles. During the first cycle, they are hired as volunteer for a month.  During the period they are made familiar with the SRSP’s core values and competencies and also teaching them the theoretical aspect of their jobs. SRSP believes that such kind of orientation creates a sense of elitism so new employees believe they are joining something special. At the end of period, successful candidates are offered trainee status with a fixed monthly stipend.  During the next six months they interact with the target group in the field, where in they start learning the technical aspects of the job and tricks of the trade from experienced personnel. They get confirmed as regular staff upon the satisfactory completion of their training period.