SRSP from its experience and understanding of the target group understands that poverty reduction can only be possible if it is addressed with a multidimensional poverty reduction strategy. This may be in the form of imparting skill enhancement training with low cost training programs, providing financial support in the form of loans, improving physical infrastructure by not only constructing farm to market roads but also fulfilling the dire need of rural water supply and proper sanitation. Moreover, providing assistance in developing social infrastructure is also necessary to address the issue of poverty, especially in rural areas. This may be by creating awareness on rural health, education, and family planning through social mobilization. SRSP thus employs an approach where MCO/WCO are identified as vehicles for building the self help capacity and potential of the communities. These organizations are also the vehicles to identify and undertake a variety of diverse developmental projects related to, for instances, microfinance, infrastructure development, natural resource management, enterprise promotion and social development. SRSP has its microfinance operations spread currently in 60 union councils of the 8 districts of NWFP.
Rural populations in Northwest Frontier Province (NWFP) are mainly engaged in small-scale agriculture or agriculture-related activities and are generally poorer than their urban counterparts.
Characteristics of Rural Financial Markets in NWFP
- 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 combination of above leads to increase transaction costs and risks for any MFPs wanting to serve rural clients in NWFP. For these reasons, formal financial institutions have largely avoided serving rural areas. Consequently lack of access to business financing at a reasonable cost leaves most microentrepreneurs dependent on self-finance or very costly, short-term credit from money lenders, which limits their ability to actively benefit from investment opportunities and contribute to economic growth.
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.
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Managing Credit Risk
SRSP from its experience in microfinance has learnt that the credit risk can be managed in three ways: First is collateral (social is more effective than financial), information and credit policies. Collateral demonstrates borrowers’ willingness to repay ....... Read More
Future Programs of MicroFinance
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