Microfinance As a Tool for Poverty Alleviation in Pakistan

Abstract

This research looks into the impact of microfinance institutions on poverty alleviation in Pakistan. Rising poverty is one of Pakistan's major economic concerns. Microfinancing is a type of lending that offers funds to the poor or small businesses; hence, this problem can be overcome with the help of microfinance institutions. Microfinance is categorized into two kinds: non-deposit-taking and deposit-taking institutions, and it operates in either the formal or informal sectors. Non-deposit taking institutions (MFIs) rely on donations and finances from other sources and are therefore not self-sufficient; on the other hand, deposit-taking
microfinance banks (MFBs) can create fund through deposits. MFBs can assist the poor in two ways: by allowing them to profit from their savings and by lending to them. This analysis is centered on microfinance banks (MFBs) as a source for poverty eradication in Pakistan because of its features. The goal of this research is to emphasize the importance of MFBs as a
source of poverty eradication in Pakistan, which may be used by government agencies, Islamic organizations, and Islamic institutions in rural and underdeveloped areas where commercial activity and loans are unavailable. Determine the short- and long-term link between MFBs' total assets (TA) and the poverty headcount ratio (POV). Because the history of microfinance
institutions began in Pakistan in 2001, I analyse time-series data from 2001 to 2019. These types of studies have been conducted in Pakistan and around the world, and they either used primary data or, if secondary data was used, they used the old and very simple OLS techniques, which are no longer applicable due to the presence of stationarity in the data for these variables at the first difference. The short-run association between the variables is solely estimated using the standard OLS approach. In this research, I analyse the long-run and shortrun relationship between TA and POV using the ARDL model, which appropriately analyses the long-run and short-run relationship. This research conclusively resolves the question of whether increasing MFB assets will result in the supply of loans to the poor or microenterprises, hence reducing poverty in Pakistan.