Before I come to the point that I want to make today, I have a little story to narrate. About four years ago, I stumbled on to the microfinance sector by a sheer stroke of chance. Before that I had always dreamt of doing something for the teeming millions suffering in the ruthless clutches of poverty.
Microfinance, as you all know, was supposed to be one important tool in fighting the menace of poverty. I began my new assignment in this sector with all sincerity. Soon I was awakened to the fact that conventional microfinance, in most cases, was producing the results directly opposite of the stated aims. I cannot doubt the intentions of the donors, but in the intermediary layers there was a rampant abuse, which, in fact, was further plunging the poor into a bottomless pit of misery.
That was the point when I began to reflect on the causes of the setbacks in the sector. During the same period the news of failures in the worldwide conventional microfinance sector began pouring in. this also coincided with the worst recession since the great depression of the 1930s. By the way it began with the sub-prime loan crisis and sooner, rather than later, it took over the whole developed world. Even today the world is still reeling under this crisis with no end in sight so far.
The most striking realisation which I had during the period I was working with conventional microfinance, was the nature of the relationship between the client and the facilitating agency. It was a cold, business-like, kind of matter of fact type relationship. I was surprised to see the utter disregard of the facilitators towards the clientsÕ education, skills, abilities and plight. Here was the root cause of the set backs which led to the painful process of defaults and subsequently late night recoveries.
Having gone through this experience I further pondered upon the causes of failures and came to the conclusion that extending micro loans to the poor without evaluating the capabilities and skills is absolutely self-defeating.
I also came to the conclusion that extending cash to the cash-starved poor creates problems instead of offering any solution.
Here was the point when I, along with a few other friends, decided to enter the market with a new methodology, which we subsequently named as the Farz methodology. We had a few assets that we sold and took the plunge. Napoleon once said 25 percent of his decisions were always a leap in the dark. But to me, our decision to embark upon the partnership and asset-based microfinance was no leap in the dark.
To put a long story short, our one-year pilot project produced amazing results, at a time when not only the poor microfinance clients were defaulting but even the states began their journey on the painful course of bankruptcies and defaults. Though, there canÕt be a comparison between our humble organisation and the mighty states, it at least gives food for thought to many as to how did we achieve hundred per cent recoveries when the mighty organisations like Grameen were faltering.
The secret lies in the fact that we trained our clients, provided them with market linkages and health care before extending productive assets. Another important factor was the fact that we proceeded with our clients on partnership basis.
Ladies and gentlemen
This is the humble saga of the Farz Foundation until now and I stand here before you, along with my wonderful team, without whom I could not have achieved whatever I have achieved so far.
During the last two decades, the world has seen the biggest events of human history. One being the worst ever recession of the west, which now seems poised to hit the poor world. The experience of the west gives us food for thought. While embracing all that was good in western economic structures, we should not shut the door on innovation. We usually feel comfortable to tread a beaten path, but THE world has always progressed with innovations. We do not, and never intended to, take a plunge in the dark.
There is a striking similarity between the post second world war Europe and Pakistan. After the floods 20 million people have been affected. Their tools and lands need repair. They need funds to kick start their productive work.
They are a challenge as well as an opportunity for us. ItÕs a huge untapped market awaiting intelligent investors. Our one year pilot project opens a window to this new economic opening. Quite surprisingly, Islamic banking and finance has witnessed about 15% growth at a time when conventional banking was hit the hardest and is being bailed out with huge sums, rendering the states bankrupt. Islamic banking is destined to play an important role in a not too distant future. By combining Islamic microfinance and rehabilitation work, we can work miracles.
We all agree that investment in human capital is always of a paramount importance for any societyÕs development. A poverty-ridden society is always a hub of growing militancy and crime. It can effectively be countered through creating a partnership with the poor along with creating awareness among them.
We also believe that the Farz Foundation can also bridge the local investor with international financial institutions for curing our ailing economy and to have a healthy but so far an illusive growth rate. The Farz SME and Entrepreneurial village can pave our way to that coveted goal.
There is no denying the fact that industrial peace is a key to the smooth running of any unit as well as the overall economy.
We extend our hands to you to exploit this opportunity at the most opportune moment when millions of skilled people await our help to be re-engaged in a productive process. Our country at least owes that much to us. This is not a mere dream. We have many precedents in that past when countries like Malaysia have prominently emerged on the economic map of the world.
Believe me another world is possible.
By: Farhat Abbas Shah