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Lahore School of Economics And University of Oxford On Microfinance Products and Processes: Lessons from the Field

The second International Conference, jointly organized by Lahore School of Economics and University of Oxford, was held at Main Burki Campus of Lahore School of Economics on 13th of April 2017. The theme of the Conference was “Microfinance Products and Processes: Lessons from the Field”.The one-day event was devoted to discussions on the cutting-edge research in the microfinance sector. The conference brought together speakers from microfinance institutions, researchers and other stakeholders from Pakistan and outside of Pakistan to discuss main findings of the rigorous research of microfinance products and the key lessons of this research on the socio-economic welfare of Pakistan.


The conference started with the welcome remarks by Dr. Shahid Amjad Chaudhry (Rector, Lahore School of Economics). He mentioned that the issues the Conference aims to address are very important and must be explored in detail. He commented that the global economic landscape is witnessing tectonic shifts in major economic powers of the world including the United States and European Union that already hints that the traditional models of running the world as well as financial systems are no longer valid. In particular, innovative strategies to boost growth in microfinance are very important for the well being of people in the country. He stressed the importance of active contributions by both academicians and policy makers to provide fresh and innovative perspectives on microfinance products and processes.


The keynote lecture was delivered by Rashid Bajwa (Chief Executive Officer, National Rural Support Programme).Sharing over 25 years of experience in the microfinance sector, Rashid Bajwa mentioned that twenty years back the field was restricted to social mobilization and community development. The pendulum swing of perspectives in the field started with the inception of Pakistan Poverty Alleviation Fund (PPAF) in 1997. A key element of PPAF was to formalize access to microfinance in the country by providing technical assistance, grants and subsidized capital.

He contented that the microfinance sector has gone through steady changes over the years, yet we are still lagging behind; only 13% of the adults in Pakistan have access to a formal account, which is much lower than 31% in Bangladesh, 53% in India and 83% in Sri Lanka. The standard micro credit model, with high interest rates and immediate repayment, seems unable to generate enterprise growth.He pointed out that our knowledge on microfinance products and processes like credit, savings and micro health insurance is still very parochial and that more research is needed in these areas.

He shared that in spite of these challenges, the microfinance sector has gone through tremendous growth over the past 5 years, emerging as a commercially and financially viable model.with three main players dominant in the industry; NGO Microfinance Institutions (MFIs), MFI Banks and provincial governments (which have emerged as wholesalers of microfinance in the industry). He further discussed that increasingly microfinance initiatives are taking center stage in policy-making circles.

He acknowledged partnership of NRSP with various academic institutions like Lahore School of Economics, University of Manheimm and University of Oxford. He argued that these partnerships have allowed NRSP to test new innovations in the micro finance sector. He concluded his discussion with the remarks that in the credit market cycle we are at debt accumulation phase, that the country might see merger of financial institutions in the future, and that the government must clarify the core business of microfinance institutions.

Rashid Bajwa chaired the first session of the conference titled “Comparing the Demand for Microcredit and Microsaving”.


In this session, Uzma Afzal (PhD candidate, University of Nottingham and Assistant Professor, Lahore School of Pakistan)and Simon Quinn(Associate Professor of Economics and Deputy
Director of the Centre for the Study of African Economies, University
of Oxford)presented the study titled “Two sides of the Rupee? Evidence from framed filed experiment”. In this study, using a framed field experiment among women in rural Pakistan,the authors proposed that saving and borrowing among microfinance clients are substitutes, satisfying the same underlying demand for a regular deposit schedule and a lump-sum withdrawal. The study found high demand for both credit and saving, with the same individuals often accepting both a credit contract and a saving contract over the three experiment waves. Hence, the results implied that the distinction between micro-lending and micro-saving is largely illusory; participants value a mechanism for regular deposits and lump-sum payments, whether that is structured as a credit or debt contract.


Dr. Azam Chaudhry (Professor of Economics at the Lahore School and the Dean of the Economics Faculty) chaired the second session of the conference titled “Testing Product Innovations”.


The first presenter in this session, Andreas Landmann ( Postdoctoral Research Fellow, The Paris School of Economics)presented the study on “Adverse Selection in Low-Income Health Insurance Markets: Evidence from a Large-Scale RCT in Pakistan”. The study provided robust evidence on adverse selection in low-income health insurance markets from a randomized control trial in rural Pakistan. The study suggested that there would be substantial adverse selection if health insurance coverage are individually assigned. In particular, adverse selection becomes worse with higher premium prices, creating a trade-off between cost recovery and the quality of the insurance pool. In contrast, adverse selection virtually disappears when bundling insurance policies at the household or higher levels. The key implication of the study was that the insurers should abstain from offering individual policies to avoid adverse selection, which should allow them to focus on simple and comprehensive products for the low-income market.


The second study in this session titled “ Micro equity for Micro enterprises: Lessons from Pakistan” was presented by Muhammad Meki (PhD candidate, University of Oxford). The study focused on developing alternative financial instruments for micro entrepreneurs, in the form of micro equity that can stimulate demand for entrepreneurship and foster wider economic and employment growth in Pakistan and beyond. The study suggested that relative to debt-based financing, microequity investors might be willing to take higher risks in favour of higher potential returns to their investments. In line with this, micro equity investments are more likely to produce firm growth since equity investments are focused on long-term returns and acts as implicit insurance to entrepreneurs. Furthermore, equity allows for flexible repayments that ensure that repayments can be reduced if micro entrepreneurs are faced with local or macroeconomic shocks. By running a framed lab-in-field experiment the study aimed to investigate awareness and understanding by participants of the structure of an equity product and effect of this equity product on the investment behaviour of micro entrepreneurs.

The panel discussion on “The Role Of Research In The Microfinance Sector”followed the second session.The three participants in the panel Zubyr Soomro (Chairman, Pakistan Microfinance Investment Company),Akbar Zaidi (Member of Board of Directors, Pakistan Microfinance Network) and Kamran Azim (Chief Operating Officer, Kashf Foundation), discussed the current state of microfinance sector in Pakistan. Zubyr Soomro’s talk centered around four main threads; (a) where microfinance sector stands today, (b) where the sector is looking to go as per the 2020 plan; (c) issues resulting from it, (c) and areas in which PMIC may require support from the research community. Akbar Zaidi highlighted some caveats related to research in the microfinance sector. He identified three main issues; (a) dearth of academic researchers on the supply side who specialize in microfinance within the country, (b) excess protection of the microfinance sector, (c) lack of willingness on part of donors and funders to finance a substantive and comprehensive study which quantifies the impact of microfinance across various economic and social dimensions. Finally Kamran Azim wrapped up the panel discussion with some encouraging lessons from the field on the basis of various interventions ongoing under the ambit of Kashf Foundation. Of these, one notable lesson was that out of a 100% female client base, 25% of females use loans for setting up their own enterprises. In conclusion, the three panel speakers discussed in detail the role that research can play in this sector especially for achieving the poverty alleviation goals through microcredit expansion.

The third and final session of the conference titled “Testing The Demand and Consumer Preferences Chair”chaired by Ali Cheema (Board Member, CERP; Senior Research Fellow, IDEAS and Lead Academic, Pakistan Team, IGC)discussed the preferences that influence consumer demand and the impact that microfinance products can have on the socio-economic welfare.


Ms. Farah Said (Assistant Professor and Research Fellow, Lahore School of Economics) presented the study on “Hiding Money: Evidence from a Field Experiment with Aspiring Female Entrepreneurs”. In this study, the authors attempted to explicitly measure social and household norms that can affect the decisions women make about money, specifically the choice to hide money from their spouses or household members. The study contributed in the literature by showing that the decision patterns are shaped by using novel measures of female empowerment and social norms,and by showing how women’s experiences shape empowerment. These results hint some policy insights in terms of promoting enterprise and empowerment amongst women through access to finance.


Karlijn Morsink (Postdoctoral Fellow in Economics at the University of Oxford’s Blavatnik School of Government and the Centre for the Study of African Economies) presented the study on “Risk Sharing and the Demand of Microinsurance: Theory and Experimental Evidence from Ethiopia”.In a model that embedded risk sharing and demand for indemnity and index insurance the study showed that, with risk sharing index insurance purchase increases and indemnity insurance purchase decreases. 
These results highlight the importance of considering existing risk-sharing arrangements when considering the introduction of formal insurance contracts. It proposed offering index insurance to individuals that already share risk 
increases the value proposition and carefully targeting index and indemnity insurance for aggregate risks 
and idiosyncratic losses beneficiaries. 



Simon Quinn (Associate Professor of Economics and Deputy
Director of the Centre for the Study of African Economies, University
of Oxford) presented the study on “Time-Inconsistency, Liquidity and the Demand for Commitment Savings Products”. The study aimed to understand the role of self-control in particular as a potential driver of financial decisions and demand for commitment savings amongst female microfinance borrowers. The key study found that self-control issues may be a lot less significant and stable a determinant of financial behaviour than previously thought: individuals appear much less as if they suffer from “self-control” issues if they are paid at the first rather than the second interview, and if they are interviewed after rather than before the harvest. This suggests that the fact that the poor are often liquidity-constrained can lead economists to believe mistakenly that they have self-control issues (present-bias). Furthermore, “self-control” problems have either zero or negative correlation with individuals’ self-reported demand for different types of commitment savings products.

Syed Sardar Ali (Founder and Senior Partner of APEX, Pakistan) gave a brief talk on microfinance processes prevailing in the country. He also laid out the key areas that need further research in the field.

The conference was concluded with the second panel discussion on “Impact and Future Directions” where panelists Ali Akbar (Head Research and Operations, Pakistan Microfinance Network ), Shahzad Akram (Chief Credit Officer, Akhuwat), Shawn Cole (Professor, Harvard Business School) and Ali Khizar ( Consultant, Asian Development Bank and Business Recorder)provided a comprehensive summary of the key messages, which emerged during the conference. They mentioned that the conference has come up with several policy relevant ideas that can help policymakers to devise measures for propelling the microfinance sector in the country onto a higher growth trajectory through modern technology.The panel discussion was concluded on the final points on future directions of the sector, in a broader range of products including insurance, health and education. The organizers thanked the participants for their valuable contributions, which have enlightened the academic community as well as policy practitioners in the area.

Also in Express Tribune 

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posted by S A J Shirazi @ 4/14/2017 11:44:00 AM,

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