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Microcredit System for Building Rehabilitation and Strengthening Arts and Crafts

  • Claudio Di BenedettoEmail author
  • Irene Bengo
Chapter
Part of the Research for Development book series (REDE)

Abstract

Poverty is widely considered as the major problem in the socioeconomic development of Pakistan. The main objective is the alleviation of poverty through the start-up of a microcredit system in the Walled City of Multan for the promotion of income-generating activities and the rehabilitation and strengthening of local arts and crafts. A theoretical and practical research methodology is applied to investigate the most suitable microcredit model for the local context. The study briefly analyzes economics of microcredit affecting the efficiency of the market as well as its improvement mechanisms and their applications. Subsequently the conventional microcredit lending methodologies (interest based) and their potentials in Multan were examined. Authors have conducted two levels of analysis to explore the strategic environment and the peculiar aspects of local context. The former is a field research to observe the unsatisfied local needs and the cultural and religious norms influencing the success of the initiative, and the latter is a desk analysis to assess the macroeconomic factors affecting program achievement and its sustainability. The study deepens the Islamic financial principles and related lending methodologies for tailoring the proposal on the cultural, social, and economic characteristics of the potential demand. The study suggests two different models to guarantee not limited access to loans. The first model is the “Poverty Reduction Project” aiming at poverty eradication and social inclusion promotion. This model is oriented at satisfying the needs of the lower market segment including “ultra poor,” poor, and vulnerable people (almost 55 % of Pakistani population) through the adoption of Akhuwat’s model. The “Poverty Reduction Project” has the double aim of preventing vulnerable people to fall into poverty and helping poor people to rise from poverty by providing interest-free loans for the promotion and support of income-generating activities. Proposal products are of two sorts: infrastructure loans and business loans. The second model is the “Handicraft Model,” developed by an interdisciplinary team of work, that has the purpose of financial inclusion of craftsmen. It is oriented at the higher market segment composed by “quasi nonpoor” and provides loans through the adoption of Murabaha model. The clients served by the Handicraft Model are small entrepreneurs. Main objective is supporting, aggregating, and promoting best practices of handicraft production for exporting opportunity. In this case the full cost of loan provision is charged to the borrower. Akhuwat is chosen as local partner for its social innovative business model, based on the vision of interest-free loans to economically poor. Both models are based on individual lending methodologies. By means of family loans, Akhuwat demonstrates that it is possible to reach very poor people through individual loans. Furthermore, individual lending seems to better fit the needs of people working in a productive urban context as the Walled City and allows to reduce inefficiencies nested in group loans historically applied in Pakistan.

Keywords

Gross Domestic Product Poverty Alleviation Walled City Microfinance Institution Islamic Finance 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer International Publishing Switzerland 2014

Authors and Affiliations

  1. 1.Engineering Without Borders MilanMilanItaly

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