Microfinance Need Assessment Survey in Khyber Agency (FATA)

By

Dr. Muhammad Mohsin Khan Saeed Ahmad

Institute of Management Sciences

7 B / 3, Phase V Hayatabad Peshawar Pakistan Tel: +92 91 9217451-2 Fax: +92 91 9217407
www.imsciences.edu.pk

Acronyms
FATA NWFP IM|Sciences IDEA PSUs MFI MFB NGO CMF SMFN PMN ICT AJK FGD Hundi/Hawala Federally Administered Tribal Areas North West Frontier Province Institute Of Management Sciences Initiative For Development And Empowerment Axis Primary Sample Unites Microfinance Institution Microfinance Bank Non Governmental Organization Center of excellence in Microfinance Sarhad Microfinance Network Pakistan Microfinance Network Islamabad Capital Territory Azad Jammu and Kashmir Focused Group Discussion Informal money transfer arrangement

List of Tables
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Migration of Population Education Ratio Education Ratio (Gender wise) Sectors of Economy Hurdles in business Minimum capital requirement of business Female participation in economic activities Employment Reasons of unemployment (male) Reasons of unemployment (female) Status of employment Nature of employment Occupations Economic Dependency Household average monthly income (Rupees) Income vs Expenses Access to banks Status of savings Sources of Loan Means of remittances Backup sources in unforseen events Technical education facilities Need of technical education for male Need of technical education for female Attitude towards interest based loans Reasons for avoiding interest based loans Loan repayment behavior Acceptability of insurance

Table of contents
Acronyms List of tables 1. 2. Executive Summary Introduction 2.1 2.2 2.3 2.4 2.5 3. Khyber Agency Microfinance Significance of the study Objectives of the study Methodology of the study

Analysis 3.1 3.2 3.2 Population Education Economic Structure of Khyber Agency 3.2.1 3.2.2 3.2.3 3.2.4 3.2.5 3.2.6 3.2.7 3.2.8 3.2.9 Sectors of Economy Hurdles in Business Capital Requirements of Small Business Participation of Female in Economic Avtivities Employment Income and Expense Pattern Status and Needs of Financial Services Status and Need of Other Livelihood Interventions Attitude Towards Financial Services

4 5 6 7

Findings and Recommendations Conclusion Photo Gallery Annexes 7.1 7.2 7.3 FGD Theme Survey Questionnaire Survey Team

1.

EXECUTIVE SUMMARY

Microfinance services target poor population mainly in the developing countries. These services include loans, savings, insurance and remittances. Experiences shows that microfinance has empowered the unbanked to increase their income, improve their health conditions and reduce their vulnerability to external shocks. Thus microfinance is considered as an effective tool to reduce poverty, accelerate growth and improve the standard of living, especially in the less developed areas. The Khyber Agency, being one of the seven agencies of Fata, with a population of. Million, may have good potential for microfinance services. The Agency borders closely with Peshawar district, and has a spillover effect from its economic activities as it is the business hub of NWFP. Therefore, it was both interesting and imperative to carryout a need assessment study for micro finance need assessment in the Agency. The study was based on two tools of primary research and was conducted in two phases. In the first phase, quantitative questionnaires were conducted from 420 respondents with an equal representation from male and female. In the second phase, trends were derived from the questionnaires and were taken to the community where group responses were taken on different issues of the study. The findings of the study suggest that majority of the people of Khyber Agency live in poverty. Majority of the people are unemployed and their expenses are more than the income they earn. Low income also affects their education level. The unemployment and low education level of the people push them to start their own enterprises. Poverty, unemployment and the entrepreneurial mindset of the people pose an acute need and potential of microfinance programs. But replication of microfinance programs, without tailoring it according to the needs and environment of the people of the area, may not produce the required results. The economic structure, traditions, religious affiliation and business needs of the people of the area suggest that the mode of financing should Islamic and the loan size should be increased as compared to traditional products. The lending methodology can be both group based and individual based. Loans are more secure as compared to other areas because of the traditional guarantee system. There is also a need for skill enhancement trainings to add to the utility of microfinance programs.

INTRODUCTION
2.1 Khyber Agency Khyber Agency is one of the seven agencies of Federally Administered Tribal Areas (FATA) of Pakistan. Geographically Khyber is located at the west of Peshawar Valley. Orakzai Agency is situated to its south while toward north the Kabul river and the Sufaid Koh are situated to the north. The Agency boarders Afghanistan at its western boarder. The population is divided into four major tribes and a few small tribes. The major tribe is Afridis, who are occupying almost 80% of the area and are further divided into eight sub tribes. Other major tribes are Shinwaris, Malagoris, Shalmanis besides a small population of Storikhels. The Agency has an area of 2,576 square Kilometers and having a population of 5,300,000. Its terrain is mountainous and is mostly barren and arid. Administratively Khyber Agency is divided into four tehsils namely Bara, Jamrud, Malagori and Landi Kotal. A little portion of the Agency is urban, which is 9.72% while the rest (90.28%) is rural area. There are 36,427 housing units in both the rural and urban areas. Historically Khyber Pass has remained a gateway to India when many invaders entered through this pass into subcontinent. The story starts from Aryan invasion in 1600 BC, followed by Achaemenid occupation (558 530 BC) by Cyrus, Alexdars army in 336 BC, Saleucus 305 BC, Ashoka 254 227 BC, Hindushahi Dynasty 700 997 AD, Subaktagin 997 AD, Mahmud of Ghazni 997 1030 AD, Shahabuddin Muhammad Ghori 1174 AD, Slave Dynasty 1206 1290 AD, Chingis Khan 1220 AD, Amir Timur 1308 AD, Zahiruddin Muhammad Babur 1505, Nadir Shah Afghar of Iran 1739, Durrani Dynasty 1747 1848 and Ahmad Shah Abdali 1747 1773. After the British came, the status of Khyber remained the same and many wars were fought on this land. Some forces passed it successfully while some were massacred by the local tribes and could never see the other side of the pass (Teepu Mahabat Khan; The Tribal Areas of Pakistan, A contemporary Profile). The people of Khyber Agency have very strong roots in history. The society remained tribal and less economic development took place in this area. Successive governments, after 1947 treated FATA as a buffer zone between Pakistan and Afghanistan and little attention has been paid to the economic and social development of the people of this historically and strategically important area.

2.2

Microfinance

More than 3 billion people around the world live on less than $2 dollars a day, and face abject poverty. Experience throughout the world has shown that the menace of poverty can be reduced through deployment of micro finance services. Such services include loans, savings, insurance and money transfers. Micro finance can be used as one of the tools to help put resources in the hands of the poor, which would enable them to fight their way out of poverty. In Pakistan, about 24% of the population, which is more than 40 million persons are living in poverty, and have little access to financial services. The poverty levels are even more alarming in the North West Frontier Province (NWFP), where urban poverty sands at %, and rural poverty stands at %. Such acute level of income poverty does not allow us the luxury of waiting for economic growth to trickle down and address the menace of poverty. It is commonly stated that microfinance institutions worldwide reach over 50 million clients, which is a far cry from reaching the billion people living in dire poverty, or the additional two billion living in moderate poverty around the world. But, that it represents is something special; for microfinance is a way of helping individuals take charge of their own lives, enabling them to use their own initiative to pursue possibilities that would not otherwise be open to them. Not only can microfinance help people emerge from poverty, it is also an effective strategy to reach the Millennium Development Goals, particularly those relating to promoting childrens education, improving health outcomes for women and children, and empowering women. Improvements in these areas can be effective only when households have increased earnings and greater control over financial resources. According to the Pakistan Microfinance Network (PMN) report( MicroWatch july-sep 2007), out of the 29 million potential clients of micro finance in Pakistan, financial services have been provided to only about 3.4 million clients. In NWFP, the potential is about 4 Million clients, out of which only 290,801 persons have been provided these services. The problem of outreach becomes more complex when we look at the figures of active borrowers of microfinance, which show that out of the total active borrowers more than 80% are from the two most populated provinces i.e. Punjab and Sindh

whereas NWFP has 8.9%, Balochistan has 6.2%, AJK has 1.3%, Northern Areas has 1.3% and Islamabad Capital Territory (ICT) has only 0.2% clients. In this scenario, Micro Finance Institutions (MFIs) can play a vital role to provide a range of financial services to these people. People living in poverty, like everyone else, need a diverse range of financial instruments to run their businesses, build assets, stabilize consumption, and shield themselves against risks. 2.3 Significance of the study

Microfinance organizations need an in-depth information of the area, in order to make sure the security and proper utilization of its funds, so that both the social and commercial objectives of the program can be achieved. To make the program successful these institutions also need to know about the specific needs of the people of the area so that tailored products can be developed. Microfinance has some basic requirements to run successfully and produce the required results. Those are for example the economic condition of the locality, the market conditions and the economic opportunities, the capacity of people to use financial services, the infrastructure of the area, the behavior of the people towards various financial products etc. Some of these may not be a pre- requisite, but authentic information is always needed to design the program properly. The project under review is a base line survey of Khyber Agency to find out the feasibility of micro finance program in this area. The study has collected all information needed for designing a successful micro finance program and recommendations have been given to the stakeholders upon the micro finance future in the Khyber Agency. But as commonly stated, microfinance cannot produce the required results until it is integrated with other livelihood interventions. Therefore it is very important to study the need and viability of other livelihood interventions for an effective poverty alleviation strategy. Looking into this dimension of poverty alleviation, an effort has been made to cover some other interventions of livelihood, which can be delivered with microfinance in an effective manner keeping in mind the cost effectiveness of a microfinance programs. 2.4 Objectives of the study:

To explore the livelihood structure of the area To find out the existing financial services availability in the area. To find out the behavior of people towards utilization of financial services To sort out the applicable lending methodology To identify the suitable products for the area (financial products with service charges rate and repayment period) To identify the behavior of people towards paying interest (Interest based VS Islamic mode of financing) To analyze the market for utilization of small loans

2.5

Methodology of the study

In this study both qualitative and quantitative methods were applied and primary and secondary data was used. Survey method was mainly used for the primary data collection, Out of the whole Khyber agency 30 PSUs (Primary Sample Unites) were selected through systematic random sampling according to PPS (Probability Proportionate to Size). The sample size of 420 covered all the four Tehsils of the agency and almost all the major sub tribes of the two main tribes (Afridi & Shinwari) of the area which made the study more representative. In each PSUs the household were selected through Random Table and within the household the respondent was selected using Kish Grid. Equal representation was given to above 18 years male and female of the area. According to the above mentioned design first tool, written questionnaires were administered. Strict monitoring system was designed and 20% of the questionnaires were verified by the monitoring team in order to make the survey more authentic. Focus Group Discussion (FGD), another tool to supplement the first one, are also conducted in the agency with the residents to dig the issues deeper. Total five FGDs have been conducted with the various groups formed on the basis of age, qualification and area. Out of five, one FGD is conducted exclusively with female residents of the area. After the collection, the data was entered into SPSS by the data entry operator and after analysis the data has been delivered to the report writer. Beside primary data, the report writer also used secondary data from various sources as described at the end of report.

3.
3.1

ANALYSIS
Population

The population of the area are permanently settled in the area because of the tribal structure and there is very little migration. Of the total respondents interviewed, 66.7% live in their houses from the beginning, 27.3% of the people are living for more than 10 years, 5.3% for more than one year but less than 10 years and only 0.7% people are living for less than one year. This is a favorable situation for microfinance as one of the pre-requisite of microfinance is that the population of the area should be permanent residents of that locality and ratio of migration should be low for effective guarantee mechanism and to ensure the proper utilization and security of loan.
Migration of population
80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 1 More than one but less than ten years More than ten but not for whole life All of my life Less than a year

3.2

Education

Education figures of Khyber Agency are not very encouraging as the data indicates. Of the total 420 respondents interviewed, 53.10% are illiterate. In the rest of the 47% literate population, only 2.9% are graduates, 4.3% are higher secondary school qualified and 11.4% are secondary school qualified. Some of the reasons of low literacy rate are lack of schools, absence of teachers from schools and opportunity cost of education, because children can earn money by working in different markets the Agency, Peshawar and other parts of the country.

Education Ratio
60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% Illiterate Less than primary Primary Middle Matriculate Intermediate Bachelors Masters Professional Degree

The situation become worse when we look at the figures of male and female education separately. The illiterate female population is more than 84% while collectively more than 10% have primary and less than primary education. Only 4.7% of the population in the representative sample have secondary education or higher.
Education ratio (Gender wise)
90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0%
e c Pr im ar y M as te r ra te ar y e s M at ri ia t lo r dl pr im id ite ed ch eg re e

Male Female

te rm

Ba

Ill

th a

Le ss

Overall the schools are inadequate in Khyber Agency but the number of girls schools are alarming. Due to pardah norms and local traditions girls cannot go to schools located in other villages, although parents are aware of the importance of education and are willing to send their female children to schools, as per the discussion with parents in the FGDs.

Pr of

es si on

In

al

3.3 3.3.1

Economic Structure of Khyber Agency: Sectors of Economy:

As described in the introduction, Khyber Agency is a mountainous area having with a major portion of barren land. The geographical location of the area provides a better opportunity of business therefore business is the most important sector of economy followed by agriculture and labor. All the three sectors have potential for microfinance and other livelihood interventions like business skills and technical skills trainings to enhance their income. A small portion of the population is associated with small and large scale industry which poses a good potential for medium and large scale financing.
Sectors of Economy
60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00%
r em m ita nc es Em pl oy m La en rg t e sc al e in du Sm st ry al lh om e in du st ry ul tu La th er s O re e ra d bo

/T

Bu si ne ss

Ag

ric

3.3.2

Hurdles in Business

Business & Trade, being the most important sector of economy of Khyber Agency, has a number issues. The most important requirement in establishing new business and expanding existing business is capital. More than 78% of the respondents are of the view that the capital is the most important requirement of businesses.

Hurdles in business
90.00% 80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% Capital Business Experience Experienced staff Other Don't know

3.3.3

Capital Requirements of Small Businesses

The rural structure of economy and the consumption pattern of the people of the area has enhanced the capital requirements of small businesses to the upper side of microfinance loans limit. 57% of the sample population think that the minimum capital requirement of a business is fifty thousand (50,000) to one hundred thousand (100,000) Rupees, 7% are of the view that a small business can be initiated by having minimum capital of thirty thousand (30,000) to fifty thousand (50,000) Rupees, while for 16% the minimum capital requirement for a small business is less than thirty thousand Rupees.
Minimum capital requirement
60% 50% 40% 30% 20% 10% 0% 1 Up to 5000 5001-10000 10001-20000 20001-30000 30001-50000 50001-100000 Above 100000 Don't know

3.3.4

Participation of Female in Economic Activities

Khyber Agency, like other areas of FATA, is a rural area having a tribal society. The tribal structure of the society gives very little opportunities to the female population to participate in economic activities. In Khyber Agency, only 8.9% of female participate in economic activities while the rest are dependent on males for their livelihood. The data has been collected from both male and female with an equal representation of 50% to each. Therefore the data from female, some times, do not depict the ground situation because of the awareness level of the females. To give a true picture of the ground situation in the area, we have used cross tabulation of both genders in most of the cases, so that the low level of awareness of female do not affect the overall data and its interpretation.
Female participation in economic activities

Yes No

3.3.5 Employment Total employment (paid employment and self employment) in the area is 23.2% only while rest of the population is unemployed. These figures are only indicative as they do not take into account the extent of under employment, seasonal employment etc. Due to the nature of employment opportunities female cannot take active part in economic activities. This is evident from the fact that female employment stands at 1% only.

Employment

100.00% 80.00% 60.00% 40.00% 20.00% 0.00% Male Female Total Employed Unemployed

More than 40% of the unemployed male population is looking for jobs while 35% male are full time students and the rest are handicapped or retired.

Reasons of unemployment (Male)

50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 1 Full time students Looking for job Not looking for job Retired Handicapped

On the other hand only 0.5% of the unemployed female population is looking for jobs while 96% are house wives and 1.4% females are full time students.

Reasons of unemployment (female)

100.00% 80.00% 60.00% 40.00% 20.00% 0.00% 1 House Wives Full time students Looking for job Handicapped

Majority of the bread earners are self employed. The chart below shows that 70% of the total employed people have their own businesses / enterprises. 16% are government employees while the rest are dependent on private jobs either in Khyber Agency, Peshawar or other parts of the country. Because of the less or no economic opportunities for female, the female bread earners are dependent on government and private jobs only.

Status of employment
80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% Male Female Total Self Employed/ Owned Business Govt. Sector Employees Private Sector Employees

When we look at the jobs, not all of the employees have permanent jobs. Only 50% of the employees are permanent while the rest are temporary. The chart below explains the nature of employment of the government and private employees.

Nature of employment
60% 50% 40% 30% 20% 10% 0% Male Female Total Permanent Job/Business Contract/Adhoc/Part time Temporary Daily Wage Worker

There are various occupations in Khyber Agency. Major occupation is small and medium size businesses followed by agriculture and skilled and unskilled labor. The following chart shows all occupations of male, female and total population in the area along with its contribution in employment.

Occupations
35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% Male Female Total

Shopkeeper Self-employed (except shopkeeping) Govt. Officer Govt. Non Officer Private: Officer Private Sector Non Officer Industrial Labour Agriculture Labor Skilled labour Unskilled labour Small or Medium Size farmer Large farmer/Landow ner Medical Professional School teacher Religious teacher Army/Military/security Transport

Despite having a variety of occupations, the ratio of bread earners is less than that of dependents. As per the sample data more than 50% of the population is dependent on less than 50% bread earners. This economic dependency results into social dependency which is a key to strengthening the tribal system. This is also evident from the fact that people who have settled in other parts of the country, and are

economically independent, are loosing their base in the tribal system as they take less interest in tribal affairs.
Chart : Economic dependency

54.00% 52.00% 50.00% 48.00% 46.00% 44.00% 1 Bread earners Dependents

3.3.6

Income and Expense Pattern

The data shows that 40% of the households earn Rs.1000 to Rs.5000 per month while 27% earn in the range of 5000 to 10,000 rupees per month. Only 10% households earn more than 25,000 rupees per month but the most important factor is the joint family system in this area. The household composition needs to be taken into consideration because people are living in a joint family system. Several households live as a family and the joint income of all members is considered as the household income. This makes the per capita income below the average of the per capita income of the country.
Household average monthly income (Rupees)
25000 and above 10001 - 25000 5001 - 10000 4001 - 5000 1 3001 - 4000 2001 - 3000 1001 - 2000 0 - 1000

0%

5%

10%

15%

20%

25%

30%

The monthly household expenses against the earned income gives a clear picture of the economic condition of the people of the area. The data shows that 60% of the

people earn less than their expenses, 30% just cover expenses from their income while the income of less than 7% is more than their expenses. This has made majority of the people more vulnerable in cases of unforeseen events and disasters. Such events decrease the middle 30% portion and contribute to the bottom 60% population. The gap between income and expense push people below the poverty line as population increases and there is no visible planning for their economic uplifting.

Income vs Expenses

100.00% 80.00% 60.00% 40.00% 20.00% 0.00% 1

Much more A bit more Equal A bit less Far Less

3.3.7

Status and Needs of Financial Services

There are few banks in Khyber Agency, but because of its geographical location some people have access to banks in Peshawar. Out the total population of the area, only 27% have access to banks. Mostly banks are available in a few urban centers and tehsil headquarters. The two known urban centers of the agency are Jam and Bara which are adjacent to Peshawar, and most of the people having access to banks belong to these areas. Rest of the 73% population has to travel up to 30 kilometers to access bank even with in the agency. But covering a distance of 30 kilometers take one day due to lack of roads and public transport.

Access to bank

Accessible Not accessible

As income and expense data shows that only the income of 7% of the people is more their expenses, the trend of savings is encouraging. Of these 7% population, more than 73% save the access income in different shapes. Due to banks accessibility problem only 15% use banks for savings, while the rest of the saving is either invested back in business or is used for buying assets. Some saving is kept with the elders for unforeseen events and as a support for the family in future.
Status of saving

45.00% 40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 1

Keep in bank Consumed Keep with elders Buy assets Invest in business

Due to the non-availability of adequate financial institutions, more than 79% of the population depends on friends and family sources for loans. Since the social structure of the society is very cohesive and people trust each other, getting loan from friends and family is easy. Private money lenders are also available as in the rest of the country. These money lenders charge more than 100% interest. They claim to have an

Islamic mode of finance by providing commodities instead of cash. But the commodity is exchanged in papers only and physically cash is paid to the borrower. Although people think that there is no difference between conventional lending and this type of lending but they keep borrowing because there is no alternate source of finance. Some banks offer agriculture loans in the area, but only influential people can avail this facility because the procedure is very complicated and so many people from the political administration are involved. Only one microfinance bank is working here in Jam, adjacent to Peshawar. But the active clients of this bank are not more than 1000 and the geographical spread is also not more than a few square kilometers.

Sources of loan

80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 1 Relatives Private Money lenders Banks Small Credit Institutions Others

But almost all the people believe that this kind of loan is not Islamic and that this is another form of interest. Therefore self exclusion from these kind of loans exist in the area. Secondly the loans are too expensive to avail and the social structure of Khyber Agency does not allow any person to default. This some times causes in bonded labor, which is a new form of slavery in the 21st century. As stated earlier, remittances is one the most important sources of income in this area because of the prevailing condition of agriculture and other sources like business, jobs etc. A large number of people work in other parts of the country while quite a considerable number of people are in Gulf countries and other parts of the world. Private carriage is the most common method of remittances domestically. Since a large number of the people of this area are in transport business, they work as a mean for carrying money from other parts of the country to Khyber Agency and also for transporting the daily use items from home to these people working outside. This

method of remittances is used by 39% of the people working domestically and abroad. The second commonly used method is remittances is Hundi / Hawala which has a share of 33.6% followed by banks 15.4% and post office 12%. This is worth mentioning that some people also use the banks and money transfer companies of Peshawar for remittances, since they don not have this facility in Khyber Agency.
Means of remittances

40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 1 Banks Post office Hundi / Hawala Private Carriers

The community living in this area is very vulnerable and having little institutional sources of backup in unforeseen events and natural calamities. The major source is family and friends which stands at 60%. More than 30% of the people have no means to cover losses while only 0.2% cover their losses through insurance, 2.4% take loans from banks, 2.2% take loans from private money lenders, 0.4% take loans from employers and suppliers and the rest of 3.9% make partnerships in their businesses to cover losses. All the sources, other than insurance, are not reliable except private money lenders who give loan in a short time but very expensive as discussed earlier.
Backup sources in unforseen events
No means to cover losses 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% Male Female Total Credit from private money lenders Credit from bank Credit from employer / supplier Help from family / friends Make partnership Covered through insurance

3.3.8

Status and Needs of Other Livelihood Interventions

Lack of technical skills is Currently technical education facilities

Technical education facilities

100.00% 80.00% Yes 60.00% 40.00% 20.00% 0.00% 1 No

There is a tremendous need for technical education in the area as Khyber Agency is adjacent to Peshawar and they know the utility of skills. To avoid representation issue, the need was assessed in two different questions for both genders. 99.5% male want technical education facilities for them while 99% female think that technical education for male is very important.

Need of technical education for male

100.00% 80.00% 60.00% 40.00% 20.00% 0.00% Male Female Total Yes No

Similarly the need of technical education for female is considered very important both by male and female. 94% female want technical education facilities for them while 83% male want to have technical education facilities in the area. The response together depicts the level of awareness of these people and the acceptability for any skills enhancement interventions.

Need of technical education for female

100.00% 80.00% 60.00% 40.00% 20.00% 0.00% Male Female Total Yes No

3.3.9

Attitude Towards Financial Services

Because of these two factors majority of the people i.e. 69% do not borrow such loans at all. 23% go for these loans in intense need while 7.2% of the people have no religious consideration in borrowing these loans. These 7.2% people take interest based loans whenever they need.
Attitude towards interest based loans

70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 1 Acceptable Acceptable as a last option Not acceptable at all

Specifically majority of the people (89.35%) avoid interest based loans because of religious reasons while 7.9% avoid these loans because of the fear of inability to repay. Rest of the people have social or other reasons for not availing loans on interests.

Reasons for avoidng interest based loans

100.00% 90.00% 80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% Religious Social Fear of inability to pay Other

Male Female Cummulative

As discussed, the social structure of the area is very cohesive and default of loan is almost impossible. But this is conditioned to the lending methodology. Living in a joint family system the elders have a very effective influence on the social and economic life of the people. In borrowing, these elders are involved where they give guarantee that the borrower will repay the money at any cost. This makes the loan secure and insures the repayment on time or extra charges if the borrower fail to repay on the due date. The guarantee of elders creates a sense of responsibilities with in the people. In loan repayment, 76.5% of the people repay loans out of their own well, 7.7% because of the peer pressure and their social status in the society, 1.5% because of the legal repercussions and 14.3% repay loans when forced through the local tribal system. These 14% can be avoided through proper lending methodology according to the social norms of the local community.

Loan repayment behaviour

80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 1 Sense of responsibility Unless forced Peer pressure Legal repercussions

Majority of the people i.e. 57% of the population have no problem with insurance. If insurance service is offered in the area they will insure their business and crops. 42.4% population does not like insurance because of the religious factor. They think that insurance is another kind of interest therefore they would not go for insurance in the current shape. Although they are convinced that insurance is a reliable backup in unforeseen events and natural calamities, yet they do not agree with indulging in any such activity because of its un-Islamic perception.

Acceptability of insurance

60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% Male Female Total Yes No

Skill enhancement training is one of the very effective interventions of livelihood. Currently there is only one technical college for male in Bara and a few female training centers in the urban areas near to Peshawar. All these facilities serves less than 7% of the total population and a vast majority do not have any opportunity to learn technical skills and enhance their income. Thus they end up with unskilled labor and the vicious cycle continues as the population grows.

4.

Findings and Recommendations

Based on the survey, our recommendations are provided as follows: a. The sample surveyed indicated that about 76% of the population is unemployed, out of which 40% of the male population is job seekers, while the rest are students and those who have retired form various services. Only 8.9% of the female population participates in economic activities, while the rest depend on their family for livelihood. Such a high rate of unemployment would no doubt present a good potential market for microfinance services. Particularly, the female population could be encouraged to utilize microfinance services, as worldwide experience has shown that females are viable clients of microfinance institutions. b. The survey sample showed that 70% of the total employed population had their own businesses. This factor may be an indicator of latent demand for microfinance services. Furthermore, the survey showed that the major sector of occupation is the small and medium size business, followed by agriculture. Both sectors would undoubtedly require microfinance services. c. The income data revealed that a majority of the respondents, i.e. 60% have higher expenses than their incomes. Thus they are also vulnerable to external shocks and unforeseen events. Furthermore, 30% of the respondents just cover their total expenses with their incomes. But if disasters or unforeseen events occur, they are unable to cover their expenses and fall into the poverty trap. Microfinance services could cover their gaps, and may enhance their incomes. d. Due to very limited presence of banks in the agency, only 27% of the respondents had access to banks However, among those whose income exceeds their expenses, 73% generate savings in one form or another. Due to lack of access to Banks, only 15% use banks for depositing their savings. If microfinance services are available to them, the savings may increase, and overall positive development. e. Due to religious beliefs, high interest rates and a lack of access to banks, 69% of the population does not borrow funds. About 7% of the respondents are not affected by religious considerations while taking a loan. The remaining section avail loan facilities from friends and family, and even from money lenders at more than 100% interest rate. Thus, the need for loans exists but proper and acceptable products will need to be developed in accordance with the social norms. economic growth would show

f. The survey further indicates that due to the strong social structure, default in repayment of loans is minimal. More than 76% of the loanees repay the loan with out any direct pressure. This suggests that credit risk will be lower and losses to financial institutions will be minimized. g. Remittance business has good potential as residents of the agency are working in other parts of the country, and in the middle east. Only 15% use banks the rest use Hundi / Hawala, private carriers , and the post office. h. A majority of the population would like to avail insurance services for businesses and crops. Although a significant section of the population (42.4%) have apprehensions about insurance due to religious reasons. However models based on Islamic form of insurance can be utilized for this segment of the market, and therefore micro assurance products would stand a good possibility of success in the Agency. i. The survey indicated that only 7% of the respondents had availed technical skill training facilities. Whereas a majority of males and almost the entire female respondents (94%) were in favor of receiving technical education facilities in the agency. Therefore, it is recommended that technical training may be coupled with micro finance operations. Resultantly, the viability of micro finance operations will increase manifold, giving impetus to the development processes in the Agency. j. The social structure is very strong in the area and people are living in joint family systems. This makes the social collateral more viable and secure. While lending and borrowing loans, people usually involve heads of the families and heads of tribes in guarantee, which is a normal procedure in tribal society. The head of tribe and family, once give guarantee, make sure the repayment of loan at every cost. The people are permanently settled and there is very less migration from one place to other, which is another encouraging sign from the point of view of microfinance programs. In this scenario both group and individual lending methodologies can be very successful. However, keeping in view the cost effectiveness of programs, the group methodology of lending is strongly recommended in Khyber Agency.

5.

Conclusion:

Historically, micro finance has been used in one form or another, as an effective tool to fight against poverty. As early as the 15th century, the Catholic Church established pawn shops as an alternative to usurious money lenders. For centuries, small savings and credits centers have operated throughout the world. In the present scenario, microfinance has undergone astonishing developments in the last 30 years. Professor Yunis of Grameen Bank in Bangladesh has done pioneering work in microfinance, and has become a household name, besides winning the Nobel prize for Peace in 2007. It has now been experienced that the poor are bankable and that micro finance can lift them out of poverty and bring them into the mainstream, rather than leave them in self exclusion. Microfinance has achieved commendable results in Afghanistan in a short span of 5 to 6 years. The same can be replicated in FATA, as it shares the same culture and similar traditions with Afghanistan. The survey clearly manifested a need for microfinance operations in the Khyber Agency. On the one hand, there is a high rate of unemployment in the agency. On the other hand, among those who are employed, a whopping 70% have their own businesses. This suggests that the culture for entrepreneurship is present in the Agency. With proper skill training, micro finance services can increase the sources of livelihood and indeed promote poverty alleviation. Secondly, the survey revealed that potential existed for micro credit, savings, insurance and remittance business. However; products need to be promoted that are not in conflict with social customs and religious beliefs. Some ground realities like the strong social bond of people in tribal society, the entrepreneurial mindset of the people, the ratio of unemployment, access to markets, need of capital for business, agriculture and livestock and the like pose great potential for microfinance programs.

PHOTO GALLERY

Enumerators Training

Survey Team (Male)

Enumerator With Respondent

Focused Group Discussion

Khyber Agency at a glance