Second Poverty Alleviation Fund Project

closed

The Pakistan Poverty Alleviation Fund (PPAF) Project is a follow-on of the project. The development objective remains to reduce the incidence of poverty in the country through provision of resources and services to the poor and low income, particularly women. The project has the following three components: Component 1) Expanded Outreach. In the past three years, loans from PPAF funding have been extended to more than 200,000 borrowers, 41% of whom are women, channeled through Partner Organizations (Pos) across Pakistan. Initial impact assessment results are positive. The financial sustainability picture of PPAF's POs depends on a number of factors. For a start financial sustainability depends significantly on the rate of expansion of new branches compared to the rate of expansion of new clients in existing branches. Secondly, in a geographically diverse country like Pakistan, it depends to a significant extent on the agro-ecological zone that the PO operates in. Third, it depends on the interest rates charged by the PO to the borrower as well as the level of cost-efficiency of the PO. Fourth, it depends on the extent of portfolio diversification. Fifth it also varies according to the various products, both financial and nonfinancial that are offered to the clients. Component 2) Though the microcredit market in Pakistan has grown rapidly over the last three years, albeit from a small base, yet the market remains considerably underserved. The experience of PPAF as a national apex institution, over the last three years of working with the poor has shown that provision of microcredit for very small income generating activities per se may not fulfill the financing needs of poor entrepreneurs who want to expand their enterprises. 3) Operational costs of the POs' micro-credit program is approximately 10 percent of total lending (US$23 million) and half in percentage terms of the subsidy provided under PPAF I.