The role of micro finance and self help groups in poverty alleviation and development of socio economic structure of Northern areas of Pakistan

1.0 Background of the Study

Started by non-profit organisations, self-help groups are community-based financial intermediaries that are usually composed of twenty and below local women. These self-help groups, whom pool money to regular contributions to generate enough financial capital, may be registered and non-registered. The funds that the group was able to collect will be lent back to the members or other members of the community for specific purposes. On the basis of mutual helping, self-help groups function in accordance with broad anti-poverty agendas. Self-help groups are basically viewed as an instrument for women empowerment and leadership development in communities.

Further, one of the basic distinctions of a self-help group is that it serves as a financial intermediary between informal financial market and formal financial actors like micro finance institutions (Rutherford, 1999). Microfinance, on the other hand, is defined as the provision of various financial services to poor or low-income clients including consumers and self-employed for the purpose of supporting their financial and non-financial needs. As a practice, microfinance aimed at sustainable delivery of these services. It is intended that micro finance could lead into effective money management strategies in order for poor people to address their own financial needs hence to live out of poverty in the future.

In theory, microfinance encompasses all initiatives in increasing the access to, or improving the quality of, financial services of people in poverty who could use or could benefit from using the lent money other than the traditional financial services. Nevertheless, the goal of microfinance is not merely monetization but instead to address the several types of needs of poor, near-poor and low-income families. These needs include lifecycle needs, personal emergencies, disasters and investment opportunities (Rutherford, 2000). As such, micro financing conforms to creative, flexible and collaborative way of meeting the needs of underprivileged group of people.

In this way, poor people are given the opportunity to engage in entrepreneurial activities as an instrument in alleviating poverty. Micro financing puts emphasis on building the capacity to participate in micro entrepreneurship, aside from generating employment. Hence, microfinance is considered as a tool for socioeconomic development as it aimed to create self-sustaining businesses among the poor people. These livelihood opportunities are also regarded as an avenue to cope up with financial difficulties such as sending children to school and putting nutritional foods in the table.

In early 2000, the Government of Pakistan resorted in developing microfinance policy to address poverty in the country. It aimed to provide loans and other financial services for poorer household in both urban and rural areas toward self-sufficiency. Apart from financial support for their livelihood which is basically agricultural, the microfinance initiative was to develop savings capacity and entrepreneurial investments. Self-help groups in Pakistan served as the intermediaries between the people and the government which in turn will also serve as the intermediary between the people and the banks. Women, most specifically, are mobilised into self-help groups to build their social capital and facilitate access to finance for the groups and their members. Self-helped groups in Pakistan thus served as specialised microfinance institutions to reintegrate people towards a quality living which impacts literacy and health.

2.0 Statement of the Problem

The problem that will be addressed in this study is the position of self-help groups and microfinance in alleviating poverty and socioeconomic development in Northern Pakistan. The key question to be answered is: How self-help groups and microfinance helped in alleviating poverty and developing the socioeconomic structures of people in Northern Pakistan? In particular, the research will seek to answer the following research questions.
1) How do self-help groups contribute in poverty alleviation and socioeconomic development in Pakistan?
2) In what specific ways does micro financing proved to be beneficial for the people in Northern Pakistan?

3.0 Objectives of the Study

The main aim of this research is to determine the roles, functions and position of self-help groups and microfinance in eradicating poverty and developing the social and economic structures of people in Northern Pakistan. Specifically, the study will address the following research objectives.
• To evaluate the effectiveness of microfinance towards poverty alleviation and socioeconomic development
• To analyse the extent to which self-help groups contribute in initiatives to eradicate poverty

4.0 Research Methodology

This study will use the descriptive type of research. A descriptive research intends to present facts concerning the nature and status of a situation, as it exists at the time of the study and to describe present conditions, events or systems based on the impressions or reactions of the respondents of the research (Creswell, 1994). It is also concerned with relationships and practices that exist, beliefs and processes that are ongoing, effects that are being felt, or trends that are developing.
5.0 References
Creswell, J.W. (1994). Research design. Qualitative and quantitative approaches. Thousand Oaks, California: Sage.

Rutherford, S. (1999). Self-help groups as microfinance providers: how good they can get? Mimeo.

Rutherford, S. (2000). The Poor and Their Money. Oxford University Press: New Delhi.