Pakistan: Microenterprises Availing Financing Witness 25pc Growth in Revenue

Jan 2020
Pakistan, January, 01 2020 - Pakistan’s microenterprises have witnessed at least 25 percent growth in their revenues during a year after availing financing facilities, a not-for-profit company said on Tuesday.

“On average, a microenterprise earns Rs1.6 million as annual revenue, which increased by 25 percent from previous year,” Karandaaz Pakistan said in a report based on impact of microloans disbursement on revenue generation and job creation. “However, this varies considerably across economic sectors, being higher in trading and manufacturing sectors. Using information on loan amounts, we calculate a ‘revenue multiplier’ i.e. amount of incremental revenue generated per Rs1 million in loans in microfinance. We estimate this to be 4.1x for the overall sample. However, the growth in revenue and jobs supported cannot be attributed to the loan alone.”

Data for the report was collected through a survey of 125 microenterprises during October-November 2018. The sample was selected to ensure diversity of geography, economic sector, gender, and the type of microfinance provider i.e., bank vs. non-bank. Overall, 11 microfinance providers participated in the survey and they collectively account for 55.2 percent of the sector’s current outreach in terms of active borrowers.

The study titled, ‘Microfinance and Enterprise Growth – Evidence from Pakistan”, focuses on the impact of microfinance on job creation and enterprise growth. Karandaaz Pakistan is funded by UK’s Department for International Development and the Bill and Melinda Gates Foundation.

Ali Sarfraz, chief executive officer of Karnadaaz Pakistan said the research would help in building knowledge about the role of microfinance sector in supporting economic growth and supporting jobs.

“Although there is mixed evidence that microfinance can alleviate poverty, the additionality that it offers by increasing access to finance is at times overlooked,” Sarfraz said. “… our investments in microfinance are directionally correct in supporting jobs and increasing revenues for microenterprises. We hope that further research on microfinance will fill the information gaps that will help the industry to take a deeper look at the delivery costs and product offering for its customers.”

The average assets of the industry per microenterprise stand at Rs1.5 million. The asset turnover for the industry, on average, is 1.1 times. Average monthly income of microenterprises is about Rs13,000 (and average distributable monthly income is Rs41,000). The gross profit margin is 37 percent and the net profit margin is 11 percent. Financial cost is 4 percent of overall operating expenses, and 77 percent of the operating cost comprises salaries, wages and owners drawing.

On an average a microenterprise employs 2.6 persons on a full time basis – 40 percent of these are women. Pakistan has a youth bulge, with more than 69 percent of the population under the age of 30 and more than four million young people entering the job market every year.

“Estimates suggest that the economy needs to generate 1.5 - 2.5 million jobs annually to absorb these labour market entrants,” Karandaaz said.

According to the survey’s findings, women-led businesses employ more women: the 57 women-led microenterprises in the sample employed 101 women, whereas total women employed by 68 men-led microenterprises were 15.

Average fixed assets for the sample were calculated at Rs1.5 million, with highest asset base in agriculture sector due to landholding. Women-led microenterprises tend to be smaller, earning 63 percent of what their male counterparts earned as revenue in a year.

“Given that the bulk of the enterprises in Pakistan are micro, small and medium, the microfinance industry can play a pivotal role in growing the size of the economy, and in turn, support employment of millions,” Karandaaz said.

Source : The News

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