More than just microfinance - How Pakistan’s largest Islamic Microfinance Institution supports one of the country’s most stigmatized communities

© Akhuwat 2014

Despite positive measures such as the landmark legal judgement in 2009 that granted transgender people  their own gender category on national identification cards and the Supreme Court recommending that they benefit from affirmative action for civil service jobs, transgender people remain among the most disadvantaged groups in Pakistan.  Often referred to as hijras or khwaja siras (the latter is the term used to describe the transgender courtesans who danced in the courts of the Mughal Emperors during the seventeenth and eighteenth centuries) they routinely face discrimination in health, housing, education and employment as well as ridicule, intimidation and the threat of physical violence. Most khwaja siras are forced to live at the margins of society and earn an income from performing at ceremonies such as weddings and births; extorting payment by disrupting people’s work and most commonly begging - they are, for example, a relatively common sight at traffic lights in many large Pakistani cities such as Karachi and Lahore.

In 2011 Lendwithcare’s microfinance partner in Pakistan, Akhuwat, started a programme to reduce the social exclusion of khwaja siras.  In the words of Akhuwat’s Founder and Director, Dr Amjad Saqib, the aim was to work towards ‘creating a society in which the transgendered are treated as equal citizens without prejudice or discrimination’. While the programme has included a wide variety of activities such as painting workshops, quiz competitions and even sports events, the core of the programme has focused on granting participants a small monthly grant of 1,200 rupees (approximately £7) and, since the health of khwaja siras is generally at greater risk of infectious diseases, the increased provision of health services - particularly focused on the prevention and treatment of diabetes, HIV/AIDS, and hepatitis. More recently Akhuwat has started to focus on improving the economic well-being of the transgender community and now provides vocational training and loans to start businesses. In no way has Akhuwat attempted to reform or reshape the identity or behaviour of khwaja siras.

Akhuwat’s programme was devised following lengthy interviews with more than 600 khwaja siras and their representatives to better understand the issues they face and concerns they have. So far, more than 500 people have benefited from the programme that has concentrated on the large north eastern city of Lahore which has traditionally had a relatively large transgender community, although Akhuwat has plans to expand its pioneering work to other areas of Pakistan as well. While the direct impact of the programme itself has so far been  limited to just a few hundred people, in a very conservative society the indirect impact of one of Pakistan’s largest Islamic development institutions working closely with one of the most stigmatised communities should not be underestimated – setting an example to other organisations Akhuwat employs seven khwaja siras directly.

Like many khwaja siras Ashi, who is 60, was born male but identifies as a woman and her experiences are typical of many in the transgender community. Ostracised by her family when she was still a teenager she became homeless and struggled for many years to both feed and clothe herself. What little money she received she earned from dancing at parties with other khwaja siras.  She suffered from high blood pressure and is now a diabetic. Ashi considers that participating in Akhuwat’s programme has proved a turning point in her life. While attending the workshops that promote better self-hygiene, diet and health, Ashi became aware that Akhuwat also provided interest free loans. She therefore requested a loan, repayable over 15 months, of 15,000 rupees in June 2012 (the equivalent of about £90) to establish a business selling the fabrics used in making women’s clothing as well as readymade clothes as an itinerant trader to people in her local community. For the first time in her life she started earning a regular income. Ashi repaid her loan on time; in fact most of her monthly instalments were repaid a few days early. Once she had fully repaid the first loan she applied in November 2013 for a second larger loan of 30,000 rupees (about £180) to significantly expand her business by purchasing in bulk many of the garments she sells. Buying a greater quantity of items from the wholesalers entitled her to discount and increased her profit margin and she was also able to offer customers greater variety.  She is now living with her married sister and her children and for the first time in her life Ashi feels she has some level of stability, economic independence and security.

Dr Ajaz Ahmed Khan

"Liberation loans" offered by our partner in Pakistan to free poor people from spiralling debt

After the 2014 Oscars ceremony, Steve McQueen's film “12 Years A Slave” deservedly took home the big prize of best picture. However, it is important to remind ourselves that the barbaric practice of slavery is not something we can consign to the history books. It is still a contemporary issue in many countries around the world.

The epic 1957 Bollywood film ‘Mother India’ movingly portrays the story of a family struggling to survive against the machinations of a local moneylender. Many decades later this is still one of the rare examples of Indian cinema vividly reflecting the reality faced by millions on the Indian sub-continent, and instances of local moneylenders charging usurious rates of interest remain as prevalent as ever throughout much of South Asia.

As well as providing loans to people wanting to establish or develop their microenterprises, lendwithcare’s partner in Pakistan, Akhuwat, provides ‘liberation loans’ to people who are struggling to repay debt that has been taken from local moneylenders. In most instances, borrowers took out small loans at interest rates of up to 20% per month and the debt has spiralled out of control. Sometimes borrowers have already sold what few assets they own, yet still struggle to keep up with repayments. Shahzad Akram, Akhuwat’s Chief Credit Officer, recalls instances where young borrowers have even committed suicide and some moneylenders demanded that borrowers sell their daughters to repay the debt. In parts of southern Punjab and Sindh it is not uncommon to find borrowers and their children who have been forced to become indentured labourers for feudal landlords as they struggle to repay debts that were often taken out many years ago.

Akhuwat calls them liberation loans because they free the borrower from the seemingly never-ending cycle of increasing debt. Each request is carefully considered on an individual basis to ensure that the application is genuine. There is a maximum loan size of 100,000 rupees or about $1000, although most loans are smaller, typically around 35,000 rupees or $350. Akhuwat does not charge any interest and borrowers are asked to simply repay the loan in monthly instalments over a period of up to 18 months. Each year Akhuwat makes several thousand liberation loans to clear the debts of heavily indebted borrowers.

Rather than providing the borrower with the cash, Akhuwat instead directly repays the whole amount owing to the moneylender in the presence of the borrower and often other witnesses as well. It then asks the moneylender to sign a contract stating that loan has been settled in full and that he/she will not demand anything further from the borrower. The organisation also educates borrowers on the dangers associated with taking out short-term high interest loans to ensure that they do not fall into the same debt traps again.

[The first example of a liberation loan to be uploaded on lendwithcare can be found here. Ilyas Maseeh found himself in spiralling debt after one of his relatives got him involved in a court case. He took out a loan from a private money lender who imposed harsh conditions on this loan. Akhuwat is now helping him clear his debt and resume a normal life.]

Akhuwat, which was established in 2001 by Dr Amjad Saqib, has grown quickly to become one of the largest specialist providers of microloans in Pakistan – it now has almost two hundred thousand active clients, including many non-Muslims, served by more than 250 branches located throughout the country. Akhuwat provides interest free, referred to as Qard Hasan, loans to the working poor. Qard Hasan loans are promoted in Islamic teachings as one of the mechanisms to assist poor people; indeed they are preferred to providing the poor with outright charity. With an average loan size the equivalent of just US$144, Akhuwat lends to some of the poorest people in Pakistan without any formal collateral and has a remarkable on-time repayment rate of 99.83%.

By Dr. Ajaz Ahmed Khan

Does faith matter? A blogpost by Dr. Ajaz Ahmed Khan

Does an association with faith encourage more prompt repayment of microloans and are the staff of faith-inspired microfinance institutions more motivated?

After recently returning from a visit to Pakistan, where I was analysing the operations of an Islamic microfinance institution, I am tempted to answer yes to both questions. The microfinance institution in question is Akhuwat, a lendwithcare partner. The organisation derives its name from the Arabic word Mwakhwaat or brotherhood and was established in 2001 by Dr Amjad Saqib. It has grown quickly to become one of the largest specialist providers of microloans in Pakistan – it now has almost two hundred thousand active clients, including many non-Muslims, served by more than 250 branches located throughout the country.

Akhuwat provides interest free, referred to as Qard Hasan, loans to the working poor. Qard Hasan loans are promoted in Islamic teachings as one of the mechanisms to assist poor people; indeed they are preferred to providing the poor with outright charity. With an average loan size the equivalent of just US$144, Akhuwat lends to some of the poorest people in Pakistan without any formal collateral and has a remarkable on-time repayment rate of 99.33%.  This can partly be explained by the fact that loans are made to small groups of friends and neighbours who appraise each other’s loans. While most of Akhuwat’s loans are to help low income people start or develop their businesses, they also provide ‘liberation’ loans to those people who have taken loans at high rates of interest from moneylenders and the debt has spiralled beyond control. The organisation repays the whole amount owing to the moneylender in the presence of the borrower and then requests the borrower to repay Akhuwat in interest free instalments.

Through speaking directly with Akhuwat’s clients in and around the city of Lahore it was noticeable how many stressed that it was precisely the fact that the loans conformed to Islamic teachings, particularly regarding the prohibition on charging or receiving interest, that most attracted them to Akhuwat and the fact that the funds may be from others fulfilling their religious obligations that motivated them to repay. Some borrowers confessed that it was the first time that they had ever received a loan from a microfinance institution – they had in the past refrained from accessing interest-based microfinance because of their religious beliefs.

No doubt borrowers were also attracted to Akhuwat’s loans because they were much cheaper than the alternatives available since borrowers paid no interest and Akhuwat’s loan officers would even visit borrowers at their homes or places of work to collect repayment instalments making their service very convenient. However, there did seem to be a genuine desire from clients to see the organisation develop and succeed. All the clients that I spoke with or observed visiting the organisation voluntarily made donations to Akhuwat - the organisation covers its operating costs through donations from borrowers and well-wishers – and the ubiquitous donation boxes in the branch offices were stuffed full with small denomination rupee notes.

It also became apparent that Akhuwat’s staff were also extremely committed and routinely worked extra hours. While this is common in many social development organisations, some had come to the institution from better paid jobs elsewhere and others had continued to work for Akhuwat for many years eschewing opportunities elsewhere. Many confessed that they were motivated by spiritual reasons and a sense of fulfilling a duty – something that I have also observed with staff working with faith-based microfinance institutions in Africa and Latin America.

I am certain that faith does have some influence on the way borrowers perceive Akhuwat and also on their behaviour and it has a motivational impact on programme staff. No doubt this has partly contributed to Akhuwat’s success but, as Dr Amjad Saqib emphasised to me, it is not a substitute for a conducive macroeconomic environment, qualified and experienced staff, and proper policies and procedures.

Loans can be given as a gift voucher to a friend or family member, who can choose which entrepreneur they would like to support. The entrepreneur uses the loan to help grow their business, and later pays the lender back. The lender can either withdraw the money and keep it, or lend the same money to another entrepreneur.

By Ajaz Ahmed Khan, Microfinance Advisor at CARE International