In today’s world, companies are facing many problems with a new role, which is to fulfill the demands of the present generation in a socially responsible way. Organizations must take responsibility for the ways they operate because their operations impact societies and the natural environment.
Corporate Social Responsibility has become an important part of planning to get and sustain a competitive advantage in globally competitive companies. Companies can gain great benefits from participating and these benefits are the reasons for their engagement in Corporate Social Responsibility. CSR affects the financial performance of the firms. In today’s global world, organizations have many challenges to operate and earn profits. People have more knowledge about the organizations, their products and services and the way organizations operate their businesses. People are more conscious about the organization’s work for the prosperity of society, and the environment in which they operate and earn profits.
For the last many years, SBP in collaboration with the government is striving for financial inclusion of the disadvantaged segments of the population and other vital sectors. It has assigned high priority status and has emphasized utmost importance to neglected sectors such as agriculture credit, microfinance, SMEs and low-cost housing etc. Besides, it has also focused on green banking practices in line with global standards, to address the worldwide phenomenon of environmental degradation and threat to ecology.
Access to finance
In the past, the poor have simply been excluded from the mainstream financial system. Their transactions were too small, the distances were too long, and, generally, it was just too costly to reach them. In the last few years, however, the digital revolution has changed cost calculation radically, to the point where banks are starting to rethink all their presumptions. Mobile phones have become ubiquitous as today 85% of the world’s population has access to one. For the first time, transaction costs are being cut dramatically, and distances are no longer insurmountable. At the same time, the global microfinance industry has grown to serve hundreds of millions of the world’s poor and their families. So, a safe, affordable place to save is vital, and access to appropriate credit, insurance, and payment mechanisms are arguably more critical for this class of clients than any other.
In order to make Microfinance Institutions (MFIs) more effective in rural poverty reduction and to reach the target poor in rural areas, the government should create a more enabling environment by improving the rural physical infrastructural facilities. Also, there has to be the constant promotion of health and education facilities. All this would reduce the operational costs of MFIs and make their services in rural areas more attractive.
Moreover, MFIs should always adjust their loan terms and conditions to the situation of their potential rural clients. For instance, short-term loans and weekly repayment may not augur well for a rural peasant farmer whose harvesting period is seasonal and the crop gestation period is a bit long. In essence, MFIs should endeavor to make flexible client-specific repayment schedules. In addition, MFIs can reduce the cost of operation and improve corporate governance by recruiting locally educated people that can earn less than their counterparts in urban centers. Officers from local areas are expected to understand rural poverty better and should be able to convince the poor to join microfinance programs.
Microfinance and Islamic finance
It has been generally observed that entrepreneurs in the SME sector are more inclined towards Islamic banking products due to their religious sensitivity. The small and medium enterprises (SME) sector has great potential for expanding production capacity and self-employment opportunities in the country. Enhancing the role of the financial sector in the development of the SME sub-sector could mitigate the serious problems of unemployment and low level of exports.
While Islamic microfinance’s reach has increased considerably over the past few years, the provision of Shariah-compliant products is still in its early stage, in Pakistan and globally. At the same time, the overall demand for Islamic microfinance products seems to be growing rapidly, and Pakistan is set to be one of the most promising markets.
Microfinance cannot be separated from Islamic finance if targeting the ultimate objective of social welfare enhancement by promoting inclusive growth and encouraging wealth distribution. Structures of Islamic microfinance have got inherent checks, and the ability to deal with varying levels of poverty while providing foundations for the sustainability of institutions. However, the presence of Islamic microfinance is still very low and is concentrated only in a few countries depicting a huge potential market for Islamic financial institutions as well as microfinance institutions to capture faith-sensitive microfinance clients.