Economic Development

Akhuwat: Making Microfinance Work

A groundbreaking microfinance model is bringing out the best in society.

In recent years, microfinance has come under the spotlight for the wrong reason. The darling of international donor agencies for at least two decades, this market-led approach to poverty alleviation is now accused of causing havoc with borrowers’ lives. The reporting of numerous suicides by microfinance borrowers in the Indian state of Andhra Pradesh last year lends credence to these worries. The suicides were reportedly caused by indefensible amounts of pressure applied by microfinance institutions (in particular SKS, where founder/CEO Vikram Akula was recently forced out) to recover their loans from the poor.

My own research in Pakistan confirms this. Most borrowers (all women) that I spoke to in semi-rural areas around Lahore mentioned various humiliation rituals that microfinance organizations have devised to shame them into returning their money. Because of cultural reasons, women are particularly vulnerable to public shaming, and loan officers often resort to this. To avoid losing their honour in small, close-knit communities, women are often forced to borrow from their family members, feudal lords, and even the local moneylender, until there are no more people left from whom they can borrow. This is the point at which many break down.

There are two sources of pressure between borrowers and microfinance institutions (MFIs). For borrowers, the pressure comes from the fact that most MFIs charge exorbitant interest rates, ranging between 30 to 50 percent, and sometimes more. These rates are justified by MFIs on the grounds that the operational costs involved in disbursing, monitoring, and recovering thousands of microloans are exceptionally high. On the institutions’ side there is a strong desire to scale-up quickly and thus attract the attention of large lenders (such as the World Bank) or international investors. In scaling up, loan officers are under tremendous pressure to reach their quotas, often at the expense of due diligence. In other words, loans are given out to borrowers who realistically could never pay them back.

There does appear to be hope, though. One organization is bucking this trend with a more sensible—and just—business model. Akhuwat began in 2001 as an experiment. Its charismatic leader, Dr. Amjad Saqib—a civil servant in a previous life and keen to follow Islamic principles—decided to forego charging interest from borrowers entirely. This decision means several things: he must keep operational costs extremely low and Akhuwat must rely on donations from more prosperous members of society. The fundamental premise of Akhuwat is to establish partnerships between more-affluent and less-privileged citizens. Importantly, donations are also solicited from borrowers who make very modest donations (often 2 cents a day), but who welcome the opportunity to be “givers.”

Akhuwat runs a tight ship. I have visited several offices of Akhuwat, including the head office. In contrast to many other MFIs, where CEOs and CFOs have their own offices in plush buildings, everyone at Akhuwat sits on the floor in a single room. For disbursement of loans and information sessions, Akhuwat uses religious spaces, including mosques and churches. And unlike other MFIs, Akhuwat employees volunteer 20 percent of their time.

Akhuwat’s reliance on local donors means that unlike other donor-dependent MFIs, it is not under pressure to scale up quickly. This means it can do more due diligence and closer monitoring. The absence of interest also means the organization is genuinely seen to help clients rather than fleece them—a common perception of many other MFIs.

Akhuwat’s model is groundbreaking because it challenges deeply entrenched assumptions about economic behaviour—assumptions the entire microfinance edifice rests upon. For example, economists would have us believe that in a case where a single borrower takes out multiple loans, she would pay back the creditor charging the highest interest first. In fact, driven by the desire to keep Akhuwat on their side, many borrowers are returning instalments to Akhuwat first. Moreover, by giving back to the organization, borrowers are developing a strong sense of ownership and self-esteem (in the sense that they are not just borrowers but also donors).

Similarly, rather than financial penalties and threats of destroying social capital (mechanisms on which other MFIs rely), Akhuwat takes advantage of normative pressures connected with religion. Its use of mosques and churches reinforces this while breaking down religious barriers and taboos, such as women and non-Muslims entering mosques. Similarly, the organization invites Muslims into churches. And as Akhuwat tells borrowers they are doing a good deed, there is an expectation that borrowers will help others, and be honest in their dealings and businesses.

Akhuwat, then, represents the best in society: the willingness and enthusiasm of individuals to help others and sacrifice themselves; the moral obligation that comes with religion to help others but not the prejudices; avoidance of any strong-arm tactics; and helping others not just financially but by transforming their world views. In short, it is a model all social entrepreneurs should ignore at their peril.

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  • Ravi Madhukar Balgi's avatar

    BY Ravi Madhukar Balgi

    ON February 9, 2012 10:34 AM

    This is a very good example of how MFI can work.
    you should also check out which is a online platform with p2p lending.


  • BY chris macrae

    ON February 10, 2012 06:44 AM

    I would expect better editing from SSI. Why throw the baby out with the bathwater? The world is suffering from big banks, and big banks influence over some newer organisations that called themselves microcredit but had nothing systemicly in common with the original microcredits (all of which evolved very deeply contextually empowering models). If the author is aiming to openly share knowledge he could clarify what is the SWOT of Akhuwat versus a hi-trust Pakistani microcredit like

  • shoaib ulhaq's avatar

    BY shoaib ulhaq

    ON February 11, 2012 02:14 AM

    I am not sure I understand what Chris is getting at. He shows cynicism towards the ‘newer organizations that call themselves microcredit’ but isn’t Kashf’s latest incarnation exactly that? He supports the ‘deeply contextualized empowering models’ and yet is critcal of Akhuwat which is again nothing but.

    I can point out an important study conducted by Pakistan Microfinance Network which details a recent delinquency crisis faced by Kashf in the province of Punjab. The report argues that the delinquency problem presents a revolt of microfinance solidarity groups against the flaws in the lending practices of the MFI and its high interest rates. This report is available at There is plenty of evidence that the MFIs working on the Grameen bank model or any such variant are bound to fail. For example, consider the recent article by Hermes et al., (2011) published in World Development. The authors, after going through a sophisticated analysis of data, prove that outreach is negatively related to efficiency of these MFIs. Moreover, the recent randomized controlled trials conducted by scholars such as Dean Karlan, also depict a negative picture of these traditional models. Nevertheless, since we “should not throw the baby out of the bathwater”, we should try to find out workable models of microfinance which are ‘deeply contextualized’. Long time microfinance scholars and practitioners, including Malcolm Harper, believe that the model of Akhuwat presents such a workable model. His speech on this topic is available at

  • Dr. Izhar Hashmi's avatar

    BY Dr. Izhar Hashmi

    ON February 11, 2012 05:43 AM

    Akhuwat started with a meager amount of Rs 10,000 (120 USD) and one widow. with the help of civil society it was able to help thousands of families with a default less than 0.2%.
    the reasons of success and sustainability is due to following factors.

    contribution by civil society
    no cost of capital to be disbursed
    board of director including Dr.Amjad work voluntarily. boarding, lodging, and travelling at their own, no remuneration what so ever.
    cost of disbursement is low
    negligible default rate
    strict financial discipline,the most authenticated auditing company, Fargousans audit AKHUWAT
    model has strength to be replicated, around ten replications
    govt and other NGOs are partnering with AKHUWAT
    pro poor approach
    converting the borrowers to donor not by extortion, rather by motivation
    no selling and target pressure yet fastest growth rate

    SWOT analysis can be done

  • BY Dr Ghulam Mustafa

    ON February 12, 2012 03:07 PM

    Akhuwat model is entirely different than the rest of the world.

    The very basic one is that people are involved in MFIs as a means of EARNING (including Grameen, charging over 35% interest) while Akhuwat is making it as a means of SERVING (the people).
    The others are doing it to GAIN(profits) while Akhuwat is doing it to GIVE (to the poor).
    The others are doing it as a FAVOR (to the poor), while Akhuwat is doing it as a RESPONSIBILITY (to distribute towards HAVE-NOTs).
    So there is no point in comparing when the ROOTS & basic thinking is so different.

    AKHUWAT is the future if the target is really poor & have-nots.

    Keep it up Dr. Amjad Saqib. You have done a miracle on the globe.

  • Baljeet Grewal's avatar

    BY Baljeet Grewal

    ON February 12, 2012 09:58 PM

    A wonderful example of how a just MFI system operates within the confines of Islamic finance principles. The socioeconomic fundamentals of profit sharing, shared repsonsibility and ‘awkaf’ against the backdrop of financial discipline and transparency show Akhuwat to be a model for future MFIs.

  • Saleemullah's avatar

    BY Saleemullah

    ON February 12, 2012 11:14 PM

    The spirit of AKHUWAT is needed in the MFIs if they are really interested in helping the poor to improve their income levels and live relatively better lives. Unfortunately this Spirit is missing in most of the MFIs operating accorss the developing world including Pakistan. These MFIs are obssessed with achieving sustainability even at the cost of unsustainability of their clients, who are largely poor and vulnerable to even the routine shocks in the economic environment.  Hats off to Dr. Amjad Saqib for conceiviing and initiating a model that has feel of the pains of the poor and that is aimed at healing the wounds of the poor enabling them to live better lives with dignity and honour.

  • Islam is irrelevant to support of any financial model.

    Charity is charity, including volunteerism. Why are the poor so poor as to need charity?

    How about a coop of borrowers where workers, some of whom may be borrowers, are paid decently and borrowers realise that decent work is a social obligation. managers should be paid decently: they can invest as much of it as they want into the coop.

    Comments abound with (deliberate?) misinformation - e.g. the 30% or more interest charge alluded to Grameen. By the way I have never understood why a borrower-owned institution can be indicted as being a shylock to its member-borrowers?

  • fateh bandial's avatar

    BY fateh bandial

    ON February 13, 2012 07:15 AM

    Many micro finance institutions in the third world almost worked as pay day lenders do in USA. Akhuwat is a notable exception. It is based in spirit of self help and inspired by an obligation to help less fortunate. DR. Amjad is my childhood friend and I would expect nothing but leadership by example from him. This is an example of civil society helping strenghten its own foundation.
    I noticed comments made by Ercelan. Islam is indeed irrelevent to support any financial model but it is not irrelevant to the formation of this model. DR. Amjad and other founders were inspired by their committment to their faith and they have no need to be sheepish about it.

  • Kamal Munir's avatar

    BY Kamal Munir

    ON February 13, 2012 02:44 PM

    Charity is charity suggests one reader. I am not a believer in charity myself - it is normally not a very effective way of bringing about any meaningful change. However, two aspects need to be considered here: First, we criticize charity because most charity provides a few meals not a livelihood (giving someone a fishing rod is better than giving him a fish etc) . In this case, charity is being used creatively to provide livelihoods. Second, it is resulting in the mobilization of capital which would otherwise have been used in consumption or saving. Since the utility of the same capital is greater for the poor, the transfer of consumption from the rich to the poor cannot be an altogether bad thing. And if it had been saved in a commercial bank, it would have been available to an MFI at around 12-16% interest (leaving about 10% margin for the bank). Given that banks are not generally owned by the poor, i am not too worried about this lost opportunity to the bank. And why do people give charity? It appears to be a combination of trust and religious conviction - which is why religion is actually important here. It definitively shapes economic behaviour.

    Having said that, it needs to also be realized that MACRO-finance is eroding away the effectiveness of MICRO-finance even when the interest rates are zero. Rampant food inflation, globalization and privatization mean more and more disposable income is being spent on basic necessities. Unless the macro problem is addressed, micro solutions will continue to struggle.

  • Salman Khalid's avatar

    BY Salman Khalid

    ON February 14, 2012 04:35 AM

    Looks like a wonderful model for shifting microfinance from its present predatory structure ... however, I would be interested in knowing if this model is scalable without access to profit seeking private capital.

  • Natalya Naqvi's avatar

    BY Natalya Naqvi

    ON February 14, 2012 05:32 AM

    While Akhuwat’s model may solve the various social problems caused by MFI’s which charge exorbitant rates of interest, it does not solve the more fundamental problem of poverty alleviation/economic growth. The microfinance model of poverty alleviation is seriously flawed; most loans given are used for consumption smoothing rather than productive purposes. Even if these loans are used productively, due to their small size they can only be used to set up limited productivity small scale informal sector businesses, which are already in over-supply (which means downward pressure on existing incomes). Because they operate below the minimum efficient scale of production the failure rates for these types of businesses are very high, and when this happens individuals must sell their assets or go further into debt to repay their loans. Microfinance can be a useful tool for consumption smoothing for the poor, but it should not be seen as a solution for poverty and a lack of economic growth. Nor should it be seen as a substitute for basic social welfare programmes or employment generating industrialisation.

  • Muhammad Irfan's avatar

    BY Muhammad Irfan

    ON February 14, 2012 10:21 PM

    “Why are the poor so poor as to need charity?” suggests a reader. I guess Mr. Kamal Munir and Ms. Natalya Naqvi’s comments have given adequate response but let me add this. The poor are also poor because they are kept poor by enforcing policies which are supposedly for poverty alleviation - prime example being Microfinance. This is only a small part of the larger MACRO framework of policies Mr. Munir has addressed in his comment. Just as liberalisation and privatisation under the neo-liberal mantra is supposed to “help the consumer” by taking away his job (so that he does not have any income), microfinance (a la World bank and Grameen) is supposed to alleviate poverty by further indebting the already indebted.

    Akhuwat, on the other hand, has at least addressed the fundamental wrong with Microfinance; and so be it if it is based on a religious principle - that makes it even more effective, if you know the society it is being introduced in. I

  • Rahmat Ullah's avatar

    BY Rahmat Ullah

    ON February 15, 2012 02:45 AM

    i would appreciate Kamla Munir for nice effort. Akhuwat is certainly a model to be replicated by rest of the world. i think the big question of Akhuwat sustainability in the early days has now shifted to replication of the model. the replication of Akhuwat model can serve the humanity at large. i would like to invite attention of academics like Kamal Munir to put their energy in replication of Akhuwat as:

    publishing extensively on interest-free micro-finance
    publishing on Akhuwat operations and working style
    getting funded projects on analyzing Akhuwat replication in various regions
    developing strategies and plans for Akhuwat
    encouraging students to do projects on Akhuwat


  • Dr Rizwan Hasan's avatar

    BY Dr Rizwan Hasan

    ON February 15, 2012 11:36 AM

    The real benefit of MFIs should be seen in the context of allowing borrowers to buy capital stock. On the larger scale with replication this could result in some additional uplift to a country’s economy as measured by its GDP. As such the idea of MFI is very sound as it would result in lowering inflation in countries like Pakistan where this is rampant. We should however be wary if MFI eats into social capital or credit is used for consumption smoothening as suggested by Natalya Naqvi.

    The use of religious venues for disbursement of loans is also an interesting phenomenon particularly in countries where religion plays a strong role. Perhaps in absence of adequate regulatory institutional control, business ethics could be positively supported by religious belief systems. In context of Pakistan, the bigger question then would be why the zakat system is so ineffective and why is it not managed on modern economic principles.

  • Dr Mubashir Cheema's avatar

    BY Dr Mubashir Cheema

    ON February 18, 2012 12:32 AM

    I think capitalism is inherently unstable and, in a sense, constantly ‘needs’ new markets and WB/Grameen microfinancing model is just that - a vastly distributed economic machine to pilfer the pockets of billions hovering at the poverty (& illiteracy) line, most of which won’t even be able to calculate interest on their repayments, much less do a SWOT analysis. What makes them even more lucrative for MFIs is that these people do not have a voice - no forum/representative/twitter - so they can’t stage a protest at being lured into what they didn’t understand to begin with, except by taking their own lives!

    The other assumption made by MFIs is that this demographic makes/can make a profit, enough for them to charge x% interest. This is simply not the case. These people are already hit everyday with the end result of speculation on food commodities, crude oil and currency, because they cannot pass it on to someone else - be it higher food prices (for family) or transportation charges (for work or business). It is unsound judgment to assume that they can magically turn over some profit. I therefore find the idea morally repulsive and scientifically flawed.

    If I can qualify some of the earlier comments, I’d say that ‘unorganised charity’ is not sufficient. I come from a modest background and I know that micro financing models on the ground are nothing new. These include informal (usu. interest free) lending/borrowing from friends/relatives, or group-financing local committees where the whole group contributes over time towards a lump sum amount for each individual, in turn.

    Akhuwat’s work is certainly commendable and I guess one way to scale it up would be to incorporate the models that are already familiar to the end users.

  • Ataul-Haq's avatar

    BY Ataul-Haq

    ON February 21, 2012 07:29 PM

    The story of Akhuwat is extremely inspiring for many reasons.  This is an eye opening functional model for the world that is truly to help the needy.  A model that can be replicated given the honesty, integrity, and dedication of the organizers.  This will have far reaching implications not just for microfinance, but for finance in general.  Given the financial turmoil around the world, it is time we take a closer look at other viable alternative, one that is free of interest.

    Congratulation Akhuwat, keep up the great work!  Also I would like to thank Mr. Kamal Munir for bringing this much needed story to the fore front.

  • Sidra Ali's avatar

    BY Sidra Ali

    ON September 12, 2012 09:17 AM

    great efforts akhuwat…well written kamal munir sb

  • BY bridging loan

    ON June 6, 2013 04:02 AM

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