Credit Constraints for Microfinance Sector in Pakistan, an Analysis of Internal and External Factors

Microfinance is considered to be an effective tool for poverty alleviation, employment generation, income generation and income equality. It is a financial service provided to poor people who do not have any other source of funds or have access to financial services. The purpose of this research paper is to determine the credit constraints that are facing by microfinance sector in Pakistan. The data is collected through structured questionnaires from 250 respondents who are employees of MFBs/ MFIs keeping in view three broad categories of theoretical framework including internal factors having sub variables like operational cost, HR capacity, innovation and external factors having sub variables like competition, language, awareness as independent variables and a dependent variable having sub variable that is credit constraints for microfinance sector. Regression analysis has been used to determine the impact of independent variables i.e. internal and external factors on dependent variable that is credit constraints. The study found that there is a significant impact of internal and external factors on the credit constraints facing the microfinance sector. Based on the results it is recommended that concerned authorities should give due importance to all sub variables of internal and external factors in order to minimize the issue of credit constraints facing the microfinance sector.