The Microcredit Programme of OPP-Orangi Charitable Trust

The Pakistan NGO, the Orangi Pilot Project (OPP) is probably best known for the work of the OPP–Research and Training Institute, and its support for community-managed sanitation and other programmes to support better schools and better quality building in informal settlements (see the paper in this issue by Arif Hasan). This book describes the work of another part of OPP – the small loan programmes run by the OPP–Orangi Charitable Trust.

The book begins by discussing the origins of microfinance, both in the local savings groups that traditionally provided credit and in the nineteenth and early twentieth century attempts to set up financial services with social functions. It then discusses how NGOs have sought to develop microfinance. This is followed by a description of the early history of Orangi Pilot Project (from 1980), and how the Orangi Charitable Trust developed from it in 1987, to provide credit to family enterprises within Orangi (a large informal settlement in Karachi whose current population is around 1.2 million). The aim of this trust was to provide credit to existing microenterprises at market interest rates, but without requiring any collateral (personal guarantees from two neighbours were necessary instead), and to train NGOs and community-based organizations to initiate comparable programmes. Most of its funding came from loans from Pakistan banks, which it was able to repay because of good repayment records from the enterprises to which it on-lent. Later, some international funding helped cover overhead costs – especially as the programme grew in scale and scope.

Orangi Charitable Trust developed this microfinance programme in a culture where loan defaults were very common. Initially, loan defaults were a problem, but the proportion of defaults fell. Up to 2004 in Orangi, 6,946 loans had been given, 5,661 had been repaid in full, and most of the repayments on outstanding loans were being made on time. The trust also keeps careful records of why bad debts occurred – and these include a proportion that repaid most of loan, a proportion that could repay (for instance, the loanee had died or was incapacitated, or they had lost their capital through a fire), and those who were “absconders”.

This book includes separate chapters on credit to traders, credit to manufacturers and service enterprises, and credit to community and private schools (to help upgrade their facilities – sometimes also supported by a grant). Each chapter gives details of the kinds and numbers of loans provided, and some profiles of specific loans with details of who took the loan, what is was used for and how it was repaid. Another chapter looks at measures taken to increase microfinance to women – again with examples of loans given. The final chapter describes the large number of partner institutions all over Pakistan who now provide microfinance, drawing on and supported by the Orangi Charitable Trust, and also gives one or two-page profiles of many of these partners.