Role of Consultancy Partner in Microfinancing

This research aims at identifying the approaches used by microfinance banks in managing creditrisk. Furthermore, it aims at examining the applicability of introducing the element ofconsultancy (consultant) in the equation to reduce credit risk. Primary data were used, whichwere collected through structured closed-ended questionnaires and semi-structured interviews.Purposive sampling was used to select credit officer and loan officer from each of the sampledbank. 6 Interviews were also conducted from manager and higher level management regardingthe applicability of consultancy concept. The analysis of the data revealed that, 85.7%respondents agree that they use five Cs' of credit risk to analyze the borrower situation beforelending loan to them, while 76.2% respondents agreed that the microfinance banks are harmedwhen borrowers fail to repay loans because of over indebtedness, poor client understanding,and other such issues. The acceptability of consultancy concept was asked through interviews,researchers received mixed responses.2 out of 6 interviewees were not in favor of consultancyconcept. One interviewee favored the introduction of a consultant in the area of microfinancing,while commenting he said that this concept is prevalent in the developed countries and can beused in Pakistan but its acceptability will require at least 5 years to get established in Pakistan