KEY LENDING METHODOLOGIES

Program Introduction:
Individual loans are marketed through awareness campaign in poor localities,
market places and through previous borrowers. An introduction to the program is
also given in nearby mosque or church when people have congregated there for
prayers. This has not only tremendously saved the operational costs but has also
opened the doors of the religious places for socio-economic development. It also
attaches a moral responsibility to return the loan on time.
Individual Selection:
The loan process starts with the submission of applications by persons interested
in getting financial assistance. The Unit Manager (Loan Officer) then evaluates
that whether the applicant deserves the loan or not i.e. lives below the poverty
line, has a reliable social capital, is not involved in any illegal business and
possesses entrepreneurial abilities.
Preparation of Business Plans:
Through the preparation of business plans the business idea of the intended
loanee is evaluated to see if it is viable and whether it can generate income
beyond the household expenses of the individual so that the loan could be repaid
easily. The applicant's family is also interviewed to make sure that they know
about the loan and support the business idea.
Credit Appraisal:
After initial appraisal by the Unit Manager, the application is forwarded to Branch
Manager who appraises the technical section of the appraisal process. Then the
case is referred to Loan Approval Committee. The committee comprising of Unit,
Branch and Area Mangers which reviews the credit case. If the committee
approves the case loan disbursement is done. The whole process takes almost 3
weeks.
Guarantors of Loans:
Every borrower also provides two individual guarantors who vouch for his/her
credentials and accept the responsibility of monitoring the borrower and give
assurance to persuade the borrower for timely payment of loan. One of the two
guarantors may be from the same family.
Credit Disbursement/Capacity Building:
Disbursement takes place 2-3 times a month and 100-150 loans are disbursed at
one event usually held at branch office/mosque or church. Every borrower has to
be accompanied by one of the guarantors. Other people present at the time of

disbursement include community members, Akhuwat staff, from the branch and
Head office. Social Guidance events are also held simultaneously in which the
capacity of loanees is built to carry on their work more efficiently and effectively.
They are also apprised of social agenda that includes:
Emphasis on girl's education
Serving the community at large
Protection and improvement of environment
Importance of plantation
Observance of traffic rules and local laws
Following highest ethical values in business
Recovery/Follow up:
Once the loan has been disbursed, the Unit Manager monitors the client with
regular visits to his residence and place of work. The loan repayment has to be
submitted at the branch by the 7th of each month. If a payment is not in by the
10th, the Unit Manager visits the client to remind and if repayment is still not
done then the guarantors are contacted and asked to make the payment.
Akhuwats Mutual Support Fund
Akhuwats Mutual Support Fund was created to support its clients and their
families during extreme events like death or permanent disability. At the time of
the loan disbursement, the borrower may pay 1% of the loan as insurance,
although loans below 4, 000 rupees are exempted from this fee. While the 1%
contribution amount is optional, most borrowers choose to give it and these
contributions go into the Mutual Support Fund. In case of any borrowers death or
permanent disability, the loan is waived off and the family also receives an
additional support package of 5, 000 rupees. The Mutual Support Fund is an
effort to not burden the client or their families in case of an unfortunate event
and instead provide them with the necessary support and assistance.
Microfinance Products
1.

FAMILY ENTERPRISE LOAN

The Family Enterprise loans are for establishing a new business or expanding an
existing one with the aim of enabling the borrower to secure a sustainable
livelihood. It is the most common type of loan offered by Akhuwat; comprising
91% of Akhuwat's loan portfolio. The Family Enterprise loan ranges from 10,000
rupees to 30,000 rupees however keeping in view the rapid inflation in the
country, Akhuwat now gives initial loans of up to 15,000 rupees. To be eligible for
the loan, the individual has to come up with a viable business plan which he may

construct with the guidance and support of the Akhuwat staff. The loan is known
as the Family Enterprise Loan because it intended for the entire family and not
restricted to either male or female members of the household. Even though the
entire family is involved during the loan process, the business is undertaken by
one member of the family who has the required expertise. The Family Enterprise
Loan is designed to strengthen the social fabric by involving the whole family in
the loan process such that the enterprise becomes a family venture instead of an
individual effort.
2.

LIBERATION LOAN

Liberation Loans are for repayment of loans taken from money lenders on
exorbitantly high interest rates. With the culture of informal money lenders, or
baniyas, prevalent in Pakistan, many poor people find themselves in a cycle of
ongoing debt as they struggle to pay the high interest rates for years leaving the
principle amount untouched. Interest rates may be as high as 1, 000 percent and
might financially cripple the poor. Many a times, the loan persists from one
generation to the next making it impossible for the family to secure a sustainable
and respectable livelihood for themselves. Liberation loans were introduced to
counter the effects of these loan sharks and continue Akhuwats fight against
interest. Akhuwat pays the principal amount in one go for the client and the
client in turn pays back that amount in interest free installments to Akhuwat. The
upper limit of the loan is 50, 000 rupees however substantially large loans may
also be given after the approval by a Committee headed by the Executive
Director.
3.

EDUCATION LOAN

The Education Loan caters to the needs of the poor who are unable to finance
their own or their dependents education. Many poor students are forced to drop
out of school as they do not have enough savings to continue their education.
Emphasis on education has been an integral part of Akhuwats social agenda and
through the Education Loan; Akhuwat intends to ensure that poor students are
able to continue their education in spite of the lack of financial support. In most
cases the loan is utilized for paying fees and dues, purchasing books and
material, and paying initial registration or examination fee. The upper limit of the
education loans is 25, 000 rupees.

4.

HEALTH LOAN

The Health Loan is for those who are unable to support the costs for necessary
health care. In most cases, the poor do not have contingency funds or savings to
support them in shouldering the financial costs of health care. Diseases like
hepatitis, tuberculosis and diabetes are quite common in underdeveloped areas
and while these diseases are not fatal in themselves, they have contributed to
the death of many poor people who are unable to afford necessary treatments.
Noting this scheme of things, the Health Loan was specifically designed to assist
the poor with funds that could help save their lives. The loans offered range
from10, 000 rupees to 20, 000 rupees. The Health Loan complements the health
services provided by Akhuwat to its borrowers, employees and the
underprivileged in general, under the auspices of Akhuwat Health Services.
5.

EMERGENCY LOAN

The Emergency Loan is intended to diffuse the impacts of major contingencies or

crisis situations that undermine the sustainability of the livelihoods of the poor.
Akhuwat realizes that the economic life of the poor is perturbed by many
unforeseen events and emergencies, with the families having little or no buffer
amount to counter such shocks. The Emergency Loan has been designed to
counter such inopportune shocks so that the long term progress of the client is
not compromised. Loans in this category may be used for diffusing losses in
business, health care expense, machinery repairs, motor vehicle repair,
veterinary expense and admissions fee amongst others. The loan ranges from 5,
000 rupees to 10, 00 rupees and may be repaid over one year. It is processed
within 2-3 days and is the only loan product which may be utilized in conjunction
with other loan products.
6.

HOUSING LOAN

The Housing Loan is for necessary renovation of houses including construction of

rooms, roofs and walls. In evaluating applications for the Loan, great care is
taken to ensure that the intended renovation is essential and necessary for the
wellbeing of the borrower and is not a luxury. The range for this loan varies

between 30, ooo to 70, 000 rupees and has to be repaid within two years.
Akhuwat started this product in collaboration with Al-Noor Umar Welfare Trust, a
nonprofit organization founded by Mr. Khalil Mian. Over time these loans have
been instrumental in improving living conditions of the poor who had been forced
to live in appalling conditions for generation due to lack of monetary resources.
7.

MARRIAGE LOAN

The Marriage Loan is to facilitate the marriages of daughters. The marriage of

daughters remains a huge responsibility for parents in the Pakistani society and
many poor families are confronted with the difficulty of arranging necessary
funds for marriage ceremonies and dowries. Over the years, many poor families
had expressed the need for assistance in marrying their daughter which led
Akhuwat to introduce the Marriage Loan. Up to 20, 000 rupees can be disbursed
for this purpose.