such as interest rates, central banks around the world used unconventional measures such as quantitative easing ( qe ) to provide cheap liquidity in the market to stem erosion of investor confidence. thus, fiscal and monetary policies are no longer restricted to their traditional roles. in pakistan, however, the situation under which the fiscal and monetary policies have to operate is fundamentally different and far more complicated. first, we have not had sustained periods of political and economic stability in recent history. we have been at the forefront of the war on terror for over a decade now. besides damage to life and property, this participation has resulted in a huge strain on our country ’ s meager resources, which has not been fully compensated for. second, the power sector crisis has crippled a significant part of economic activity. inappropriate policies, which offered guaranteed equity returns and disregarded what is an appropriate fuel mix for the country, 1 price distortions, expensive and poorly targeted subsidies, inefficiencies in the energy supply and distribution, and low recoveries have resulted in a crisis gripping the power sector. persistent energy shortages have resulted in a decline in the productive capacity of our industrial sector which has lead to an increase in unemployment. third, lack of diversification and innovation in the economy combined with scarcity of entrepreneurial talent has made us depend on a few sectors for economic growth and export earnings, such as textiles. fourth, instead of exploring and developing abundant natural resources in the country, we import a number of essential goods like crude oil, that are, to a large extent, price inelastic ( fyi every $ 5 reduction in price saver us $ 750 million in fx for the year ). fifth, from general public to higher echelons there is a general culture of tax evasion which limits the ability of the government to raise an appropriate amount of revenues. sixth, a sizeable chunk of our munir, kamal a. and khalid, salman. 2012. “ pakistan ’ s power crisis : how did we get here? ” the lahore journal of economics 17 : 73 – 82. bis central bankers ’ speeches economy is in the informal sector which remains undocumented and therefore beyond the tax net. seventh, public sector enterprises instead of being a source of revenue for the government eat up scarce resources every year. finally, we have had the misfortune of sufferings due to natural disasters i. e. floods and earthquakes in the recent past. all these endogenous and exogenous factors

, among others, involves looking beyond the government or donor subsidized credit delivery systems to self sufficient institutions providing commercial finance. bank rakyat indonesia ( bri ) and bolivia's fini institutions bancosol, both leaders in the microfinance revolution, are good examples among others to study what it means to be a financially self - sufficient microfinance institution. both banks provide wide outreach to low - income clients, encourage commercialization, and both have been profitable. bri finances its loan portfolio with locally mobilized savings ; and bancosol finances its loans with savings, commercial debt, and for - profit investment. in both institutions, the relationship between sustainability and outreach is emphasized. ¾ move from single to multiple products is key to financial and social sustainability of microfinance industry. there are three basic microfinance products : loans, savings and insurance ; loans • mostly short term working capital • larger loans for fixed assets • housing savings • mostly compulsory savings used a loan guarantee as protection to the lender. most microcredit operations and mfis cannot mobilize deposits without a license from the central bank. member societies can mobilize savings from their members. • savings are often a more appropriate financial product for the very poor than credit. this implies working with formal financial sector institutions, roscas 5 and member societies. insurance • loan insurance is most common. • common ways of providing loan insurance are : • purchased by the borrower when taking a loan as a percentage of the loan ; rs. 150 million. rotating savings and credit associations • establishing an emergency fund in village banks, community loan associations and other groups ; and • compulsory savings. ¾ third, financially sustainability of microfinance is contingent on recognizing that the credit has to be priced effectively. the administrative cost of delivery, disbursing and collecting a micro or tiny loan portfolio is much higher in comparison with conventional loan portfolios. so the borrowers end up paying interest rates that are substantially higher than the rates banks charge to their traditional borrowers. according to a recent adb study, the nominal interest rate charged by mfis in the asia region ranges between 30 - 70 % ( on reducing balance ) which is excessively high given that the inflationary trends are relatively low. the key to reducing costs is to introduce market competition, innovation and efficiency. further, mfis should disclose their effective interest rates to loan applicants on standard guidelines. the mandated discipline of disclosing effective interest