Exploring the impact of client heterogeneity on microcredit outcomes of a qard hasan programme in Pakistan

This paper explores the features and consequences of heterogeneity among clients of the largest Islamic microfinance institution in Pakistan, identifying differences in business and household outcomes between sub-groups of borrowers. The research is based on a longitudinal survey of 500 new clients of the institution conducted between 2015 and 2017, which provides a unique dataset of entrepreneurs applying for interest-free microcredit loans. Evidence of significant heterogeneity was found among entrepreneurs at the time of the baseline survey. A longitudinal analysis of these data shows differences in business and household outcomes between different types of entrepreneurs based on their level of need. In particular, ‘necessity’ entrepreneurs who were poorer at the time of the baseline survey tended to experience greater reductions in poverty levels, while female clients were found to have decreased their savings frequency more than male clients over the sample period. The results have theoretical and managerial implications with respect to the application of the Shari’ah principles of Islamic Finance among a heterogenous group of entrepreneurs.