How interest-free loans are helping the floods victims of Pakistan

“Water, water, everywhere, And all the boards did shrink; Water, water, everywhere, Nor any drop to drink.” - The Rime of the Ancient Mariner (1798)

On August 26, Pakistan declared emergency in the face of calamitous floods. According to the United Nations (UN), more than 1,300 lives have been lost, tens of millions of people are now homeless, one-third of this vast country is submerged under water, over a million livestock is dead and crops of this agricultural country have been wiped out. The UN chief was overwhelmed when he visited sites that are affected by floods on September 10, 2022, and labelled this natural disaster a ‘Climate Carnage’. The government of Pakistan has estimated the financial damage of over $30bn (£26bn), with the country’s most marginalised groups have been hit the hardest and least able to recover without help.

While all of this was unravelling, a Pakistan-based NGO (Akhuwat) begin offering interest free loans to the citizens of Pakistan to build-back. In fact, Akhuwat has been offering interest-free loans to the most marginalised groups of society since its inception in 2001. Their not-for-profit financial model enables interest-free borrowing without benchmarking a particular credit score or collateral.

A peculiar mind would wonder how this micro-credit financial model works, what is the rate of loan defaults and how it is sustainable? Interestingly, Akhuwat started with two small interest-free loans in 2001, and today it is one of the most prominent and inspiring microfinance organisations in Pakistan. It has witnessed exponential growth from a small-scale NGO and demonstrated some impressing figures with over 99 percent recovery rate on all of its loans.

In exchange of financial form of capital, Akhuwat relies on, and gains other forms of capital such as trustworthiness, community-building, volunteerism and “brotherhood” that has allowed Akhuwat to redefine the principles of micro-financing and wealth creation. Akhuwat’s success lies in its ability to build trust and its courage to place trust on the beneficiaries.

The aim of Akhuwat’s is to provide opportunities to the marginalised groups to become self-sufficient. The purpose of lending loans is to lift individuals out of financial poverty and to make them sovereign individuals. Akhuwat operates just like a kickstarter or a crowdfunding firm and is highly dependent on donations from the individuals and groups who trust in Akhuwat’s ability to provide opportunities to the marginalised.

Why Akhuwat matters in the face of climate change and falling capitalism?

Ravi Navalkant intellectually pointed out that capitalism is not something we have invented or discovered, it is intrinsic to human species – it is embedded in the art of keeping track of debits and credits for every exchange that we have as a flexible social animal. However, it has been hijacked by an unquenchable thirst of profits at the expense of the society, without much regard to traditional values, trust or moral and ethical considerations (but let’s not get into that debate).

One important aspect of Akhuwat’s operationalisation is its attention to local values and the ideas of mutual trust from ancient knowledge and religious principles. For instance, Pakistan is an Islamic country and interest is prohibited in Islam – the facilitation of no-interest loans gives confidence to the local grass-root communities to form partnership with Akhuwat, similar to the model of Grameen Bank in Bangladesh but without incurring interest charges. More importantly, the understanding of local values/knowledge and using sacred mosques and religious sites to disperse loans builds a form of self-accountability to the beneficiaries and their faith which might be irrational or unpragmatic to some Bank managers.

From the perspective of the West, where trust is rationalised through the mobilisation and institutionalisation of financial technologies, what’s unique about Akhuwat’s (re)distribution of wealth is its desire to re-build communities through beneficiary-centric accountability and self-determination (of its recipients) within its operations, rather than merely focusing on financial profits.

The underpinnings of Akhuwat’s unique and distinguished operational model reflects the broad meaning and possibilities of wealth creation other than financial form such as trusting relationships, community-good, paying attention to cultural values, self-determination, individual freedom and women empowerment to point a few.

In the age of accumulating debt, it is refreshing to see Akhuwat’s reliance on forms of capital other than financial and co-construction of a unique relationship with its beneficiaries that reinforces a sense of personal accountability to create more sustainable and long-term solutions to build back better with self-determination and compassion at its core.

Challenging current norms through trust

At a time of significant intellectual crisis in economics, the departure of Akhuwat from the traditional market-based approach of micro-credit schemes showcases how a high trust society can open new doors to redefine what is meant by wealth and capital and the notion of what it means to be rich in a context of climate change where human civilisation is at stake.

While some find purpose in ‘colonising’ Mars, other find peace in giving and philanthropy, the challenges related to sustainability can only be addressed through collective action, shared vision, supporting creative ideas, and identification of values that bring good to the society.

A mode of operation that is deeply contextualised and embedded in community values and trust has the potential to challenge the unsustainable norms of status quo and empower the marginalised.

While it has been pointed out that addressing climate change requires courage not optimism, it is crucial to recognise alternative ideas on political-economy that accumulates values embedded in social, human, natural and relationship as forms of capital, rather than just financial. Hence, poverty elevation, equal opportunities, education and self-determination were some of the key features to invest in Bjorn Lomborg’s “how to spend $75 billion to make the world a better place”. These values are extremely significant today in the context of eroding public trust on sustainable interventions by corporations and governments.

There is a lot to learn from organisations like Akhuwat and its importance in our society, not least to those who are in urgent need of financial, moral and humane support to rebuild their livelihoods following the floods in Pakistan.

A special thanks to Dr Anees Farrukh for useful feedback, important discussions, and suggestions on an earlier draft of this blog.