Building a Vibrant Microfinance Sector in Afghanistan
In 2002, Afghanistan’s banking sector had completely collapsed and no financial service providers were operational outside the informal sector. Microfinance services were in great demand by Afghans seeking access to credit to improve their livelihoods and transition from dependence on humanitarian assistance to economic independence.
Project development followed identification of microfinance as a key to the reconstruction of Afghanistan. A Microfinance Investment and Support Facility (MISFA) was set up in 2003 to provide funds, capacity building and training to a wide range of retail financial intermediaries that serve the poor. Since its establishment, MISFA has played an advocacy role with Da Afghanistan Bank (which regulates the financial sector), funders and other stakeholders. The overall objective of MISFA is to provide flexible and high-quality support to establish a healthy microfinance sector. While the World Bank with significant funding from the ARTF was the lead agency for creating MISFA, with Consultative Group to Assist the Poor (CGAP) as key advisor, all other donors interested in funding microfinance in Afghanistan were invited and encouraged to join as cofunders.
- More than a million loans—worth US$632 million—have been disbursed in 26 provinces with a 94 percent repayment record.
- Many poor Afghans have accessed financial services for the first time.
- Within four years of launching the program, MISFA had expanded its partnerships from 4 microfinance institutions (MFIs) to 15 MFIs and one bank, providing microfinance services across the country through nearly 300 branches in 26 of 34 provinces. In the process, MISFA’s role expanded from being a conduit for the Afghan government and international donors to supply funding and technical assistance to MFIs, to becoming the recognized umbrella body responsible for building strong micro-lending institutions moving toward a sustainable sector operating without subsidies.
- By May 2009, the sector had 439,203 active clients, with $102.4 million in outstanding loans, and has mobilized $16 million in savings by poor people. Between March 2008 and March 2009, US$15.1 million in loans were disbursed and more than 1,100 active clients added per month.
- MFIs have been steadily expanding their services to rural areas—29 percent of total active borrowers are now in villages—and other harder-to-reach communities, including those in the volatile southern region.
- At the end of May 2009, women—considered a marginalized group in Afghanistan—comprised 60 percent of all clients throughout the country. Case studies have shown that the availability of microfinance services not only increased household incomes, it also contributed to women's empowerment, particularly in the public sphere. Steps have been taken to ensure that services provided are innovative, demand-driven and inclusive.
- The development of Afghan capacity to manage and operate the microfinance sector is proceeding apace. As of May 2009, a total of 4,471 Afghans—37 percent women—were employed in the sector, occupying over 90 percent of professional and 50 percent of management positions.
- In four years, MFIs have moved from receiving primarily grants to receiving primarily loans. Three out of MISFA’s partners have achieved operational surpluses, and another three are progressing toward this benchmark. While most MFIs were initially set up by international NGOs, by 2008 they had transformed into nonprofit companies—permanent institutions functioning under the laws of Afghanistan.
The ARTF has contributed a total of US$169 million to the microfinance sector in Afghanistan.
Besides drawing on pooled ARTF funds, the project has also independently leveraged almost US$30 million from various donor organizations, as well as an additional US$30 million funding facility through IDA.
The immediate task is to provide the funding and other support necessary to strengthen the sector. The main focus is to build robust financial institutions capable of expanding outreach, while also emphasizing the importance of achieving long-lasting positive impact through product diversification and innovation. The vision is formation of a well-established sector of viable institutions providing a broad range of financial services from savings, to insurance, to housing loans, while also using technology such as mobile telephone networks to increase the client base and improve efficiency. Steps are already under way to widen the range of financial products (including Islamic loan products) to meet demand, diversify sources of microfinance funding to include commercial banks, and expand small business lending by commercial banks and microfinance institutions.