December 19, 2006 -- After the war, there was a huge need for financial services, especially for poor people. The banking system had collapsed and there were no microfinance institutions, leaving the entire country to rely on the informal financial system.
In 2003, the Government, together with donors, decided to promote the development of microfinance services that would enable poor people to move away from being dependent on humanitarian assistance to becoming economically independent by building on their innate entrepreneurial spirit and skills.
From the outset, the goal was to build an integrated financial sector to provide access to financial services for everyone.
The mechanism created to support microfinance was the Microfinance Investment Facility for Afghanistan (MISFA), an apex funding and capacity building organization. MISFA was initially established under the Ministry for Rural Reconstruction and Development and later transformed into a private Afghan company.
The World Bank helped set up MISFA and has been closely involved in its development. It has coordinated donor assistance to the tune of US$74.3 million through the Afghanistan Reconstruction Trust Fund, with a US$5 million contribution of its own.
Impact
Despite the difficult circumstances, many poor Afghans across the country have been provided with access to microfinance to help them engage in productive economic activities, bringing hope to many families.
Case studies have shown that the availability of microfinance has not only increased household incomes but has also contributed to women’s empowerment, particularly in the public sphere.
In some rural areas it has been estimated that each loan creates 1.3 jobs. This is in addition to the 2000 staff (two thirds of them women) employed in the microfinance sector till the end of 2006.
The sector has reached out to serve the special needs of people with disabilities, nomadic people, and returning refugees, in addition to contributing to the anti narcotics program.
As of September 2006:
Total outreach has crossed 250,000 clients.
Three fourths of the clients were women.
35% of the clients lived in the rural areas.
Services had reached 22 of the country’s 34 provinces.
US$120 million has been disbursed in half a million loans.
98 percent of loans were repaid on time .
Microfinance institutions had mobilized $6 million in savings by poor people.
Loans were used for service businesses and trade (58%), crops and livestock (22%), and handicrafts and manufacturing (20%).
Average loan size was $200.
The number microfinance service providers had risen to14, from three in 2003.
The sector was able to cover 80% of its operating costs.
Sustainable and growing financial service provider organizations are being created and the first steps have been taken towards an inclusive financial sector. Two MFIs were already operationally sustainable and most of the rest were on target to become operationally sustainable before the middle of 2008.
A recently completed external evaluation of the sector notes that the number of clients reached in Afghanistan stands ahead of many conflict-affected countries in their early stages of recovery.
It also notes that MISFA’s efforts as an apex organization are impressive and their work to facilitate a move towards commercialization stands out in the South Asia region.
Challenges/Opportunities Ahead
With a further 5 million potential clients, demand for microfinance services in Afghanistan is huge, far outstripping current supply.
There is therefore considerable scope to expand outreach and improve the lives of many more poor people, while also creating sustainable Afghan microfinance service providers that can mobilize funds from the market.
As the microfinance sector grows, it will begin to offer a broader range of financial services, such as savings, insurance, and housing loans, while also using technology such as mobile telephone networks to increase outreach and improve efficiency.
With funding and other support, the sector is expected to become well rooted during the next two to three years.
Steps are already being taken to widen the range of financial service products in order to meet demand (including Islamic loan products), diversify MFI funding sources to include commercial funding, and expand small business lending by commercial banks and MFIs.
In late 2006 MISFA opened an SME financing window in addition to its established microfinance work.
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