Editor in Chief: Moh. Reza Huwaida Friday, November 16th, 2018

The Evolution of Microfinance in Post Conflict Afghanistan


The Evolution of Microfinance in Post Conflict Afghanistan

Amid the growing concern on poverty in developing countries, microfinance stood out as a promising means of poverty alleviation in Bangladesh through the initiative taken by Muhammad Yunus in 1970s. The 2006 Nobel peace laureate provided the so called “unbankable” people with collateral-free micro loan ensuring the high repayment rate via self help groups. Inspired by the positive influence of this initiative on lives of the poor and reducing poverty in Bangladesh, the experience of microfinance was replicated in many developing countries around the world. Afghanistan also embraced microfinance as part of its development strategy after the thorough investigation of the country sectors by World Bank and Consultative Group to Assist the Poor (CGAP) soon after the fall of Taliban regime in 2001.  Based on this investigation, there were over three million estimated potential micro credit clients.  While, only a few NGOs were providing micro credit services to barely 12,000 people. Hence, collective effort was taken by the national stakeholders and international communities to bridge this huge supply-demand gap in the country financial sector. To facilitate the operation of microfinance sector, Microfinance Investment Facility for Afghanistan (MISFA) was established in 2003 as an apex organization to channelize the donor’s fund and provide technical, financial, and advocacy support to the microfinance institutions in the country. Since its inception, MISFA has undergone major ups and downs; therefore this paper is intended to highlight the rise and fall in the growth trajectory of MISFA as representative of microfinance in the country.
In the initial years, Afghan Microfinance sector has been enjoying an extraordinary performance in terms of loan portfolio, clients outreach, and geographical coverage. According to South Asian Microfinance Network (SAMN), the numbers of MFIs have increased to 15 by May 2010, reaching out to 113 districts in 24 provinces, as opposed to barely 19 districts in 19 provinces in 2005. Moreover, the Number of Active clients have increased from 192,610 in 2005 to 441,092 in 2008 suggesting a 43% increase out of which share of women clients have enhanced from 139,466 in 2005 to 279,719 in 2008. Meanwhile, based on institute of microfinance (InM) findings, the numbers of active borrowers have staggeringly increased from 160,744 to 350,692 implying a 46 % improvement during the same period. Furthermore, gross loan outstanding have improved by 26% throughout 2005-2008 i.e. from 27,623,763 USD to 106,373,056 USD.
On the other hand, the quality of loan portfolio has degraded pre 2009. According to Institute of Microfinance, the Portfolio at risk (PAR>30 days) has increased from 1.9% in March 2007 to 9.4% at the end of September 2008, and 10.5% at the end of December 2008. This increase in loan delinquency rate was mainly attributed to poor monitoring and follows up of the loan due to ongoing insurgency and deterioration of security. As a result, Many MFIs became insolvent and could not perform efficiently. In the mean time, operating self-sufficiency (OSS) of the Microfinance sector as a whole was standing only at 79% at the beginning of 2009.
In pursuit of long-term sustainability of Microfinance institutions in the country, MISFA embraced the merger and exit policy which was expected to lead to increase in breadth and depth of client outreach. Accordingly, a new entity known as Mutahid (means united in Persian) was established in late 2010 as a result of consolidation of some MFIs. Initially MFIs namely PARWAZ, MADRAK and MOFAD and later on WWI-AFG, AFS and CFA signed up for the new entity. Consequently, the number of MISFA partners reduced to 7 MFIs after the consolidation.
MFIs today in Afghanistan
According to Afghanistan Microfinance Association (AMA), as of December 2015, there are 12 microcredit institutions comprised of MFIs, Financial Institutions (FIs) and Community-based Saving Promotion Institutions (CSPIs) out of which five institutions are MISFA partners.
Based on the same annual report, FMFB, ARFC, FINCA, and IIFC are operating self sufficiently. Moreover, Gross Loan Portfolio (GLP) of the sector stands at 130,916,478 US$ with women beneficiaries accounting for 38 percent of the whole clients in 2015. Meanwhile, the number of active savers is 342090 and risky portfolio is averaging at 3.3%.
The recent data shows that Most of the MFI loans are spent in trade followed by service sectors, production, agriculture, and housing. Moreover, Microfinance is provided mostly through individual lending rather than in a group. The available data further indicates that 19.4% of the borrowers are in Kabul followed by 18.5% in Balkh and 12.1% in Badakhshan while most of the savers are concentrated in Balkh province making up 19.3% percent of the total MFI savers.
To sum up, microfinance sector has undergone major rise and pull back in Afghanistan. Over the initial years, the sector as a whole has made outstanding improvement in terms of client outreach and loan portfolio. However, this improvement has been achieved at the expense of long-term sustainability of the sector. Hence, the apex organization decided into consolidation of some of its partner MFIs in order to achieve the long-term sustainability objective. Nowadays, despite fewer micro credit providers, the sector as a whole is reaching out to a large number of clients in the country with high portfolio quality and operating self-sufficiency rate.

Rasuldad Danish is a freelance Afghan columnist. He can be reached at the rdanish.ug@gmail.com.

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