Written by Paula Kantor, published June 2009, by Afghanistan Research and Evaluation Unit (AREU), 74 pages, available at: http://www.microfinancegateway.org/p/site/m/template.rc/1.9.36446/

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This paper presents the Afghanistan Research and Evaluation Unit’s (AREU) findings on the impact microcredit has had on existing informal credit systems and rural livelihoods. The development of microfinance in Afghanistan from subsidized government programs to the development of Microfinance Investment Support Facility for Afghanistan (MISFA) in 2003 is discussed. Since 2003 over USD 569 million in microloans has been disbursed to 440,000 clients through partners of MISFA. For a detailed discussion on MISFA refer to this MicroCapital story [1].  

The methods for collecting data from the three villages (Kabul, Bamiyan and Balkh) are presented. Semi-structured interviews were the primary method used. Focus groups with key village members also provided information. A four member research team included two men and two women to enable both men and women to be interviewed in each household. The research was conducted in 2007 and eight households (four microcredit users and four non-microcredit users) per village were selected. The three villages were chosen because of their rural location, large concentration of microcredit borrowers and a long history of credit use. The research team experienced challenges in all three villages. Local leaders asked for certain households to be selected and to control information provided to the researchers. Furthermore in some situations the men of the household disproved of the team talking to female household members.

The three villages are all located approximately 20 kilometers from town centers and close to a bazaar which provides opportunities for trading and selling products. Kabul village has 386 households, Bamiyan village has 140 households and Balkh contains approximately 300 households. Most villages are involved in farming, agricultural production, livestock breeding and casual labor livelihood activities. In all villages women predominantly work inside the home undertaking housekeeping, childcare and livestock raising, although some are involved in agricultural activities during the harvest season.

Four microfinance institutions (MFIs) operate in the villages with the aim of improving access to credit – Kabul MFI, Balkh MFI, Bamiyan MFI, Bamiyan MFI2. Group based lending is the predominant lending method with group members guaranteeing one another. Collateral is usually required and takes the form of savings or approval from a village leader. Group loans are usually offered to poorer clients with less collateral and loans are smaller than individual loans. Table 2 lists the products offered, eligibility criteria, interest rates and repayment terms for each MFI.

The findings from the study suggest that MFIs do not consider access to existing informal credit markets when entering a village and offering products. Furthermore, the data from the village household studies indicates that there is no lack of access to credit as informal credit systems exist in all villages and it is usually available without interest and with flexible repayment terms. However some households like to know repayment terms in advance as with informal credit the lender may request the full loan payment at any time. Table 3 shows that most households access both informal and formal credit and informal credit is sometimes used to repay microcredit loans.

This study found that microcredit can play a significant role in improving rural livelihoods in three ways – supporting shopkeepers to stock their shops; weakening possible exploitative informal credit relations between agricultural input suppliers and farmers; and offering alternatives to informal credit.

Finally, six recommendations are made: (1) make microfinance one part of an integrated rural development approach; (2) develop a dual approach to delivering microfinance in Afghanistan, incorporating both commercial and risk reduction aims; (3) expand microcredit to microfinance to address risk reduction as well as income growth; (4) expand performance monitoring to include indicators of client viability; (5) learn from informal credit systems; (6) understand how clients use credit to build or maintain relationships to avoid unintended consequences.

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By Sally Levy, Research Assistant

Bibliography:

[1] MicroCapital Who’s Who in Microfinance: The Microfinance Investment Support Facility for Afghanistan (MISFA)