MICROCAPITAL BRIEF: Microfinance in Afghanistan Challenged by Culture, Religion, Gender Struggles

The microfinance sector in Afghanistan has seen growth in demand for credit since the Afghan government developed the Microfinance Support Facility for Afghanistan (MISFA) in 2003, with approximately 1.5 million loans totaling USD 831 million disbursed to date. MISFA was established to develop the country’s microfinance sector by coordinating donor resources and objectives. Default rates are reportedly low in general and, according to BRAC (formerly known as the Bangladesh Rural Advancement Committee), a development organization established in Bangladesh in 1972, the default rate of its clients in Afghanistan is approximately three to four percent. Nonetheless, the microfinance sector in Afghanistan continues to be challenged by strict cultural and religious traditions.

As is increasingly common in other Muslim countries, microfinance institutions (MFIs) in Afghanistan must innovate to comply with Islamic law that prohibits the payment or acceptance of interest fees. For this reason, some MFIs re-cast the interest on loans as administrative fees or services charges. In other countries such as Pakistan, for example, where Islamic microfinance is more developed, loans are structured around the concept of profit sharing.

While microfinance can play an important role in empowering women, strict cultural traditions that control women’s rights continue to subjugate them. Other challenges facing the microfinance sector include poor security as a result of the ongoing war and a lack of well-educated staff [1].

By Julie Moksim, Research Associate

About Microfinance Support Facility for Afghanistan (MISFA): MISFA is a microfinance organization established in 2003 by the Afghan government to coordinate donor resources and objectives to positively impact the country’s microfinance sector. With the help of MISFA, the Afghan government and international donors provide technical assistance and funding to develop small and medium enterprise (SME) lending through several microfinance institutions (MFIs). MISFA does not report financial information to the Microfinance Information Exchange (MIX), the microfinance information clearinghouse.

[1] Reuters: “Microfinance Faces Hurdles in Empowering Afghan Women” by Michelle Nichols, December 28, 2010, http://uk.reuters.com/article/idUKTRE6BR0CX20101228?pageNumber=1

MicroCapital’s Microfinance Universe Profile: Microfinance Support Facility for Afghanistan (MISFA)

https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Microfinance+Support+Facility+for+Afghanistan+%28MISFA%29

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