WHO'S WHO IN MICROFINANCE: The Microfinance Investment Support Facility for Afghanistan (MISFA)

In 2003 the Government of Afghanistan, along with international agencies, initiated the Microfinance Investment Support Facility for Afghanistan (MISFA) under the Ministry for Rural Rehabilitation and Development. The World Bank was the main international agency involved in creating the organization, with the Consultative Group to Assist the Poor (CGAP) acting as a key advisor. MISFA’s purpose is to act as an apex organization to foster a nascent microfinance sector by channeling financial support and technical assistance to microfinance institutions (MFIs) operating on the ground. It has three main goals (p2): (1) Coordinate donor funding so that the conflicting donor priorities that are endemic in post-conflict situations do not end up duplicating effort and distorting markets; (2) Help young MFIs scale up rapidly by offering performance-based funding for operations and technical assistance; (3) Build systems for transparent reporting to instill a culture of accountability. Since March 2006, MISFA has been operating outside the government as an independent entity (p239), because CGAP’s experience in the microfinance sector has shown that independence of government promotes effectiveness and efficiency.

Microfinance had been identified as a main concern in Afghanistan’s first ever National Development Framework and was listed as a priority line item in the National Budget in 2002. As pointed out by MISFA Board Member Dr. Martin Greeley (p2), lack of access to credit in Afghanistan was a major impediment to reconstruction and economic opportunities. The financial sector, both the formal and the informal, was particularly non-operational. There were no commercial banks and no effective public financial institutions. After the conflict, many people’s informal sources of credit were also cut, as social networks were diminished and family and friends were not in a position to lend money to one another.

MISFA was established to build a microfinance sector almost from scratch. Though there were a few MFIs operating in Afghanistan in 2001, according to Pascal Marino, they had weak institutional structure and served an estimated total of only 10 thousand clients (p3). He argued that with a population of 20 million, the demand at the time for microfinance in Afghanistan was over one million households (p3).

MISFA provides public grants and loans to partner MFIs so that they can rapidly reach scale and become financially sustainable. The grants are for capacity building and the loans are for redistribution to clients. The loans carry an annual interest rate of 5 percent. At first, MISFA’s support to MFIs was mostly in the form of grants for capacity building. During the pilot phase, June 2003 to March 2005, MISFA distributed almost USD 50 million in grants and only USD 32 million in loans. The demand for grants decreased and the demand for loans increased as MISFA’s partner MFIs matured. From April 2007 to March 2008, MISFA distributed only USD 27 million in grants and almost USD 70 million in loans. Dr. Greeley postulated(p245) that as the partner MFIs become more solvent, they will begin looking increasingly to commercial sources of funding.

MISFA is subsidized by the Afghanistan Reconstructive Trust Fund (ARTF) based at the World Bank. In January 2008, MicroCapital reported on a USD 30 million dollar grant from the World Bank to be distributed to Afghanistan MFIs by MISFA. The ARTF is funded by a number of large international donors. A few of these donors have earmarked funding to be used specifically by MISFA, including the Canadian International Development Agency (CIDA), the UK Department for International Development (DFID), and CGAP. The United States Agency for International Development (USAID) has earmarked USD 5 million for MISFA: USD 4 million for loan disbursement and USD 1 million for technical support. MicroCapital reported that CIDA extended MISFA a loan of USD 12 million in October 2006, and then a further USD 16 million in February 2007. MISFA does not report to the MIX Market, the microfinance information clearing house, and further financial information is not publically available.

MISFA works with twelve partner MFIs which are listed below. In 2007, they combined to serve over 350 thousand clients spread throughout most of the country. They had a cumulative loan disbursement of USD 250 million and had over USD 80 million loans outstanding. The repayment rate was 98 percent, and the overall operational self-sufficiency of the MFIs was 59.7 percent.

In June 2008, the Bangladesh Rural Advancement Committee (BRAC), whose program in Afghanistan is financially self-sustainable, became the first Afghan MFI to receive a commercial bank loan, USD 1 million from Bank Alfalah. The deal was facilitated by MISFA in an effort to diversify funding. CIDA argued that given the high demand for microfinance, there is potential for many of the other MFIs to become self sustainable in the near future. This rapid growth and maturation may be attributed to the immense international experience of a number of the partner MFIs.

In 2007, MISFA released a Baseline Impact Study, which MicroCapital reported on here. The report revealed that although the industry was young it was quickly reaching scale. According to CIDA, the growth had been more rapid in Afghanistan than in any other conflict affected country. Dr. Greeley(pviii) pointed out that due to security concerns growth was originally partial towards urban areas. However, the November 2008 Microfinance Sector Update reported that 40 percent of MISFA’s clients lived in rural areas. The Southern Region of Afghanistan was the exception to the rapid growth, where security issues prevented access to MFIs. Only two percent of MISFA’s clients were located in the South. Contingent on a decline in conflict, rural areas and the South of Afghanistan represent vast potential for MISFA to expand operations to a larger scale.

In total, MISFA employs 20 staff and two advisors. The Managing Director of MISFA is Katrin Fakri. Ms. Fakri was born in Kabul and migrated to the United States at the age of 10 after the Soviet invasion. She completed a Bachelors Degree in English Literature at San Jose University she served as President of the Afghan Student Organization. While in the US, Ms. Fakri produced and hosted an Afghan radio program, Fanous, and was a founding member and former President of the Society of Afghan Professionals. In 2002, she traveled back to Afghanistan and before she became Managing Director for MISFA, she founded and acted as Manager of the Parwaz microfinance program. She is also founder and Managing director of the Afghanistan Microfinance Association. Ms. Fakri has seven years experience in corporate Human Resource management and Public Relations with Silicon Valley high tech companies.

MISFA´s Director of Operations is Dale Lampe. Prior to MISFA, Mr. Lampe was the Organizational Project Officer at The Small Enterprise Foundation (SEF), based in South Africa. He also served for two years as a Peace Corps Volunteer in Vaik, Armenia, where he worked as a Small and Medium Enterprise and Community Development Advisor. Mr. Lampe has over eight years experience as head of operations and development in the private sector financial services industry.

MISFA’s Board consists of eight persons: 3 from the private sector, 3 international microfinance specialists, and two government representatives. All proceedings are public and transparent. Board members include Chairman Mohammad Ehsan Zia, Minister of Ministry of Rural Rehabilitation and Development; Waheedullah Shahrani, Ministry of Finance and Advisor to President Karzai on economic affairs; Hameedullah Farooqi, Chairman of Afghanistan International Chamber of Commerce and Professor of Economics and Kabul University; Mary Coyle, St. Francis University Vice President (Canada) and Director of the Coady International Institute; Dr. Martin Greeley, Development Economist and Senior Fellow at Institute of Development Studies at the University of Sussex (UK); and Noorullah Delawari, former Governer Da Afghanistan Bank and Senior Advisor to the President on private sector development and banking.

MISFA’s partner Microfinance Institutions:

Ariana Financial Services Group (AFSG)

Afghanistan Microfinance Initiative (AMI)

Afghanistan Rural Microcredit Program (ARMP)

Bangladesh Rural Advancement Committee (BRAC)

Child Fund Afghanistan (CFA)

Foundation for International Community Assistance (FINCA)

First Microfinance Bank (FMB)

Hope for Life

Microfinance Agency for Development and Rehabilitation of Afghan Communities (MADRAC)

Microfinance Agency for Development (MOFAD)

OXUS Afghanistan

Parwaz

Mission D’AID au Developement Des Economy Rurales

Women for Women International

World Council of Credit Unions

By Ryan Hogarth, Research Assistant

Additional Resources:

“A Baseline and Initial Impact Study for MISFA”, by Martin Greeley and Mohit Chaturvedi, Institute of Development Studies, University of Sussex: 2007

“Aid Effectiveness and Microfinance: Lessons from Afghanistan”, by Dr. Martin Greeley, Aid that Works: Successful Development in Fragile States, (Ed.) James Manor, The World Bank: 2007

“Beyond Economic Benefits: The Contribution of Microfinance to Post-Conflict Recovery in Asia and the Pacific“, by Pascal Marino, The Foundation for Development Corporation: 2005

Canadian International Development Agency: “Review of the Afghanistan Program”

Microfinance Support Facility for Afghanistan (MISFA): Home

MISFA: “Microfinance Sector Update, November 2008”