MISFA’s vision is to develop a sustainable, efficient, and commercialized development finance sector stimulating the economic growth in Afghanistan.
If this kind of success is multiplied and a greater number of borrowers in a certain district or province are able to create jobs and generate earnings, then this means that the microfinance program can have a positive impact not just on one borrower, or one household, but in society as a whole.
In addition, client demand indicates that poor people value microfinance services for the social protection it provides. Many clients say that they would rather borrow money from MFIs than loan sharks, family or strangers. For many clients, borrowing from MFIs also saves them from the social disgrace of not having money and having to take credit.
In addition, the Afghan government has been supporting and approving the budgets of MFIs. In fact, historically, microfinance started out as a program within the Ministry of Rural Rehabilitation and Development (MRRD). Today, the microfinance sector, with a quarter of a million clients across the country, is one of the biggest national development programs in Afghanistan and enjoys strong support from MRRD and the Ministry of Finance.
Area | Commercial Bank | MFI |
Mission | Commercial: Profitability | Social: to provide poor people and marginalized groups access to sustainable financial services |
Financial goal | Maximize profits for shareholders |
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Customer contact | Customers access branches | MFIs access customers at their location, although customers are also welcome to visit MFI branch offices. |
Procedures and loan application | Longer, more complicated process before disbursement | Short and simple process; minimal collateral requirement, quick disbursement |
Cost of operation | Generates higher profit margin from providing higher loan amounts and paying salary to a smaller number of staff. | Generates low—in some cases insignificant—profit because loan amounts are very small and require more staff to administer. |
Group Lending. In this type of lending, the group itself acts as a social collateral. Members of the group guarantee the repayment of each member’s loan. Group loan applications may take approximately 5-6 working days to process. Subsequent loan applications would take 1-3 days. Group loans range from 5,000–40,000 AFN.
Clients with collateral, who require a higher loan amount, may borrow through:
Individual Lending. This is usually provided to borrowers, who need more money to run his/her business. The borrower is asked to provide the MFI with a physical collateral, for example, the deed of an owned house or property, documents of his car, etc. The application process may take up to two weeks. The loan amount ranges from 40,000-700,000 AFN.
In rural areas, borrowers often have small income-generating activities related to agriculture, such as food processing and trade. Some use the loan for livestock rearing, others to buy fresh produce for resale.
MFIs operating in Afghanistan charge between 1.25 and 1.5 percent per month.
This service charge barely covers the operating cost of an MFI. In a country characterized by instability and ongoing conflict, operating costs are high. Staff salaries and administrative expenses, such as office rent, transportation, etc. are far higher in Afghanistan, compared to the other countries in the region.
For example, the average salary of a loan officer in Afghanistan is twice or three times more than loan officers in India and Bangladesh. In addition, while most loan officers typically use bicycles or motorcycles in Bangladesh, India and Pakistan for field work; Afghans are forced to use cars due to the tougher terrain, weather and security conditions.
Medical issues, death, natural disasters and other emergencies may occur, causing difficulty for the client to repay. Whatever the case may be, the borrower must contact the MFI loan officer as soon as possible to negotiate a new payment arrangement. Individual borrowers may repay using their collateral, while group borrowers may seek assistance from fellow members.
In many cases, clients default because they over estimated their ability to repay, or they used the loan for something else other than its intended purpose of financing an income-generating activity. To avoid this situation, it is important to:
First, evaluate your ability to repay before deciding to apply for a loan.
Second, use the loan only for the purpose it is meant for: to finance a new or expanding small business.
If a borrower continues to default and refuses to repay, the MFI, as a last resort, may bring the matter to the guarantor, the local community and Shura, and if still unresolved, may elevate the case to a government agency.
Studies have shown that ordinary Afghans want a secure and accessible place to deposit savings in. Given the opportunity, clients would want to save money for their children and build other assets for the future, or for unexpected emergencies. Providing borrowers a secure place for their savings and facilitating them having extra cash reserve that can help with cash flow issues, is consistent with the MFIs’ social mission of helping poor Afghans avoid or escape poverty.
Improved economic wellbeing. According to a baseline study conducted by the United Kingdom-based Institute of Development Studies (IDS), participation in microfinance in Afghanistan has led to clients having better economic conditions. Many clients have reported that after a series of loan cycles, their lives have improved. They have better access to health, education, housing/land, while others say they are able to save money. About 72 percent of the total clients surveyed reported improvement in their economic situation from the previous year, compared to only 51 percent of non-clients.
Job creation. The study also reported that microfinance creates jobs, not just for borrowers, but also for those hired by them for their small businesses—in many cases family members. Nearly 45 percent of all clients generated employment for others.
Access to health services. Women, who make up the majority of microfinance clients, also reported accessing health services more after becoming borrowers—obtaining immunization cards for children; seeking medical advice when they fell ill.
Empowerment. One impact commonly mentioned by women borrowers is the sense of pride arising from being self-sufficient economically, and from being able to provide better care for their families.
Because of all these compelling reasons, many borrowers faithfully repay their loans to ensure continued access to the service in the future.
Based on its current benefits and impact on Afghans, the microfinance program is expected to contribute to the national economic development of Afghanistan in the long term.
For all these reasons, it is important to make sure that the MFIs providing financial services to the poor become sustainable institutions. By charging a reasonable administrative fee for providing services, MFIs are able to earn revenue to sustain their operations. If they have a steady stream of revenue, they have a better chance to survive in the long term on their own, without depending on government or donor money.