Financial Sector Reconstruction

Only three years ago, in 2003, banks in Afghanistan were unable to offer credit. Financing within the country primarily took place via family and friends, limiting growth. The United States Agency for International Development (USAID), through management of the $20 million Rural Finance component of its Rebuilding Agricultural Markets Program (RAMP), invited SBI to engage its practitioner expertise in the challenge of building Afghanistan’s rural financial sector from the ground up.

Microfinance
In late 2003, SBI began facilitating the disbursement of funds to MFIs via the Microfinance Investment and Support Facility (MISFA), a multi-donor apex institution. These microloans targeted agricultural producers, traders, and processors. The program also provided technical assistance to eight MFIs in agricultural loan product development, portfolio and risk management, and security in Afghanistan’s post-conflict environment. This resulted in nearly 90,000 agricultural loans, 82% of which went to Afghan women, and an on-time repayment rate of 98%.

SME Finance
Seven commercial banks had established branches by the end of 2003; however, none were operating outside of Kabul and few provided loans to private businesses, much less to smaller, rural businesses. Two options presented themselves: 1) to fund start-ups or 2) to encourage commercial banks to make rural loans. SBI combined both of these approaches with funding for the Afghanistan International Bank (AIB), and the start-up of a leasing company, the Afghan Finance Company (AFC). SBI provided direct technical assistance to the two organizations, for example by developing a loan manual for AFC, facilitating strategic planning, and authoring case studies. SBI also facilitated cooperation and linkages between the two to leverage their respective strengths. The SME program has disbursed over $2.2 million to agricultural producers and processors.

Business Development Services
Potential SME borrowers in Afghanistan also lacked an understanding of the tools necessary to successfully access and utilize credit. SBI worked with strategic implementation partners to design and deliver needed business development services, investment readiness assistance, and credit and finance linkages, facilitating over $1.5 million in financing for SME borrowers.

Rural Finance Success Stories

SME Finance
Haji Ghulam Muhaiddin returned to his native home in Kunduz, Afghanistan after more than twenty two years in Pakistan. Kunduz was the last major city held by the Taliban before its fall in early December 2001.

Mr. Muhaiddin is a flour miller and returned to Afghanistan to build a flour mill in Kunduz province, a key wheat production region. The mill was opened in March 2005, with all the equipment installed and 73 Afghans hired and trained. About 6,000 Afghan farmers are providing wheat for the mill, which is capable of milling 75MT of wheat daily. Mr. Muhaiddin has invested approximately $1.2 million dollars in the mill and obtained a $350,000 loan for working capital from the Agribusiness Loan Fund at the Afghanistan International Bank, created with investment and technical assistance from the SBI managed Rural Finance component of USAID’s RAMP program. Providing access to credit is an integral part of this market-driven project to rejuvenate Afghanistan’s agricultural infrastructure.

Microfinance
During the war Ali Nazar lost his mother, his house, and his livelihood; his farm animals were also killed during the fighting. Devastated, he sought refuge across the border in Pakistan, where he earned a meager living washing cars. After the fall of Taliban, he returned to Khanabad in north east Afghanistan, near the Tajikistan border. With little more than the clothes on his back, he found his home and lands destroyed. He needed money for seeds and to install an irrigation system on his land.

He heard from a neighbor that ARMP, a microfinance institution which received agricultural funding through the SBI-managed Rural Finance component of USAID/RAMP, was lending money to people like himself – who had no collateral or past credit history. So he applied for and received a $500 loan that he used to buy a cow and seeds for his land. This seemingly small loan was all he needed to get started, and in the first year of the loan he had a good yield from his land, inspiring Ali to take another ARMP loan for $750. With the second loan, he purchased a waterwheel to drive the irrigation of his land.

This second loan also proved successful, increasing his productivity and profits, and he was soon able to turn to rebuilding his house, and he expanded into poultry and rearing sheep, diversifying his income. Thanks to his newfound prosperity, Ali’s three boys and two girls are attending school and his younger brother is enrolled in university. Ali Nazar says he will buy whatever is needed for his brother and children to ensure that they are able to continue their studies. Ali is illiterate and says he doesn’t want his brother and children to be like him. Ali also supports an extended family, totaling seventeen dependents upon his farm income.