Aga Khan Agency for Microfinance

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Microfinance in Afghanistan

Baram Haidari, who has a small fruit cart in Qambar, Afghanistan, sells a variety of fruits like apples, grapes and oranges, depending on the season.Through FMFB-A, he has taken two loans to increase his income and rented a cabinet to store his fruits.The First MicroFinance Bank Afghanistan (FMFB-A), founded in 2003, was the first bank to be licensed under Afghanistan’s new legal framework on microfinance. FMFB-A opened its first branch in Kabul in May 2004 with KfW Banking Group and the International Finance Corporation as shareholders.

Although Afghanistan is one of the world’s poorest countries, over the past several years it has seen exponential growth in economic activity. During that time, the microfinance sector expanded significantly. In 2008 and 2009 the economy slowed because of the global recession, and the forward momentum reached a plateau causing the total national microfinance portfolio to contract slightly. The microfinance market was estimated at over 303,000 clients at the end of 2009, which is still only 18 percent of the two million households living under the poverty line in the country. Drought, poor infrastructure, high inflation and a worsening security environment were all factors that contributed to the slowdown, as well as to a decline in the quality of most microfinance institutions’ Afghan portfolios.

FMFB-A, bucking this trend, was one of the few Afghan microfinance institutions to have recorded loan client growth in 2009. The bank is currently the largest microfinance institution in Afghanistan in terms of outstanding portfolio size. The bank’s microfinance portfolio was valued at US$ 39.8 million at the end of 2009. Of the total portfolio, 22 percent benefited rural clients. The institution’s rural portfolio is already more than 10,110 loans, worth US$ 10.1 million.

Women are 13 percent of the bank’s client base. Given the cultural sensitivities, this is an important accomplishment. It is also a part of the broader AKDN agenda of mainstreaming gender equity and social inclusion in Afghanistan.

The bank has begun implementing its new management information system, which will be completed during Q2, 2010. As part of this new software, FMFB-A will be installing a fingerprint recognition system that will help manage potential risk and speed up the processing and repayments of clients.

FMFB-A maintained an exceptionally low portfolio at risk of 0.4 percent in 2009 for microfinance loans, due to the balanced approach of good risk management and financial sustainability. This is compared to a market average of nine percent. FMFB-A’s network of rural and urban branches and local staff has contributed to the maintaining the high quality of the portfolio despite the year’s challenges.

Over the last years, FMFB-A has also developed a base of small-scale depositors. The bank provides micro-savings, allowing individuals to open an account with as little as US$ 1. The continued increase in deposit activity has brought the number of clients up to 37,342 – 51 percent more than in 2008. The value of deposits climbed to US$ 10.8 million. The bank also provides corporate deposit and cash management services using its full-fledged banking licence.

FMFB-A has designed specific lending products for women’s groups to improve the bank’s gender outreach and increase the percentage of women borrowers.FMFB-A established a small and medium enterprises (SME) department in 2005 and started serving clients in December of that year. Since then, the department has disbursed US$ 20.3 million and 1,056 loans from loan officers at 18 branches, based in nine cities. The FMFB-A network has expanded the scope of its work to offer SME loans to clients. At the end of 2009, the outstanding portfolio was 456 active SME borrowers with a portfolio value of US$ 5.7 million. These SME borrowers support over 10,823 full and part-time jobs, for an average of 22 employees per SME loan. In 2010, the SME department will be looking to reach out to rural and remotely located clients. FMFB-A’s SME department will be adding dedicated loan officers to three rural branches. Following on the rural expansion of FMFB-A, the SME department will be looking at a more rural and agricultural/seasonal approach.

To help improve quality of life in Afghanistan, the bank piloted a habitat improvement product in 2008. Its objectives are to improve the housing stock of individuals, increase construction standards, and organise communities around community infrastructure using the lessons learned and technologies developed by AKDN in Pakistan.

These loan products will be bundled with technical assistance on seismic and disaster mitigation, energy efficiency, sanitation, crowding reduction and proper ventilation.

This is the first step taken in Afghanistan in the housing finance sector. At the end of 2009, 2,280 microloans were disbursed for housing improvements valued at US$ 1.6 million.

FMFB-A’s pursuit of social goals is supported by an adherence to principles of financial stability and sustainability. It is through this model that the bank will be able to contribute to the long-term development of Afghanistan.