Aga Khan Agency for Microfinance

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Year in Focus and Outlook

His Highness the Aga Khan is looking at work created by artisans in Cabo Delgado. The First Microbank Mozambique offers financial services to entrepreneurs and artisans throughout the province.During 2009, financial systems around the world continued to suffer from the impact of the global economic crisis. The microfinance sector, which had been protected from the crisis in previous years, has begun to be affected. Declining economic production, a dramatic reduction in the flow of remittances, the reduction in foreign investment and increased unemployment have had a cumulative impact on small entrepreneurs and farmers. This in turn has affected the microfinance institutions with which these farmers and entrepreneurs have been banking. At the same time, the crisis has highlighted the relevance of microfinance in helping people to cope with shock, with poverty levels on the rise and most mainstream financial service providers imposing tighter rules on credit allocation.

At AKAM, a conscious decision was made during the economic slowdown to embark on a programme of institutional strengthening and rationalisation while maintaining a significant, albeit cautious, expansion of lending activities. Prudent management, with particular attention to portfolio quality, has allowed AKAM institutions to fare better than most in the industry.

The main component of the institutional strengthening efforts was the expansion of AKAM’s Training Academy, which delivered over 45 training sessions to more than 1,000 staff members last year. Procedures and controls were harmonised and enhanced among the AKAM institutions. On the governance and control side, emphasis was placed on strengthening boards and board committees, and expanding the internal audit function.

To enhance AKAM’s internal controls, a common management information system, developed internally, has been rolled out to its main institutions. By the end of 2010, the system is expected to be operational in all 13 AKAM institutions.

Significant transformations were conducted in a number of institutions, with a view to broadening the range of services and improving operational and financial sustainability. In Syria, the programme–which was established in 2003–completed its transformation into a regulated deposit-taking institution, setting the stage for AKAM to continue playing its role in the development of the country’s microfinance industry.

In Mozambique, AKAM received a licence to transform its local institution into a rural microfinance bank, which is now able to offer credit and deposit services in Cabo Delgado and other underserved areas in the north. Deposit taking services were also initiated in Madagascar, where AKAM has operated a programme serving impoverished rice producing areas for many years. In Afghanistan, AKAM’s First MicroFinanceBank has completed the integration of its urban and rural activities, reinforcing its leading role in serving micro and small enterprises through a branch network spanning a large part of the country. Partnerships with international and bilateral development financial institutions were further extended. IFC and KfW, partners of AKAM in a number of microfinance institutions, were joined by EIB in the doubling of the capital of the First MicroFinance Institution in Syria. IFC and KfW also contributed to the capital increase of the First MicroFinanceBank in Tajikistan.

At the end of 2009, AKAM oversaw 15 field entities (including two microinsurance agencies in Pakistan and Tanzania) that operated 280 branches and outlets with 3,347 employees. Over 434,100 loans, worth over US$ 205 million, were disbursed. The field institutions had taken US$ 56,464 in deposits from 236,105 individual clients in 2009. The combined assets of all AKAM field units amounted to nearly US$ 305 million.

Looking forward, there is hope that the economic crisis will subside gradually, allowing for a return to stable financial activities. However, as the return to growth will not be without ripples, AKAM will pursue the prudent development of its activities and will pause its expansion into new countries. Risk management continues to receive attention along with ensuring secure and varied forms of funding for AKAM’s entities through a well-balanced combination of equity, debt and deposits.

Poverty alleviation and the sustainability of its institutions will remain AKAM’s central goals. Questions continue to be raised about the long-term impact of microfinance. Microfinance alone is not a panacea to poverty alleviation; access to adequate health and education services are also critical. In this respect AKAM has an advantage over other microfinance operators as it coordinates its activities with other AKDN agencies to leverage their respective programmatic strengths.

Product development will also continue to receive significant attention, with further expansion in the development of housing finance and new hybrid savings and microinsurance products. AKAM has made in-roads in the development of health products for the poor, with the support of the Bill & Melinda Gates Foundation and in collaboration with the Acumen Fund. The mainstreaming of a number of pilot schemes in Pakistan and Tanzania is planned over the coming years.

AKAM is sparing no effort to behave as a responsible agent of development. It thrives to ensure that its services are delivered through efficient institutions that make optimal use of scarce financial and non-financial resources. It is committed to developing cost-effective solutions for helping the poor cope with daily challenges and build better lives. AKAM is determined to continue its fight against poverty and vulnerability at a time when political instability and economic downturns appear to be on the rise in many of the countries where it is active.