About
the Aga Khan Agency for Microfinance (AKAM)
Operating
in both rural and urban settings, AKAM’s microfinance
programmes, institutions, and banks have helped poor
people from a variety of cultures and backgrounds to
expand their incomes, improve their quality of life
and become self-reliant. In Afghanistan, they have
supported returning refugees to start and expand businesses.
Residents of one of the poorest districts of Cairo
have improved and rehabilitated their homes with loans
from AKAM. The microfinance programme in Syria is contributing
to the development of civil society through unique
partnerships between the Ministry of Health, the World
Health Organization, and various village health organizations.
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AKAM
aims to help people become self-reliant
and eventually gain the skills needed
to graduate
to the mainstream financial
markets
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Overview
In
South Asia, AKAM’s programmes have
helped indentured workers break the grip of multigenerational
debts and liberate themselves from perpetual servitude.
Credits have helped Tajik farmers expand yields of critical
foodstuffs and enabled entrepreneurs to open vegetable
processing plants, hardware stores, pharmacies and bakeries.
At
the end of June 2006, AKAM was operating in 167
branches and loan offices in South and Central Asia,
the Middle East, and Africa. Its 1,300-strong work force
had collectively distributed over 183,000 loans totalling
over US$ 139 million to beneficiaries.
In
all the contexts in which they operate, AKAM’s
microfinance programmes, institutions and banks aim
to achieve a level of long-term sustainability that covers
both operational costs and contributes to expansion
in the future. In this process, emphasis is placed on
enhancing the quality of financial services through transparent
and detailed lending procedures, as well as the use of
best practices that ensure financial discipline and efficiency. To maximize impact on intended beneficiaries, AKAM has
devised a variety of institutional approaches and instruments
that facilitate access while addressing different contexts,
cultures and local requirements. These efforts are intended
to ensure that resources flow primarily to the poor and
excluded. This process is greatly strengthened by working
in concert with other agencies of the AKDN. Such collaborations
allow AKAM to not only reach greater numbers of vulnerable
populations, but also to develop new services and products
that are appropriate and relevant.
AKDN’s
close working relationships with various governments,
international agencies and professional organisations
is another advantage that assists in the development
and delivery of microfinance services.
Objectives and Principles
The underlying objectives of the Agency are to reduce poverty,
diminish the vulnerability of poor populations and alleviate
economic and social exclusion. AKAM aims to help people
become self-reliant and eventually gain the skills needed
to graduate to the mainstream financial markets. This
endeavour is governed by the following principles:
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A
Broad Range of Services: To reduce vulnerability
to financial risks, AKAM offers a range of microfinance
services, including credit, microinsurance, savings,
housing credits and education loans, among many
others. |
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Assessment
of Impact: Through careful targeting, monitoring
and evaluation, AKAM works to maximize the socioeconomic
benefits of its services on poor communities. |
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Sustainability:
To ensure that financial services survive and
grow over the long term, AKAM seeks to cover
inflation-adjusted costs through revenues and
contribute to expanding the range of services
and geographical coverage. |
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Integrated
Development: AKAM works in concert with other
AKDN agencies and external organizations to integrate
microfinance and maximize synergies with complementary
development activities. |
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Easy
Access and Flexible Solutions: AKAM has devised
a variety of institutional approaches and instruments
that facilitate access and address different
contexts, cultures and local requirements. |
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Efficiency
and Transparency: A major focus of AKAM staff
is to enhance the quality of credit through clear
and detailed lending procedures, well-documented
manuals, properly trained staff and the use of
best practices ensuring financial discipline
and cost control. |
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Evolution:
As a microfinance programme grows, AKAM nurtures
its evolution as required by the demands and
circumstances of the local context, from small
microfinance initiatives to full-fledged microfinance
banks. |
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Business
Development Services: Loans are accompanied by
training in basic business concepts so borrowers
can become financially disciplined, self-reliant
entrepreneurs. |
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Partnerships:
AKAM works closely with governments, international
agencies and professional organizations to ensure
that it contributes to and benefits from international
best practice and expertise. |
Financial
Services Offered to the Poor
The
array of services and products that AKAM’s
programmes, institutions and banks provide is continually
expanding to meet needs. Research initiatives are geared
toward developing new services that are sustainable,
appropriate and high-quality. Emphasis is placed on
vulnerable groups, focussing on women in particular.
Currently, this range of services includes the following:
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Income
generation loans: Credit financing ranging from US$
10 to US$ 3,000 is available for start-ups, re-starts
and the expansion of current entrepreneurial and other
income generating activities. Projects financed include
farming inputs and machinery, livestock rearing and
breeding, shoemaking, furniture, handicraft, services
and retail enterprises, cottage industries, tourism
initiatives, small restaurants, mini-marts, hairdressers,
Internet cafes, and many other forms of entrepreneurial
activity. |
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Health, education, habitat and other loans: In addition
to providing loans specifically directed towards income
generation, AKAM provides loans to finance health care,
education, habitat and housing improvements, land acquisition
and construction, retirement of usurious multigenerational
debt and, in Afghanistan, the financing of alternative
livelihoods in place of the cultivation of poppy. |
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Savings:
A variety of savings products are offered by both banks
and some microfinance institutions, including current
accounts and savings accounts that allow multiple withdrawals
and term deposits of various maturities. In most cases,
deposit accounts can be opened and maintained with less
than one dollar. Savings are mobilised from individuals,
groups and institutions. |
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Microinsurance:
Some of AKAM’s banks are also providing microinsurance
products to borrowers. In Pakistan, for example, two
types of microinsurance policies are offered, often
as a bundle, with small fees of less than US$ 2 per
annum: a policy in which the insurance company would
pay the outstanding balance in case of death or permanent
disability of a borrower; and a policy which provides
a cash pay-out to the family of a borrower for funeral-related
costs in the event of his or her death. A new initiative
in microinsurance is seeking to develop products that
specifically seek to safeguard the poor against loss
of savings and income as a result of family catastrophes
such as death, long-term hospitalization and business
or crop loss. |
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Microleasing:
In some countries, AKAM is providing microleasing services,
enabling clients to purchase fixed assets and business
equipment for productive purposes. As they involve large
capital expenditures, these loans can range from US$
500 to US$ 10,000 and be repaid within six months to
three years. |
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Money
Transfer and Remittance Services: AKAM's Banks also
provide money transfer services to clients. This service
allows clients to transfer money inexpensively both
from one city to another within a country or to remit
funds internationally through the Swift payment system. |
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Small
business loans: The most successful businesses will
eventually evolve into small enterprises, which are
more sophisticated, employ people outside the proprietor’s
family, and produce a broader range of quality products
that are sold in larger geographic areas. Microfinance
institutions are ideally placed to reduce the financing
gap that these budding small and medium enterprises
face before reaching a scale more attuned to the mainstream
financial markets. In collaboration with Deutsche
Entwicklung Gesellschaft (DEG), AKAM is therefore
piloting SME programmes in Afghanistan. Once tested,
these are expected to become mainstream activities
for the First MicroFinanceBanks. |
The
Microfinance “Ladder”
Over
the years, microcredit has demonstrated that it can
play a critical role in helping the poor to break
through economic and social isolation. This “graduation” process,
as it is often called, is difficult and slow. The
first step most often takes the form of an informal
business, whereby the borrower uses credit to purchase
a few goods to sell within days on a nearby market.
A small profit is generated.
The next step may involve some processing or manufacturing
and occupy a few members of the immediate family. The activity
may then evolve into a small business, with significant
value added. Several people outside the family circle may
now be employed in the business. This latter stage is often
described as the threshold from which an entrepreneur steps
out of poverty. It is also the level at which real job creation
begins to take place. This
individual’s progress out of
poverty is mirrored by the institutional ladder, which
can be divided into three categories:
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Entry-level
microfinance programmes, usually at the community
level, which are designed to give people the means
to start or expand economic activity and, over
time, diversify beyond traditional microenterprises. |
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A
second tier of microfinance institutions with
a more formal structure and a network of sub-branches. |
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Microfinance
banks, which are regulated entities that lend
to micro and small enterprises and offer an array
of services comparable – and in some cases
even broader – to those of local commercial
banks. |
The three different types of microfinance activity
represent three rungs of the microfinance “ladder.” Over
time, institutions may evolve from microfinance programmes
to registered microfinance banks offering a range
of services.
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