For more than 60 years, various agencies of the Aga Khan Development Network (AKDN) have offered microfinance services through integrated development programmes and self-standing microfinance institutions. AKDN institutions offered savings groups and revolving housing loans as early as the 1950s. Later, the Aga Khan Rural Support Programmes (AKRSP) in India and Pakistan made savings groups a cornerstone of their integrated approach to development.
These programmes, as well as others, helped start businesses, create jobs, build homes and finance house improvements, purchase seed and livestock, smooth over the impact of unforeseen health costs and make higher education possible. Today, these programmes have been brought together under the Aga Khan Agency for Microfinance (AKAM).
Community Based Savings Groups (CBSGs) in Bihar, India
AKAM works closely with the other AKDN agencies as part of a coordinated approach that brings together many inputs and disciplines. AKAM works with the Aga Khan Foundation (AKF), for example, which is well known for its work in difficult and resource-poor areas. AKF concentrates on health, education, rural development, the environment and the strengthening of civil society. A good example of AKAM and AKF collaboration is the work with the rice farmers in Madagascar. These farmers receive technical training from AKF and loans from AKAM.. AKAM and AKF cooperate on a number of ongoing projects, particularly related to rural development. In many cases, this cooperation involves AKF taking responsibility for social mobilisation and the provision of technical services and training, while AKAM provides financing to the same clients.
AKAM also provides microfinance services to employees and contractors of the Aga Khan Fund for Economic Development’s (AKFED) projects, as well as other residents in neighbouring areas. Some of AKFED’s investments are in fragile and complex environments, including economies that have suffered the effects of natural disasters, civil turmoil or war. It mobilises investment for the construction, rehabilitation or expansion of infrastructure, sets up sustainable financial institutions and builds economically viable commercial enterprises.
AKAM is in the process of building relationships with the commercial banks and insurance companies in the AKFED group. Client linkages are also being developed that will ensure any client whose business is successful and whose financial needs progress beyond the microfinance level will continue to have access to financial services from AKFED institutions when needed.
Leveraging institutional connections such as these have proven essential in creating the critical mass of development activity necessary to achieve lasting improvements in the quality of life in the 10 countries where AKAM is present (Afghanistan, Kyrgyz Republic, Pakistan, Tajikistan, Egypt, Syria, Burkina Faso, Côte d'Ivoire, Mali, Madagascar).
Loans for income generating activities continue to represent the largest proportion of loans provided by AKAM entities. These loans cover a large spectrum of sectors and industries, ranging from livestock, and planting to trading or production. Loan terms and conditions are designed to reflect the various cash-flows from those sectors, and to fit clients’ needs as closely as possible.
AKAM entities also provide consumer loans to help clients invest in housing, education and health. Although these loans only represent a small portion of the overall AKAM portfolio, clients have shown increasing interest in them for cash-flow smoothing, paying medical expenses and tuition fees, or improving housing. These loans have a direct impact on the clients as they meet their day-to-day needs, and allow AKAM to improve the quality of life of the poor.
In addition to its main microfinance activities, AKAM supports small and medium enterprises (SME) to create jobs or stimulate increased economic activity. Despite their importance to economic growth and employment, many SMEs find it extremely difficult to access financial services, particularly long-term loans that fit their needs. Many SMEs are considered too risky by mainstream banks, as they are perceived to be either too small or to have insufficient collateral or credit histories to be able to secure loans or financing from traditional commercial banks. As a result, SMEs are caught in a gap between the growing supply of finance for micro-entrepreneurs and the mainstream market for traditional business financing. AKAM entities work to fill this gap and provide accessible and tailored financial services for SMEs.
AKAM’s approach has as its foundation a long-term commitment to the geographical areas in which it works. AKAM seeks to focus on poverty alleviation through innovative product design based on clearly understood needs of the target clients, effective management and the introduction of new initiatives to enhance access to financial services for poor and low-income households.