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Since 2003, partners of the Microfinance Investment Support Facility for Afghanistan (MISFA) have worked to build a sustainable financial services sector to extend access to credit to urban and rural Afghans. The delivery of microcredit (MC) was prioritised during reconstruction as a means to stabilise livelihoods, improve productive assets and stimulate economic development and job creation. This paper examines the effect that the availability of MC has had on existing informal credit systems and on livelihoods in rural Afghanistan. It aims to provide information that can improve the functioning of the MC sector in Afghanistan, i.e. make its engagement more nuanced and reflective of existing credit systems, client needs and best practice. This will benefit both clients and the microfinance institutions (MFIs) alike.
The study used in-depth qualitative methods to investigate the livelihoods and credit use of households in one village in each of three provinces (Kabul, Bamiyan and Balkh). Information on MFI activity concentration guided both province and village selection. Length of a village's credit programme involvement also guided village selection. The study examined three MISFA partners and the presence of different MFIs influenced provincial selection. The incorporation of different MC programmes allows the study to compare outcomes and programme satisfaction across programme characteristics. Within each village, eight households were selected as case studies. Household cases were selected for diversity of livelihood activities, MFI clients and non-clients and reasons for joining or not, uses of credit, and outcomes.
A key overarching finding of the study is that providing access to credit is not in itself sufficient to ensure the desired positive impacts on client livelihood security or MFI viability. Pathways from access to impact are highly varied, influenced by a range of factors, some of which are outside of the MFIs'
control (i.e. security, climate). However, the study found that some factors affecting client outcomes that MFIs can influence are not necessarily adequately understood or implemented. Therefore, the microfinance (MF) sector in Afghanistan has scope for change, which it currently recognises, to become more client-led. This will bring advantages to clients and MFIs alike.
The issues this study identified that MFIs can focus on to make their work more client-focused and impact-oriented include:
- recognising the importance of economic and social context to successful use of MC;
- investing time and money in understanding informal credit systems to design clientresponsive MC programmes and products;
- understanding that credit has meaning, beyond the value of the money itself, through its value in creating and maintaining relationships; and
- developing success indicators that are less primarily concerned with MFI sustainability and that also assess client viability.
Context matters to the successful implementation of MC. Past exposure to credit with sudh (interest) can make MC more easily accepted, while the vibrancy of the local economy affects clients' ability to earn sufficient returns from productive credit investments. The study villages varied in their economic potential, but in none were the activities profitable enough for most clients to easily find the money to repay MC. This related to the continued need among many respondents to use part of loans for consumption. Clients often prioritised MC repayment over repaying informal credit to avoid both shame and fines. This maintains the success of the MFIs, but at considerable cost to clients, and questions the long term efficacy of the drive to extend outreach in order to reduce MFI costs. Further assessment of the local context and its suitability for MC is required, particularly in rural areas, to ensure both the clients and the MFI benefit from its introduction.
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