Afghanistan: World Bank grant seeks to ensure sustainability for microfinance

Jan 2008
Washington, United States, January, 08 2008 - The World Bank today approved a US$30 million grant to scale up the outreach of financial services from Afghanistan's successful microfinance service providers which have already provided for the financial needs and demands of many poor Afghans, especially women, in most of the provinces of Afghanistan.

The Expanding Microfinance Outreach and Improving Sustainability Project will improve outreach to poor people across the country and increase the ability of microfinance service institutions to become financially self-reliant. Afghanistan's microfinance institutions have already begun to diversify their funding to include commercial sources in addition to funds provided by government and donors.

"Global experience demonstrates that microfinance can have a huge impact on the lives of poor people by enabling them to create small businesses that lead to sustained increases in their incomes," said Stephen F. Rasmussen, World Bank Lead Financial Specialist and Project Team Leader. "The growth of microfinance has been one of Afghanistan's economic success stories of the past four years. In a country where there is very little formal finance available for investment, the microfinance program has already demonstrated its ability to reduce poverty and create economic opportunities and employment for poor people right throughout Afghanistan."

The World Bank's grant support aims to ensure continuation of the ongoing Microfinance Support for Poverty Reduction Project, being funded through the Afghanistan Reconstruction Trust Fund (ARTF). Since inception in 2003, the project has made significant progress by providing more than US$100 million in funds, including US$69.29 million in loans. There are now 15 microfinance institutions (MFIs), with over 249 branches in 23 provinces, serving more than 410,000 clients. Seventy percent of the clients are women and the loan repayment rate is 95 percent. Using donor grants and repayments from finance provided to small clients, the project has disbursed about US$15 million in loans on average every month and added 10,000 to 15,000 clients per month since 2003. Business people financed by microfinance loans have created 600,000 jobs, equivalent to twice the number of employees in the government administration. The World Bank funds that have been approved will enable the program to be scaled up to reach most needy people in more provinces across Afghanistan. The project is also expanding to support legitimate economic opportunities in seven poppy growing provinces identified by the government.

Despite a difficult security environment and persistent expenditure pressures, Afghanistan's economic reform and rebuilding efforts have revived the formal financial sector, which had collapsed in the mid-1990s so that no banking services existed beyond the most basic functions of the central bank. The banking sector now comprises 15 commercial banks including twelve private sector banks, of which six are Afghan owned, and three state-owned banks. However, the progress of the banking sector has been limited, especially in providing investment finance, in part due to the current state of rule of law and the regulatory environment affecting medium and larger enterprises. Bank operations are mostly confined to the main urban centers, and there is a limited distribution network of about 90 branches.

Given the link between improved access to finance and poverty reduction, in 2003 the Government established the Microfinance Investment Support Facility for Afghanistan Ltd (MISFA) as the vehicle through which the government and donors could channel funds to build up the lower end of the financial sector. MISFA has coordinated donor funding so that conflicting priorities did not end up in duplicating efforts and distorting markets. MISFA has helped microfinance institutions to start-up and scale up rapidly for the long haul of development in Afghanistan, as well as to build systems for transparent reporting and instill a culture of accountability.

The grant is provided by the International Development Association (IDA), the World Bank's concessionary lending arm. The project will be routed through the Ministry of Finance, which will extend the IDA grant as a loan to the MISFA. MISFA will be the implementing agency that will use the project funds for further on-lending to microfinance service providers.

Source : Relief Web

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