First MicroFinanceBank Afghanistan:
The Case for Expansion
July 2008
Replacing despair with hope and
confidence in a better future
First MicroFinanceBank Ltd. Pakistan (FMFB-L)Project of the Aga Khan Development Network
(AKDN)
Incorporated Nov. 2001, operational March 2002
65 branches across Pakistan
Full array of services: Loans, insurance, savings, etc.
Islamic banking models
First MicroFinanceBank Afghanistan (FMFB-A)
Mission
To reach out the poorest of the poor who currently do not receive adequate financial services.
FMFB-A is dedicated to serving the urban and rural poor of Afghanistan, especially farmers and
women.
Vision
FMFB-A envisions an Afghanistan in which all low-income people have reliable access to the full
range of financial services.
FMFB-A Objectives
1. To offer the transient and chronic poor of Afghanistan an array of financial services
2. To offer these services in a manner consistent with Islamic beliefs and tenets
3. To help break the cycle of poppy farming in Afghanistan through the provision of microcredit
Islamic Banking and Microfinance
Islam prohibits riba (interest) and gharar (gambling)
Four basic principles must be met:Risk-sharing among parties to the contractMateriality – real economic transactionNo exploitationNo financing of haram (sinful/forbidden) activities
Islamic financial products emphasize concern for risk sharing between user and provider of funds
Afghan Post: A Unique Partnership
Pakistan experienceThis network is expected to facilitate the
disbursement of PKR 15M to over 1M clients in the next 3-5 years.
Afghan Post is expanding rapidlyMutually beneficial partnership arrangement
Will allow rapid scaling up of microfinance operationsAfghan Post will benefit from optimum utilization and
development of its resources
Social, Demographic, and Cultural IssuesPopulation estimated at 30 million
Largely rural; agriculture approximately 52% of GDP
Number of different ethnic groups make for cultural differences
Social development low
Afghan society is largely based on kinship groups
Role of women in society is very restrictive
Macroeconomic and Political Situation in AfghanistanReforms since 2002 have laid the foundation for
a market-based economy
Economy has been expanding; ~12% in 2007
Inflation rates have been dropping; ~20% in 2007
Resources are still inadequate, particularly skilled manpower
Corruption affects reform efforts
Narcotics problem continues to grow
Insecurity is on the rise
Infrastructure
Country is undergoing a large physical reconstruction program with international assistance
Physical infrastructure, communications, and services are currently lacking but situation is gradually improving
Market Size
Market appears ample and largely untapped
However, market is fragmented
Legal and Regulatory Issues
Banking Law of Afghanistan written in 2004
MFIs appear to be operating, without trouble or hindrance, but in a regulatory enforcement vacuum
World Bank program aims to introduce “state of the art” regulation and practices
Competition
MISFA: apex institution created under the auspices of the World Bank
15 MFIs established (some have introduced Islamic banking)
Informal Actors: Opium traders frequently act as narco-usurers (money lenders)
ChallengesLack of local capacity
Security
Social and cultural structure
Operating costs are generally higher than in other neighboring countries
The absence of a comprehensive legal framework for microfinance activity
Opportunities
Economy is growing
Afghanistan is supported by public and private donors
Still room for growth in the microfinance sector
Government is promoting private sector development
Products and Services: LoansAgricultural Loans
CommodityPoppy EradicationLivestock
Health & Lifecycle Loans
Small & Medium Size Enterprises Individual lendingCash Flow-based lending
Products and Services:OtherSavings Deposits
SecurityEase of AccessVoluntaryPositive Rate of Return
Insurance (third-party provider)Lifecycle – death or illnessCrop failure
Fund Transfer Services
Product DeliveryBranch Network
Urban focusNATO-controlled areas
Mobile Banking Increase frequency of client contactProvides easy access to services and funds for
clientsSavings mobilization
Afghanistan Post OfficeExpansion of Post Office network
Provincial capitols: ~ 130 officesSmaller towns: ~ 375 offices
Infrastructure and StaffingStaffing
Extensive trainingPromotion from withinRegular evaluationsCompensation structure
Management Information Systems (MIS)eRapid Idirect