Building an Industry from Scratch: Donor cooperation in Afghanistan

Oct 2007
Washington, United States, October, 31 2007 - When the Taliban regime in Afghanistan lost power in 2002, it left a devastated country behind. With no functioning banking system, 90 percent of Afghanistan's economy was financed by informal moneylenders. In terms of microfinance, Afghanistan was a blank slate. The tragedy of war had left a unique opportunity in its wake.

The origins of a plan

Based on the strong belief that microfinance would be an important tool in the country's recovery, the World Bank and prominent members of the new Afghan government joined forces in 2002 to establish a single mechanism for channeling what was hoped would be major investments in a new, rapid-growth microfinance industry. The Microfinance Investment Support Facillity for Afghanistan, Ltd., (MISFA) was housed within the Ministry of Rural Rehabilitation and Development and funded via the World Bank's Afghanistan Reconstruction Trust Fund (ARTF). CGAP was brought on board to provide critical technical expertise.

MISFA today

Perhaps the most significant feature of Afghanistan's microfinance apex is its genesis: MISFA is the result of careful donor coordination, rigorous advance planning and precise technical design—the application of good practice from the ground up. In just four years, MISFA has catalyzed the growth of Afghanistan's fledgling microfinance institutions (MFIs), helped implement a state-of-the-art national regulatory framework, and initiated the "Afghanization" of the microfinance sector, even as it is still nascent.

The 15 MFIs funded by MISFA have beaten the odds to reach 385,000 clients in July 2007 and disbursed 808,000 loans totaling US$282 million, with a portfolio outstanding of US$87 million. These MFIs work in 23 Afghan provinces, including Helmand and Kandahar—areas still racked by active fighting.

Five of the MFIs had achieved operational self-sustainability by July 2007, with three more MFIs expected to reach that benchmark early in 2008. When that happens, more than 85 percent of MISFA's clients and outstanding portfolio will be with sustainable MFIs.

Amjad Arbab, MISFA's managing director, says that MISFA's current success stems, first and foremost, from strict adherence to strategy and a clear vision for its work, defined by three pillars of good practice: sustainability, outreach, and Afghanization.


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