User:Hussain awan

Background of microfinance in Afghanistan.

Definition of Microfinance Microfinance is the provision of a broad range of financial services such as deposits, loans, payment services, money transfers, and insurance to poor and low-income households and, their microenterprises. Microfinance services are provided by three types of sources:

o	formal institutions, such as rural banks and cooperatives;

o	semiformal institutions, such as nongovernment organizations; and

o	informal sources such as money lenders and shopkeepers.

Institutional microfinance is defined to include microfinance services provided by both formal and semiformal institutions. Microfinance institutions are defined as institutions whose major business is the provision of microfinance services. The majority of the world’s poor live in rural areas. Yet most lack access to the range of financial services they need. Financial institutions seeking to work in rural areas face many limitations, such as poor infrastructure, dispersed demand, price and yield risks, and collateral limitations. As it has been proved since long time ago that microfinance program can play key role in reduction of poverty and economic development; Government of Afghanistan decided to start microfinance program in Afghanistan and contacted international community to get funding in this sector.

Consequently Microfinance Investment Support Facility for Afghanistan (MISFA) was set up in 2003 at the invitation of the Afghanistan’s Ministry of Rural Rehabilitation and Development (MRRD) to get donor coordination right from the start and avoid the counter-productive efforts that have emerged from conflicting donor objectives in other post-conflict situations. It was established as a focal entity through which the Afghan Government and international donors could channel technical assistance and funding to build Afghanistan’s microfinance sector, though more recently this mandate was expanded to include the lower ranges of small and medium enterprises (SME) lending. It is the first facility of its kind, pooling diverse donor funding mechanisms and converting them into streamlined, flexible support to microfinance institutions in Afghanistan, tailored to local priorities and accompanied by technical assistance and strong performance monitoring. In March 2006, MISFA registered as a limited liability non-profit company whose sole shareholder is the Ministry of Finance of the Islamic Republic of Afghanistan. Microfinance services are new to Afghanistan, but are rapidly spreading to different regions of Afghanistan. Almost 14 Micro Finance Institutions are there providing micro-credit services in all major cities, provincial capitals and in rural areas. The Afghanistan rural areas are more unsecure and far from the urban areas which significantly affect cost and prices of the commodities.

Challenges Now the biggest challenge for Afghanistan’s MFIs is that how to reach the poor people who live in rural and remote areas and how to get microfinance institutions on a sound and sustainable foot. There is a big need of expertise that could examine and suggest that both services and product developed by MFIs are meeting the needs of the rural people. Lack of trained and skilled staff is and other challenge for MFIs. It is very difficult to run the institutes on a transparent, economical and sustainable way without technical assistance and skilled personals. Implementation of Microfinance program is a big challenge for microfinance institutions, government and donor agencies because of war, terror, lack of basic infrastructure, business and economical activities and law and order situation and other religious and cultural obstacles. Most of the rural people even don’t have ID cards to prove identification, though people know each other but for the deals and agreements it is an initial and mandatory document. There are little businesses activities that people could invest or start business. Mostly people use loaned amount for the food, health and other basic needs instead of the needs they stated in the loan application form. It has been appreciated that government, MFIs and donor agencies that beside so many challenges they have started microfinance program for the benefit of community and economical development which may bring development in social life of the people as well. It has been strongly suggested by different experts that for the successful implementation of microfinance program in Afghanistan, there is a big need to assess the micro-credit services impact in-term of custom, culture, business opportunities and religious values and reform the product and services in order to satisfy the needs of community and strengthen the microfinance services.

References; (1)www.adb.org/documents/policies/microfinance/microfinance0100.asp?p=policies, (2)www.areu.org.af, “Building a viable microfinance sector in Afghanistan BP2010 (3)www.mrrd.gov.af (4)A Village Case Study in Kabul Province”; Kantor, From Access to Impact.