Building a Viable Microfinance Sector in Afghanistan

This paper reviews reforms introduced by Microfinance Investment Support Facility for Afghanistan (MISFA) and makes recommendations to further the growth of Afghanistan’s microfinance sector.

Afghanistan’s MFIs faced viability challenges that led MISFA to introduce a series of reforms that targeted MFIs’ internal structures, capacity and control systems. These reforms have led to considerable positive changes in the country’s microfinance sector. MISFA also plans to investigate demand for savings products, agriculture and livestock loans and Islamic finance products.

The paper states that there is scope to improve the focus of reforms to ensure that they increase the viability of clients and MFIs. Some ways forward include:

• Implementing planned expansion into rural finance within an integrated rural development approach, with a greater understanding of client demand;
• Expanding financial services offered to address livelihood risk reduction needs;
• Focusing in the immediate-term on client viability, and ensuring that new performance monitoring tools do more to assess wider outcomes and impact;
• Advocating for greater state and private investment in business and financial service training to build sector capacity;
• Learning from informal credit systems to develop more competitive client-led microfinance products.