Microcredit, Informal Credit, and Rural Livelihoods: A Village Case Study in Kabul Province

This case study examines how the entry of microcredit in rural and household economies in Afghanistan affects informal credit relations and livelihood outcomes through effects on the overall village economy. The study is based on qualitative data collected through interviews and focus group discussions with microcredit clients and non-clients from a village in Afghanistan. Study findings include:

• MFI operating in the village offered standardized microcredit products;
• Microcredit and non-microcredit client drop-outs invalidates the assumption that there is a lack of access to credit;
• Most people in the village could access informal free of cost credit in amounts similar to what the MFI offered;
• Microcredit did not enter an environment devoid of financial services, but a competitive environment in which potential clients made informed choices about where to borrow;
• Repayment of microcredit was a struggle in the village because of the marginal nature of economic activities brought about by drought and conflict.

The study recommends that the MFI should recognize the existence of competition and adopt a client-led approach to product delivery.