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

This case study examines the impact of microcredit on village and household economies in Afghanistan. It explores the effects microcredit has on informal credit relations and livelihood outcomes. The study presents results of interviews and discussions with borrowers and non-borrowers from a village in Bamyan Province in Afghanistan. Three MFIs operate in the study village. Like informal credit, microcredit too has social outcomes, where honor and status play an important role in decision making about borrowing and lending. The study demonstrates the importance of matching program structures to client needs. It draws the following conclusions:

• Clients preferred the MFI that offered larger loans and a longer grace period;
• Clients hoarded loans, indicating a need for program adjustments to better match client needs;
• Microcredit must be perceived as more than a financial transaction to understand the implications of the social relations of credit;
• Villagers perceived microcredit as another credit source, in addition to the various forms of informal credit available to them;
• MFIs should develop better understanding of how informal credit relations work, and provide demand-driven services to suit local livelihoods.