A Critical Assessment of Microfinance

How can microfinance co-exist with traditional credit institutions in Afghanistan?
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This paper examines the interface between MFIs and pre-existing rural institutions in Afghanistan. Donors and policymakers consider access to credit an important service for promoting socio-economic inclusion, countering poverty and promoting growth in rural Afghanistan. The national strategy reflects continued commitment to microfinance.

Research, however, has shown that a variety of informal and highly evolved credit mechanisms are commonly used across rural Afghanistan. The paper examines the interaction between the two and concludes with policy and operational recommendations to improve rural livelihoods in Afghanistan. They include:

  • Supplementing emphasis on financial sustainability with emphasis on assessments of social sustainability of MFIs;
  • Changing policymakers’ thinking about the moral framework for microfinance;
  • Regarding microfinance as one component of the strategy to improve local services, employment creation, infrastructure, and market function;
  • Avoiding duplication of financial services that are available from traditional sources;
  • Seeking the engagement of influential community actors to avoid resistance to MFIs and their services;
  • Rethinking MFI loan sizes and repayment arrangements so as to minimize undue pressure on borrowers and;
  • Creating products and repayment schedules relevant to different Afghan contexts.

About this Publication

By Parto, S. , Regmi, A.