Microfinance in Afghanistan facing stiff challenges: MISFA member

M. S. Sriram

By Matthew Fuchs
Microfinance Focus, November 18, 2009: Security remains a major hurdle in setting up microfinance institutions in Afghanistan, says M.S. Sriram, Professor of Finance at the Indian Institute of Management, Ahmedabad, who is also a member of the Board of Microfinance Investment Support Facility for Afghanistan (MISFA).

MISFA was established in 2003 at the invitation of the Afghan government to coordinate donor funding and technical assistance to build the microfinance sector, a role that later expanded to include SME lending. In March 2006, MISFA was registered as a limited liability non-profit company wholly owned by the government. As of August 2009, MISFA became the primary funder to 16 partner MFIs.

Matthew Fuchs from Microfinance Focus spoke with Professor Sriram on the sidelines of Microfinance India Summit 2009. Here are some excerpts from the interview:

Microfinance Focus: Can you describe some of the challenges MISFA and MFIs face in Afghanistan?

Sriram: There are multiple challenges. The first is the security situation itself. The security of the staff and the clients is one part of the challenge because it is not easy to move around in Afghanistan. Staff are advised not to take the road most of the time — even between cities they are required to take flights and the civilian government is not fully in control of the entire place. That’s one big part of the challenge.
The second challenge is the banking system itself. It is not as evolved as we see in India or elsewhere in the world and therefore there is always the big issue of how you manage the logistics of cash. One very clearly sees the need for a strong banking system for microfinance to work.
The third is that many of the microfinance players in Afghanistan are large international MFIs that were hugely successful in their domestic markets who have possibly not got a grip of the local terrain. I suspect there is a challenge of understanding what works there, because if you don’t have a vibrant economy what impact will these loans have? There is also the big challenge of poppy cultivation, as far as agriculture is concerned. That is an economy in itself.

MF Focus: Is poppy farming attracting a large portion of entrepreneurial talent in the countryside?

Sriram: No, but the challenge is how do you replace an activity that is drug-based with something that is mainstream. That’s a big challenge.

MF Focus: Is it difficult to source staff, both at the management level and on the ground?

Sriram: Two challenges are there. The first is how do you source staff while controlling costs. The moment you get expatriate staff they come with their own baggage and their salaries have to be denominated in dollars, and they need to have an allowance to visit home once or twice a year and so on. So it becomes a significant cost.
The second challenge is when MFIs are trying to recruit locally. You don’t have a large number of educated, readily available credit officers because during the Taliban regime the education system was entirely destroyed. So most of the people who are working there, even the Afghans, were educated in places like Peshawar in Pakistan or in the West and have since come back.  But I am told that this constraint can perhaps be overcome in three to four years time as the colleges have already been open for some time. But, right now getting appropriate Afghan staff at the field level might still be a problem.

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