Afghan credit unions serve rural communities, in spite of security challenges

Every day credit unions help thousands of Afghan families to improve their lives. A country where rural poverty accounts for 84 per cent of poverty nationwide, Afghanistan is...

Every day credit unions help thousands of Afghan families to improve their lives. A country where rural poverty accounts for 84 per cent of poverty nationwide, Afghanistan is one of the poorest nations in the world.

With 77 per cent of Afghans living in rural areas, where security is worse than in cities, credit unions are the only financial institutions operating in these areas. The country's Islamic Investment and Finance Co-operatives (IIFCs), or credit unions, are helping people in these poor rural areas to gain access to capital.

The country’s first credit unions were created in early 2004 in the northern region of Afghanistan with funding from the World Bank, through Microfinance Investment and Support facility for Afghanistan MISFA. A crucial role in the development of these credit unions was also played by the U.S. Agency for International Development (USAID) through its WOCCU-managed Rural Finance and Cooperative Development (RUFCOD) program, which helped to finance IIFCs across Afghanistan.

Mahir Momand, founder of IIFC group, the National Association of Credit Unions of Afghanistan, said that credit unions helped to improve the lives of thousands of small scale farmers and entrepreneurs across the state. There are currently 34 IIFCs and points of services in Afghanistan, spread over 14 provinces. The majority of them operate in the southern region of Afghanistan, often referred to as the stronghold of Taliban, explained Mr Momand.

“IIFCs were operating in 17 provinces until a year ago, which was exactly 50 per cent of the 34 provinces Afghanistan has got. But were forced to withdraw from those places due to various reasons, mainly security,” he said.

According to Mr Momand, 116,675 Islamic loans were distributed through IIFCs, each creating 1.5 jobs on average. That meant that 175,012 jobs were created in total through these loans, benefiting overall more than 700,000 Afghans.

“IIFCs provide jobs in areas where it is naturally hard for the Afghan government to create any employment opportunities. Many people in rural Afghanistan join insurgency due to unemployment; IIFCs are out there providing them with opportunities to earn a living through Islamic loans,” added Mahir Momand.

Mr Momand said credit unions not only helped to tackle rural poverty, but also helped to spread democratic principles. Through IIFCs local people understand as to how democratic institutions operate and how can they have their say in the affairs of such entities. “It is in a way providing them with a mini-model to understand their new government system. Democracy in Afghanistan is a new phenomenon,” said Mr Momand.

One of the risks in Afghanistan is that security remains a challenge for the credit unions. In 2011, 13 board members and people associated with Afghan credit unions were murdered by the Taliban. With the US military set to withdraw 34,000 troops from Afghanistan early next year, Mr Momand fears that security might get even worse.

“If security deteriorates IIFCs may either remain where they are or close down some of the areas where it may not be possible to operate anymore,” he said.

All IIFCs operate in accordance with Sharia law. This means they follow Islamic principles when economic and financial activities are undertaken by their followers. They promote distribution of wealth through fair and just ways, socio-economic order in the community and prohibit investments in businesses that may involve gambling, alcohol or armaments. Sharia compliant loan products adhere to economic principles outlined in Islam.

Mr Momand said the ethical dimension of credit unions makes them more attractive, not only for Muslims, but also for non-Muslims.

Across Afghanistan, IIFCs also help to empower women. About 13 per cent of IIFCs membership are women.

“We are talking about a country where women have traditionally been kept in houses and were rarely involved in economic activities,” explained Mr Momand. He added that IIFCs operated in rural areas where community pressure and traditions were not very friendly towards women venturing out of their houses, which made it harder for them to participate in many activities that their peers in the rest of the world would be allowed to. IIFCs have female Member Development Officers (MDOs) who recruit women members either through visits to their houses or bringing them together to the IIFC premises

“We are very proud of what we have been able to achieve in Afghanistan, after all, Afghan women are about 50 per cent of the population and we can never forget catering to their financial needs,” he said, adding that IIFCs have created an 'Afghan model' of credit unions, adapted to the cultural needs of Afghan people.

Mr Momand said rural development is crucial to economic reform in Afghanistan. And while major banks operate in big cities, there are no financial services available for those in poor rural areas.

“It is poverty that lead some people in rural Afghanistan to grow poppy and it is poverty that lead most people to join the armed insurgency, it is not their ideology,” argued Mr Momand.

Although IIFCs receive no funding from the government, the authorities in Kabul have endorsed credit unions. Mahir Momand, as the CEO of IIFC Group, was awarded by the Afghan Senate House for the work IIFCs have done.

The loans provided by IIFCs have helped to create new jobs, changing the lives of those who received the loans. Children of the beneficiaries go to school now, while earlier they might have been involved in doing labour work from an early age. Furthermore, explained Mr Momand, a greater number of IIFCs members have access to better health services now as compared to the past, simply because now they can afford it.

IIFCs use part of their profits to pay back the community in the form of building educational and vocational institutions such as tailoring courses, computer lessons or renovating the local mosques and small bridges in the community.

The credit unions generally have a total different segment of market as compared to other banks in Afghanistan. Mahir Momand commented on how banks in Afghanistan usually sought to attract rich and middle class clients, rather than those poor and in desperate need for access to finance.

IIFCs also aim to help to tackle unemployment, particularly among the youth. In addition to providing loans, IIFCs and the IIFC group has hired 12 class graduates as part of their internship programme.


In March 2012 Mr Momand was also awarded a prize by Credit Union Magazine (CUNA), on behalf of IIFC Group, for the best political credit union movement.

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