Loans without banks: Afghan farmers and USAID cut the middlemen out of finance

Loans without banks: Afghan farmers and USAID cut the middlemen out of finance

Small-scale farmers in Afghanistan benifit from a joint financing program administered by USAID and Development Associates International. Photo: <a href="http://www.flickr.com/photos/dfid/573327368">UK Department for International Development (flickr)</a>
Small-scale farmers in Afghanistan benifit from a joint financing program administered by USAID and Development Associates International. Photo: UK Department for International Development (flickr)

Small-scale farmers in Afghanistan, considered "high-risk" borrowers, are finally getting the credit they need to buy good seeds and equipment, but not from traditional banks.

NextBillion reports on how an innovative direct loan program cuts out banks and puts the power of credit in the hands of agricultural organizations while sticking to culturally-appropriate rules. The Agricultural Credit Enhancement (ACE) program, funded by USAID and implemented by Development Alternatives International (DAI) is changing financing and credit for Afghan farmers, showing that they're a risk worth taking.

ACE staff...hit upon a novel idea: forgo traditional lending institutions altogether and create a new lending system, based within agricultural organizations and agribusinesses, such as farmer associations and cooperatives, manufacturers of agricultural machinery, and export firms.

Aiming to make the [Agriculture Development Fund] fully Shariah-compliant, ACE has established separate bank accounts, an accounting, portfolio management and reporting system, customized loan contracts, and a Shariah Advisory Board, while also training staff in Islamic finance practices.

After almost two years, the Agriculture Development Fund has lent $37 million to 13,000 farmers in 25 provinces of Afghanistan. Through prudent lending practices and strong borrower relationships, it has also maintained an incredible 100 percent on-time repayment rate.

Read more about how this novel program is helping Afghanistan’s farmers here.

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