Mercy Corps recognized the great need for financial services for the poor in Afghanistan and founded "Ariana Financial Services Group", one of the first Microfinance institutions in Afghanistan with a grant from the Bill & Melinda Gates Foundation. Photo Credit: Cassandra Nelson/Mercy Corps

Five years after September 11th, 2001 the challenges Afghanistan faces remain formidable.

After decades of destruction, drought and under-investment, poverty is wide spread and deeply entrenched. 70% of Afghans live on less than 2 USD a day and the average income per year lies at about 300 USD . Sustained economic growth is necessary to address this great level of poverty and to provide Afghan people with a better, and more secure future.

Achieving economic growth for the poorest of the poor in Afghanistan is not easy. Most Afghans make a living with small-
scale agriculture or with informal family-owned micro enterprises engaged in trading or basic services. They have few ways of accessing the capital necessary to start a business or expand it. The banking system in Afghanistan has been slow to establish itself since 2001, and remains heavily concentrated in Kabul and larger cities. Even if Afghans have access to a bank, most of them are too poor to qualify for conventional bank loans.

Mercy Corps recognized the great need for financial services for the poor and in May 2003 founded "Ariana Financial Services Group", one of the first Microfinance institutions in Afghanistan.

Mercy Corps recognized the great need for financial services for the poor and in May 2003 founded "Ariana Financial Services Group", one of the first Microfinance institutions in Afghanistan with a grant from the Bill & Melinda Gates Foundation.

Since its launch Ariana has supported over 16,900 clients with a total of approximately 3,200,000 USD in loans. Currently, Ariana has 5,742 active clients with a total loan value of 1,266,000 USD. Clients run micro-enterprises in all areas of Afghan life; i.e. weaving, carpentry, tailoring, hair dressing, food processing, florists, kite production, knitting, leather working or animal husbandry.

Making barely enough to live on, many Afghan micro-enterprises are unable to provide collateral for a loan. Ariana therefore primarily works over solidarity group lending, where a group of 4 - 8 people jointly receive a loan and are as a group accountable should a member default. The social pressure created by the group has proven to be highly effective when it comes to loan repayments.

Only 0.9% of Ariana's portfolio is considered to be at risk - a very low rate that many commercial banks would be proud to achieve. Ariana's average loan size works out to be about 220 USD. Group loans start at 7500 Afghani (about 150 USD) and can go up to 14,700 Afghani (300 USD) with a flat interest rate of 2% per month. A group must have successfully repaid their loan to be able to qualify for more credit, which can at most be 40% higher than the previous loan. Once clients have successfully taken part in 4 group loans, they can apply for an individual loan. In November 2005 Ariana started granting loans to individuals and so far 2.5% of clients are holding individual loans.

Only 0.9% of Ariana's portfolio is considered to be at risk - a very low rate that many commercial banks would be proud to achieve.

Ariana predominantly supports female entrepreneurs. Historically, Ariana started working in district 7 of Kabul, which had been heavily damaged during the war and was home to many war refugees. Mercy Corps had been building a women's centre there in a Cash-For-Work scheme that employed solely women. After having constructed the centre, the women received vocational training in various handicrafts to allow them - many of them widows - to generate an income for their families. These women were Ariana's first clients and received loans to finance the setup of their businesses.

Today 82% of Ariana's clients continue to be women. Ariana's emphasis on women has several reasons: Women are one of the most vulnerable social groups in Afghanistan and suffered heavily under the Taliban. As Storai Sadat, the Managing Director of Ariana puts it: "The Taliban had a very bad effect on women's mind-set in Afghanistan. Even after the Taliban left, many women doubted their ability to work and make a living after having been confined to their homes for 6 years." Helping women establish a business not only provides critical income to their families, but often is the decisive factor that helps them leave the confines of their home and take part in life outside. According to Storai "many women would work at home and would have no idea of the value of their work on the market as they would never leave the house. Their men would sell the products and women had no information about where the products would be sold and what profit they could make." Ariana's 17 loan officers - most of them women - help the female entrepreneurs draw up simple balance sheets to take on the financial management of their businesses, which allows the women to have higher financial independence. Many women have found the confidence to venture outside of their homes to support their businesses. Often the income the women contribute to the household is the difference it takes for their children to be able to go to school.

"Another reason for Ariana's focus on female clients is cultural: In Afghanistan, women take on a large part of the responsibility of caring for the family."

"Another reason for Ariana's focus on female clients is cultural: In Afghanistan, women take on a large part of the responsibility of caring for the family. It is a question of honor for them to repay any debt they might have. Afghan women simply are far more unlikely to default on a debt than men are." Storai explains. With a smile she continues to say that she believes women are better managers; and her team of mostly female loan officers and the success of Ariana certainly are a case in point.

Since its launch Ariana has twice received funding from MISFA (Microfinance Investment Support Facility for Afghanistan) which has helped it grow as an organization and - security permitting - will allow it to expand its operations beyond Kabul. Storai has the vision of turning Ariana into an independent, self-sufficient financial organization with a diverse range of financial products available in all of Afghanistan. In the 3.5 years since Ariana's founding 16.900 clients and Ariana's small but highly dedicated team have all been contributing their part to the reconstruction of a peaceful and successful Afghanistan.




Contributed by Shirine Pont from Mercy Corps Afghanistan.

To read another Global Envision article about microfinance for women, see Why Focus on Poor Women and How Best to Serve Them.



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