For several decades, Afghanistan faced a challenging financial landscape. Financial institutions were ill-equipped to provide nationwide financial services, especially in terms of micro-lending to micro, small, and medium-sized enterprises (MSMEs), which represent the majority of Afghan businesses. Without sufficient measures in place to ensure access, transparency, accountability, and security to financial products, financial institutions were hard-pressed to expand their services to investors, businesses, and individuals wary of the risks involved. As a result, Afghanistan’s financial sector remained stunted and engaged only a small portion of its citizens.
To add to the lack of available services and financial products, unemployment was high across the country. Many Afghans living in rural areas lacked access to sustainable economic opportunities. With most financial institutions and banks located in the nation’s capital, Kabul, people in rural areas could not access finance. Women and young people, historically underrepresented in the financial sector, were largely left out of the economy. Furthermore, few financial institutions complied with Islamic or Sharia law, which prohibits the use of interest or fees for loans. In a Muslim-majority country like Afghanistan, this posed a significant barrier for many potential consumers, limiting access to vital banking services.
In 2011, USAID launched the Financial Access for Investing in the Development of Afghanistan (FAIDA) program, implemented by Chemonics. Over the course of six years, FAIDA spurred economic progress — led by private sector growth and job creation — and provided financial access to new consumers across the country. Through a vast system of initiatives and interventions, the program strengthened value chains at every level, from small-scale farmers to women-owned businesses to emerging exporters to the country’s largest banks and lenders. It mobilized $59 million in private financing, took significant measures to improve transparency, created new financial products and services to meet Afghanistan’s cultural needs, and gave women access to learning opportunities to improve their financial inclusion.
Mobilizing Private Financing
With private sector-led sustainable economic growth as its core objective, FAIDA employed an effective two-pronged approach to address the needs of both lenders and borrowers. Without mobilized funding available to provide loans, the financial sector could not engage a large portion of potential consumers. To address this, the program tapped into the private sector and invited its representatives to devise a solution to the need for expansion. Working with banks and financial institutions, FAIDA created 302 financial sector training certification programs, developed and launched 33 new financial products, trained more than 2,700 financial sector employees across 31 Afghan financial institutions, and commented on 46 financial sector laws.
Through these efforts, nearly $60 million became available for private financing — and of that, $30 million went to MSMEs through more than 1,000 targeted loans. This provided crucial injections of capital to help grow individual businesses as well as the broader Afghan economy.
