The Birth of a New Credit Culture in Afghanistan
Fifty-four months. That’s how long it took to conceive, launch, and hand over the Agricultural Development Fund (ADF) in Afghanistan. Through the Agricultural Credit Enhancement (ACE) Program, the U.S. Agency for International Development (USAID) established a standalone financial institution to administer the ADF, with a clearly defined governance structure and guided by rigorous policies and procedures.
When the DAI-led team launched this program in 2010, Afghan financial institutions had little interest in lending to the agricultural sector. Nevertheless, the ADF has successfully provided loans benefitting more than 35,000 farm households and agribusinesses in 33 of Afghanistan’s 34 provinces. The ADF has so far approved 234 loans valued at US$105.9 million. Offering both conventional and Islamic financial products designed to meet borrowers’ needs and business cycles, the ADF is changing the landscape of rural Afghanistan.
In its first design, ACE relied heavily on the participation of Afghan financial institutions acting as intermediaries of funds—a plan that proved unfeasible due to a risk-averse private banking sector.
To overcome this obstacle and achieve its primary goal of making credit available to the agricultural sector, ACE had to innovate. Aside from its main focus of establishing the ADF and rolling out an aggressive lending campaign, ACE modernized the technical analysis of loan applications, improved the efficiency and competitiveness of ADF clients, and ensured that good environmental practices were followed.
By project’s end:
- 211 loan applications, most involving several hundred farmers each, had been professionally reviewed.
- 71 post-disbursement reviews had been performed.
- 18 value chain studies had been undertaken in various sectors of the agricultural industry.
- 87 clients had attended local trade events.
- 101 clients had participated in international trade fairs and trade missions.
These activities enhanced the ADF’s loan portfolio by ensuring the technical feasibility of the investments proposed by loan applicants and providing clients with technical assistance to increase the likelihood that their production and trade operations would succeed. ACE also engaged in trade facilitation. Together, this distinguished the ADF as a truly agriculture-oriented institution.
The knowledge management system we developed enabled officials to collect and analyze data and interpret and share results with broad audiences. PAYWAND is one of the project’s most successful products, now managed by the Ministry of Agriculture, Irrigation and Livestock. An online database of all things Afghan agriculture, it includes an inventory of crops and price data from several markets in Afghanistan—as well as in India, Pakistan, Russia, and other international markets—and a collection of studies related to Afghan agriculture conducted in the past 15 years.
The team held agricultural credit shuras or provincial meetings for representatives of farmer organizations and agribusinesses, which constituted the main public awareness tool to generate business for the ADF.
Why Agricultural Credit?
Over the past 13 years, donors have actively supported Afghanistan’s agricultural sector. Investments boosted production through the introduction of advanced crop production technologies, supported the development of agricultural markets, and built agriculture-related infrastructure.
As a result, the productivity of staple crops such as wheat has more than doubled. Sales of fruits and nuts have increased by 600 percent. Better-informed farmers are increasingly making investment decisions based on sound market prospects and continuously enhancing their technical capacity, as reflected in increased productivity and improved crop quality. Rural households are transitioning from subsistence agriculture to commercial crop production in response to market signals.
Nonetheless, rural economies overall are growing slowly due to lack of access to capital, which remains a binding constraint to agricultural development and consequently to economic growth.
The benefits of credit transcend the borrowers’ households: as their sales grow, their expendable incomes also increase, exerting a multiplier effect on rural communities, creating effective demand for goods and services, and thereby priming the pump of economic growth.
DAI will remain on the ground for another three years to ensure the operational stability of the ADF. A new project, ACE II, aims to help the ADF raise additional capital, expand its loan portfolio, and generate science-based knowledge to inform future development interventions.