Credit Unions Arrive

Farmers, shopkeepers and private individuals in northern Afghanistan are being encouraged to apply for small loans as the country’s first credit union project gets under way.

With the banking system in disarray outside the capital Kabul, many people have no credit facilities other than moneylenders who may charge up to 50 per cent a month in interest.

In order to survive, thousands of small farmers are forced to take out advance loans every winter, on the strength of the crops they expect to harvest later in the year.

Afghanistan has seen a number of donor-funded microfinance schemes designed to help poor people start businesses, but the new scheme is the first to create something approximating to a cooperative bank, offering services such as savings, loans, and even plastic cards.

The United States-based World Council of Credit Unions, WOCCU, recently opened the first in a planned series of credit union branches in the northern city of Mazar-e-Sharif, with another to follow in Shiberghan province.

The project is funded by the Microfinance Investment and Support Facility for Afghanistan, MISFA, an Afghan government agency which is overseeing microfinance projects. WOCCU, with headquarters in Madison, Wisconsin, has been operating for more than 30 years running similar programmes in 85 countries, with 123 million members worldwide.

So far, the Afghan branch has attracted more than 1,000 members. Credit unions work as a cooperative, offering financial services to anyone who joins and obeys the rules such as saving regularly and repaying loans on time.

Khalida Yaqubi, who runs the Mazar-e-Sharif office, said, "The union belongs to the people. It is not affiliated to any organisation or government. It is made up of associations of members in each country."

There are now plans to expand credit union network to 15 other provinces within five years, keeping the focus on areas outside the capital.

"People in Kabul city have better banking opportunities and the ministry of rural development felt there was a need to help boost the economy in the provinces," said Yaqubi.

She explained how the lending system works, "We will offer a loan to anyone interested in sorting out their financial problems, and we will charge them two per cent interest. For the moment, we will advance between 100 and 500 US dollars to people who can provide two character references.

"After a settling-in period, the size of our loans may be increased."

Savings is the other key component of the credit union. "We look after people's money in the same way as banks and we pay seven per cent interest monthly to those opening savings accounts,” said Yaqubi. "We also give them a debit card which allows them to withdraw cash all over the world."

Northern Afghanistan has seen its fair share of violence in recent years, but Yaqubi insisted that security was manageable, "There are some minor security problems in all provinces. But when we opened our negotiations, the Balkh [provincial] authorities received us warmly and pledged to help with security."

Harish Chopani, the MISFA official in charge of the WOCCU project, said, "The union is absolutely independent and non-governmental. All its activities will be reported to the ministry of rural development on a monthly basis."

Afghanistan currently has no financial regulatory body, and the central Da Afghanistan Bank has delegated the task of monitoring the microfinance sector to MISFA. The rural development ministry has an oversight role on the WOCCU project.

The central bank’s branch administrator in Mazar-e-Sharif, Mohammad Ibrahim Aslami, accepts that the conventional banking infrastructure is still poor.

"Unfortunately we do not have the solutions to people's problems,” he told IWPR. "People with savings accounts can’t draw money out of branches of the same bank located in other provinces, and that creates problems for many of them.

"Nor is there a loan system in Afghanistan, so foreign banks and their agencies which offer these facilities and which enjoy global credibility have a far better chance of winning people's custom."

Farmer Azizullah was one of the first to get a 500 dollars loan from the credit union in Mazar-e-Sharif to bridge his immediate cashflow problems.

"I needed to buy fertilisers, seeds, foodstuffs and household necessities,” he said. “I didn't have the money to buy these items, but once my harvests are gathered, I can easily afford to repay this amount.”

He said that in previous winters, he had been forced to mortgage the following summer's crops at half its market value in order to borrow from a moneylender, "When the time for the harvest arrived, I would have to hand over half the yields and that would leave me in the same position the following winter. It was a never-ending struggle.

"Now I don't have to sell my harvest in advance. I will sell it at the right time for its proper value."

Sher Mohammad, a street vendor in Balkh province, has had bad experiences with loans in the past.

He once borrowed 10,000 afghanis, about 200 dollars, from a moneylender and was required to pay 3,500 afghanis in interest alone every month. “I don’t earn very much, and it took me years to be able to pay off that debt,” he said. “I wouldn’t do it again."

But he has just borrowed 200 dollars from the credit union. "It’s an amount I can handle and it will prove very useful for my family," he said.

Sharif, a shopkeeper, has invested his savings in the union, saying, "I was anxious about keeping money either at home or in the shop because of the crime here.

"But now that I’ve banked the money, I feel relieved - and it also earns a few per cent interest."

Sayed Yaqub Ibrahimi is an IWPR staff reporter in Mazar-e-Sharif.