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Similar to Hypothetical MFI: First MicroFinanceBank Afghanistan
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Hypothetical MFI: First MicroFinanceBank Afghanistan
- 1. First MicroFinanceBank Afghanistan: The Case for Expansion July 2008 Replacing despair with hope and confidence in a better future
Editor's Notes
- We’re representing the case for expansion of the First MicroFinanceBank Ltd. Pakistan into Afghanistan, where we will incorporate as the First MicroFinance Bank Afghanistan.
- A brief history of our organization to start: FMFB-P began as a project of the Aga Khan Development Network ; grew out of previous lending operations that began in 1982 First private-sector microfinance bank formed under the Microfinance Institution’s Ordinance 2001. Currently we have 65 nation-wide, fully automated branch providing services to over 150,000 clients We received CGAP’s Financial Transparency Award for two consecutive years, 2005 and 2006 In the last four years, we have disbursed over US $30M in loans and mobilized over $13M in savings from over 70,000 clients. 1/3 of our borrowers and staff are woman.
- Similar to our mission in Pakistan, the Bank’s mission in Afghanistan is to reach out those who are currently not able to receive adequate financial services, in rural as well as urban areas. The target audience is the poor and underprivileged of Afghanistan, especially farmers and women. Objectives: To offer the transient and chronic poor of Afghanistan an array of financial services To offer these services in a manner consistent with Islamic beliefs and tenets To help break the cycle of poppy farming in Afghanistan through the provision of microcredit
- A word on Islamic banking: Islam prohibits riba, or charging a markup – considered exploitative Also gharar – gambling 4 basic principles: risk-sharing among parties to the contract materiality – real economic transaction no exploitation no financing of haram (sinful/forbidden) activities Ex: interest-based debt project: if borrower has to service his debt irrespective of the performance of the project he engages in, even if it’s not his fault Islamic financial products emphasize concern for risk sharing between user and provider of funds Mudaraba – owner of funds finances entire project. Entrepreneur contributes only labor, time, & expertise. Profits are shared at a pre-determined ratio. Losses accrue to financier only. Musharaka – financier and partners jointly finance a project and participate in its management. Profits shared based on contributions to capital. Murabaha – Provider of funds purchases commodity and resells it with markup to user against installments
- Much like we did in Pakistan, we intend to partner with the Afghan Post to be their service provider. Currently they do not have financial operations. In Pakistan, we did this to expand our distribution network through the 4000 sub office network of the Pakistan Post as well as leverage the 82 regular branch outlets This network is expected to facilitate the disbursement of PKR 15M to over 1M clients in the next 3-5 years. Afghan Post is undertaking a large expansion of 850 post offices, and will be partnering with FMFB-A to provide financial services Mutually beneficial – we reach more people more easily, they have something else to draw people in with. We’ll also partner with the Asian Development Bank for assistance with our mobile banking operations Aga Khan Development Network will remain closely involved and help facilitate acquiring capital.