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Financial Institution Compliance in Afghanistan: A Critical Step Towards Economic Recovery

Kabul, Afghanistan - In the aftermath of a severe financial crisis that has been affecting the country’s microfinance sector since August 2021, a pressing need for compliance with Islamic finance principles has emerged. The crisis has led to the closure of five out of eight active microfinance institutions, leaving only three operational.

Addressing the Issue

In an effort to address this issue and support economic recovery, a new project aimed at providing technical assistance to the microfinance sector has been launched. Dubbed “Supporting Sharia’ Compliant Microfinancing for Economic Recovery and Women’s Economic Empowerment in Afghanistan”, the initiative focuses on:

  • Enhancing the capacity of institutions to design and structure Islamic microfinance products
  • Fostering corporate Shariah governance structures
  • Supporting the development of Shariah-based core banking systems

Project Objectives and Milestones

The project, which kicked off in April 2023 and will run until June 2024, has already achieved significant milestones. Some of the key objectives and milestones include:

  • Designing two new Islamic microfinance products, Salam and Istisnah
  • Developing a guiding toolkit for women-led MSMEs, providing access to credit for agribusiness and other closely related industries
  • Providing training to 50 women and men workers in the microfinance sector on Islamic finance and access to finance for women-led MSMEs
  • Conducting Impact Management and Measurement (IMM) training for senior management of the microfinance sector to foster a culture of impact management

Funding and Support

The initiative is supported by the United Nations Development Programme with a total contribution of $600,100. The project’s ultimate goal is to establish a sustainable mechanism for the microfinance sector in Afghanistan, enabling it to continue providing vital financial services to millions of citizens, particularly women-led businesses.

Conclusion

As the country continues to grapple with economic challenges, this project serves as a critical step towards promoting financial stability and empowering vulnerable populations. The success of this initiative will play a crucial role in supporting Afghanistan’s economic recovery and promoting financial inclusion for all.