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Providing SME Credit in Afghanistan

Analysis and Recommendations for Technical Assistance

By Kirsten Weiss June 15, 2006

List of Acronyms
GDP Gross Domestic Product MFI Microfinance Institution SME Small and Medium Enterprise MoU Memorandum of Understanding NGO Non governmental organization (non-profit) PPP Purchasing Power Parity TA Technical Assistance

Organizations
AIB Afghanistan International Bank ADB Asian Development Bank ALP Alternative Livelihoods Program AFC Afghanistan Finance Company ARMP Afghanistan Rural Microfinance Program BRAC Bangladesh Rural Advancement Committee CHF Community Habitat Finance FINCA Foundation for International Community Assistance MISFA Microfinance Investment Support Facility for Afghanistan RAMP Rebuilding Agricultural Markets Program WHAM Widening Harmonized Access to Microfinance USAID The United States Agency for International Development

Table of Contents
List of Acronyms ................................................................................................................ 2 Organizations .................................................................................................................. 2 Executive Summary ............................................................................................................ 4 Introduction......................................................................................................................... 6 SME Lending An Overview ............................................................................................ 6 The Idiosyncrasies of SMEs ........................................................................................... 7 Institutional Challenges to SME Lending....................................................................... 7 MFI Upscaling ............................................................................................................ 7 Bank Downscaling ...................................................................................................... 9 Fig. 1: SWOT Analysis Lending to SMEs in Afghanistan.................................... 10 Afghanistans SME Sector................................................................................................ 11 Defining Afghan SMEs................................................................................................. 11 Credit Supply to SMEs ................................................................................................. 12 Figure 2: Potential Financiers of SMEs by Loan Size.............................................. 13 Figure 3: Overview of SME Sector in Afghanistan.................................................. 14 Barriers to SME Lending in Afghanistan ......................................................................... 15 Banks............................................................................................................................. 15 Opaque information and lack of management capacity among SME borrowers ..... 15 Weak Legal Infrastructure ........................................................................................ 16 Lack of Insurance...................................................................................................... 17 High Access Barriers ................................................................................................ 17 MFIs.............................................................................................................................. 17 Lack of Funding........................................................................................................ 18 Lack of Technical Know-How.................................................................................. 18 Fig. 4: Barriers to Lending in Afghanistan ............................................................... 19 SME Support Delivery Mechanism .................................................................................. 20 Recommended TA Mechanism within MISFA ............................................................ 20 Recommended Procedures............................................................................................ 20 Fig. 5: Sample Process for Providing Direct Technical Assistance......................... 22 Technical Assistance (TA) Needs................................................................................. 23 Commercial Banks.................................................................................................... 23 MFIs.......................................................................................................................... 24 Funding SME Lending...................................................................................................... 25 Wholesaling Funds........................................................................................................ 25 Guarantee Funds ........................................................................................................... 25 Conclusion ........................................................................................................................ 26 Bibliography ..................................................................................................................... 27 Interviewees ...................................................................................................................... 28

Executive Summary
With less than 2% of Afghan small and medium-sized enterprises (SMEs) accessing formal credit, the demand for credit to SMEs in Afghanistan exceeds supply. Family and friends remain the primary supplier of credit to SMEs, representing a capital bottleneck which restricts the full growth potential of the sector. While banks and microfinance institutions (MFIs) have taken tentative steps to address the SME market, a number of barriers exist that have reduced penetration of the SME credit market by formal financial providers. Key among these obstacles are a lack of capital resources for new lending and low technical capability to build human and systems capacity for financial service providers to address the SME market. These barriers are not insurmountable, even in challenging environments, as banks and MFIs from Bosnia to Bangladesh have proven. In numerous post-conflict and transitional environments worldwide, commercial banks and MFIs have learned that loans can be made successfully and profitably to SMEs if financial service providers are willing and able to change their lending methodologies and focus on building specialized internal capacity. Such change does not come easily and should not be undertaken lightly. Banks must learn to streamline and focus their application and data-collection processes and to decentralize certain key decision-making to the loan officer level, while the loan officers must learn to proactively engage with SME clients and master basic tools for gaining a concise understanding of the financial realities of the business client and their market. MFIs must move in the other direction, relying less on character and loan officer instinct and more on building basic systems for financial data-gathering and analysis. For both MFIs and banks, this represents not only a systems change but also a culture shift, and the latter can only occur when every level of the organization embraces the change. As noted above, capital for SME lending is a key issue. Bank shareholders are unwilling to risk trying new methodologies in an uncertain market preferring to earn their income from fees and services rather than SME lending. Managers of Afghanistans MFIs reported that they most cannot afford to divert funds from their highly successful microfinance lending into SME lending. However, the sheer size and critical economic potential of Afghanistans SME sector represent a tremendous opportunity for banks and MFIs alike. Through greater donor focus on providing capital the fuel for the SME engine and use of innovative leveraging tools, such as guarantee funds and other interventions, the current obstacles can be overcome. The Microfinance Investment Support Facility for Afghanistan (MISFA) is wellpositioned to assist willing financial service providers in making this shift. This microfinance apex institution has in the past facilitated both funding and technical assistance to MFIs, and it has looked with a critical eye at MFI expansion plans unafraid to say no when it thought an MFI was over-extending itself or moving beyond its core competency. However, while MISFA is well-positioned to facilitate funding (and

the monitoring of that funding), MISFA also faces a capital shortage both human and financial and would likely require outside assistance in developing its own SME Capacity-building unit, to support its client MFIs and possibly interested banks - in preparing themselves appropriately for entry into this new market. Effective SME lending in Afghanistan by both MFIs and banks to address the growth needs of this strategically critical sector is possible with the provision of a) focused technical assistance, and b) capital provision and facilitation.

Introduction
This report was undertaken by ShoreBank International and funded by MISFA, the Microfinance Investment Support Facility for Afghanistan. MISFAs strategic objective is to build sustainable Microfinance Institutions (MFIs) that offer competitive, transparent, and effective services, and to this end MISFA has facilitated the delivery of funding and technical assistance to Afghanistans microfinance sector. As several of MISFAs partner MFIs have begun to move to small business lending, MISFA commissioned the following study of Afghanistans SME credit market, with an eye toward determining if MISFA can and should support SME finance. In the course of the study, the most critical barriers to SME lending are touched upon, even though MISFA cannot affect all of them (e.g. a weak legislative environment). However, the focus and recommendations of the paper relate to technical assistance and funding, as these may fall within the purview of MISFA and can help financial service providers get around these external constraints. Thirty in-person, telephone, and e-mail interviews were held with financial service managers and experts in Afghanistan. This research data was then compared to secondary research on Afghanistans SME market (see bibliography) and the authors own observations, for example of local credit committee meetings, to develop a map of the SME credit landscape in Afghanistan and recommendations for expanding credit to SMEs.

SME Lending An Overview


Small and medium-sized enterprises (SMEs) require capital to grow and succeed. In Afghanistan, the primary The demand is source of capital for SMEs remains family and friends a tremendous. Fifteen or so limited resource1. Though MFIs have begun lending to the clients come every day to lower end of the SME market, in the $1,000 range, a gap ask for a loan, without having advertised it between credit supply and demand remains. Numerous There is a [credit] gap. studies2 have cited the inability to source credit as a -- Bernd Leidner, TA constraint upon SME growth. And with an estimated provider to FMFB. 250,000 750,000 SMEs in Afghanistan3 and under 4,000 SME loans made in the last three years, the vast majority of which were small business loans around $1,000 provided by MFIs, a gap does appear to exist.

1 2

Altai Consulting, 237-242. E.g. the following reports: AACCs Business Climate in Afghanistan, The World Banks The Investment Climate in Afghanistan, and UNDPs Market Sector Assessments SME Development. 66% of respondents in AICCs membership survey said lack of credit was a limiting factor in private sector growth. 3 Altai Consulting, 237.

The Idiosyncrasies of SMEs


SME lending is a different animal than lending to large enterprises. SMEs tend to be informationally opaque, lacking financial statements, bank records, and credit histories, and this is certainly true in Afghanistan with its low levels of literacy and education4. The situation makes lending to SMEs difficult for banks, which tend to rely on transactional analysis e.g. analysis of financial statements, ratios, and credit ratings to make their lending decisions. MFIs tend to work better in opaque environments, basing their loan decisions on the credit officers analysis of the borrowers character and business skills rather than relying upon the SMEs internal record keeping5. However, while this works well for microloans, as loan sizes increase the risk also increases, calling for more financial analysis and risk oversight than most MFIs are trained to manage. For both banks and MFIs, due diligence for SME lending needs to take a blended approach of hard financial data and character analysis, with greater reliance on the former as loan sizes increase. Further compounding the challenge, in Afghanistan financial service providers cannot rely upon legal frameworks to protect their rights, e.g. to enforce collateral agreements. Again, MFIs, which typically use group or solidarity guarantees rather than collateral, have an inherent advantage. However, in other parts of the world, banks have learned to get around these barriers to lending. Rather than being hamstrung by a conservative, collateral-based approach, banks in developing countries have increased their base of SME customers by placing greater emphasis in their loan analyses on the borrowers real capacity and readiness to repay. This has been achieved through a heavy focus on construction of cash flow projections by loan officers as well as a know your borrower approach to the SME and its management. For example, TBC Bank and the Bank of Georgia introduced Developing Enterprise Loans (DEL), targeting clients who had outgrown traditional microfinance but had not yet accessed commercial bank funding. From the inception of lending in mid-2000 through the projects conclusion in 2002, a total of $14.2 million was lent to 681 SME clients, with fewer than one percent more than 30 days past due6.

Institutional Challenges to SME Lending


There are institutional barriers to MFI upscaling and bank downscaling, and these also must be taken into account prior to encouraging banks and MFIs to enter the small business market.

MFI Upscaling
To date, MFIs have been highly successful operating in Afghanistans post-conflict environment, with over 150,000 microbusiness clients in only three years of lending7, and an unmatched depth of outreach in rural areas8. As such, it is logical to ask if MFIs could
According to the 2005 CIA World Factbook, the adult literacy rate in Afghanistan is 36%. Berger, 1-38. 6 ShoreBank Advisory Services, CSFP Final Report. 7 MISFA. April 2006 Consolidated Report. 8 As of March, 2006, MFIs were operating in 20 Afghan provinces according to MISFAs March 2006 Geographic Coverage by Provinces report.
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achieve similar results reaching SMEs. In a number of countries and contexts microfinance institutions have successfully upscaled from smaller group-based loans to larger, more individualized loans9. In South Asia, this has typically involved moving from loan sizes of around $300 for group-based loans to small business loans ranging from $1,000 to $2,00010. This process has already begun in Afghanistan, with several MFIs (notably BRAC, ARMP, and CARE) making loans in the $1,000 range. Generally, around the world microfinance NGOs have not entered the upper segment of the SME markets, staying instead with loan sizes of $10,000 or less11. MFIs typically have a hard time accommodating loans over $10,000 and more sophisticated borrowers12. The exception to this is in the Newly Independent States (NIS), where SME demand for credit far exceeded demand by microbusinesses, SME business owners were better educated, and, therefore, demand-driven MFIs made larger-sized loans as a matter of course.13 Not all microfinance institutions are good candidates for the shift to SME lending, which can move an MFI out of its core area of expertise and increase the operational complexity of a developing institution. However, experienced MFIs with strong internal systems may be able to absorb the new approach that SME lending requires, and SME lending can strengthen MFI operations, expanding the institutions market and reducing overall portfolio risk through diversification. SME lending is conceptually different from traditional microfinance lending. Screening of clients shifts from the solidarity group, which vets members, to the microfinance institution, which must vet the client. This difference requires adjustments in both lending methodology and in skills training for microfinance staff. The new lending approach also changes the back-office work of the organization, and this can place strains on liquidity and information management. For all these reasons, small business lending by an MFI must be introduced only after a careful analysis of the MFIs situation and capabilities. SME product development needs to be undertaken with an eye toward proper integration with the MFIs other internal systems from human resources to marketing taking a strategic approach to incorporating SME lending. Though Afghanistans cash-strapped MFIs14 might be eager to introduce small business lending as a way to access donor funds, donor-driven programs must take care that the

Craig Churchills book, Client-Focused Lending, provides an excellent analysis of five MFIs which successfully introduced larger loan sizes: ADEMI, Financiera Calpia, Bank Rakyat Indonesia, Alexandria Business Association, and Cajas Municipales. 10 Chen, Greg. Personal Interview. June 5, 2006. 11 Ibid. 12 Ibid. 13 According to the Microfinance Centre for Central and Eastern Europe and the New Independent States MFC Member Statistics for June, 2003, the average outstanding loan size among their members in Central and Eastern Europe was $2,739, with a range of $374 - $8,731. 14 Personal interviews of MFI managers and Amjad Arbab of MISFA indicated that most MFIs were facing a funding crunch, as donor dollars are starting to dry up for MISFA.

introduction of SME lending not divert MFIs away from their core competency: microcredit.

Bank Downscaling
Institutional barriers to SME lending exist within commercial banks as well. Bank riskmanagement frameworks are ill-suited to SME lending within developing countries, preferring to rely upon collateral (which is typically unavailable or difficult to liquidate in developing nations) rather than upon the loan officers analysis of the SMEs capacity to repay. To manage SME lending, loan officers must be skilled at eliciting information from borrowers with poor records, and banks must learn to trust their loan officers assessments, within the context of effective operations and risk-management systems15. As to the collateral issue, there is extensive evidence that even if small business loans are "insufficiently" collateralized by commercial banks' standards, loans to micro [and small] enterprises can indeed exhibit lower arrears and default rates than loans to large enterprises, provided that a suitable incentive structure is in place and an appropriate credit technology is employed.16 The use of collateral substitutes, such as guarantors, leasing, and the assignment of receivables, may also be used to help mitigate risk. Large, hierarchical banks (characterized as having more than $1 billion in assets) may find it particularly difficult to relinquish authority to the credit officer for this type of lending. By necessity, large banks standardize procedures as much as possible in order to avoid distortions17. Small banks, where upper level managers can more easily monitor loan officers and lending decisions, have an advantage in this regard18. They are able to be more flexible and rely more heavily on the borrowers character rather than standardized financial variables19. However, it should be noted that most banks in Afghanistan have less than $1 billion in assets and may be characterized as small. If they are hamstrung by hierarchy, it is likely more out of habit than necessity.

15 16

Greg Chen, Personal Interview. June 5, 2006. Schmidt, 58. 17 Cole, 6-8. 18 Ibid. 19 Ibid.

Fig. 1: SWOT Analysis Lending to SMEs in Afghanistan


Internal Strengths Weaknesses 1) Funding shortage. To date, only one 1) Experienced operating in chaotic environments, without MFI in Afghanistan is operationally selfsustainable; a strong legal framework; 2) MFI lending decisions are almost 2) Relationship lending methodology suited to Afghan entirely character based SME lending would require some level of financial environment; analysis. 2) Operating in 19 Afghan provinces wide outreach. 1) Ability to extend other financial services to SMEs (e.g. savings, cash transfers); 2) Some banks have provincial branches; 3) Banks have lending policies and procedures which can be adapted for SME lending. 1) Venture capitalists used to doing their own analysis of potential investments; 2) Venture capitalists seek out higher risk investments. 1) Banks are unused to working with businesses with poor records; 2) Banks need some form of collateral; 2) Lengthy pre-qualification process, discourages borrowers from applying; 3) Loan officers are not trained to seek potential clients; rather they tend to wait for clients to come to the bank. 1) Almost no venture capital funding available in Afghanistan. External Opportunities Threats 1) A proposed central bank 1) MFIs have wide geographic regulation would limit the loan outreach, and can reach SMEs in size provided by MFIs to rural areas that banks cannot; $10,000; 2) High demand; 2) If MFIs do not receive 3) Diversification of their portfolio; additional funding for their 4) Increase in MFI income. core programs, making them sustainable, they will not exist to provide SME loans. 1) Greater access to commercial 1) Low demand; capital than MFIs; 2) Lack of a legal framework to 2) Develop relationships with clients protect creditors rights; that can grow to utilize other bank 3) Weak enforcement of services. existing laws; 4) No collateral insurance; 5) Most SMEs lack financial documents required by banks. 1) Provide equity stake in a growing business/industry with potential for high returns. 1) Difficult for VC firm to exit. No capital market to sell business in. If VC firm has good relationship with owner, little incentive to buy out VC firm. Management buyout of a minority stake depletes cash and retards growth (Yancura Interview).

MFIs

Commercial Banks

Venture Capital

Informal Lenders (Family/Friends, shopkeepers)

1) Extensive outreach; 2) Local familiarity with this source of funds.

1) Markup on locally supplied murabaha can run from 10-50% (Altai, 242); 2) Limited amount family funds to lend (ibid).

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Afghanistans SME Sector


Defining Afghan SMEs
The International Finance Corporations Small and Medium Business Development Department defines various business levels as follows: Micro-enterprises up to 10 employees and total assets or total annual revenues of up to US $100,000; Small enterprises up to 50 employees and total assets or total revenues of up to US $3 million; and Medium enterprises up to 300 employees and total assets or total annual revenues of up to US $15 million20. Under this definition, most Afghan businesses that are not microbusinesses would be defined as SMEs. The Afghan private sector is under-developed, with a low percentage of large-scale businesses. On one level, defining SMEs is a moot point. The only business sector being aggressively served by financing is the microbusiness sector (though demand still outstrips supply). In that situation, any lending in Afghanistan above a microloan will result in reaching an underserved market. With per capita GDP (PPP)21 for 2005 at an estimated $80022, it could be argued that any loan over $800 is going to a middle class rather than poor business. The majority of microfinance managers interviewed stated that any loan over $1,000 was a small business rather than micro loan.

Kunduz Flour Mill - A high-end SME

MFIs and banks interviewed tended to define SMEs by One of a chain of dry cleanings stores; a mid-level SME, Kabul the loan size they were willing and able to manage. By their reckoning, SMEs could manage loans between $1,000 $300,000. Interestingly, many interviewees also defined SMEs as businesses with more sophisticated management capacity -businesses where basic records were kept and which had a plan for growth. They also defined the SME market as primarily retail (about 90%), with some manufacturing and almost no services. Still, this rather vague definition indicates that banks and MFIs need to do more work defining and segmenting the SME market. A
A small business, Kabul - target of MFI lending?

20 21

Altai Consulting, 11. Purchasing Power Parity 22 CIA. The World Factbook.

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focused segmentation analysis will enable further tailoring of products and services over time. Agriculture plays a dominating role in the Afghan economy, accounting for 51% of total GDP and 80% of the labor force23, and though it is largely subsistence-oriented it could be leveraged in such a way as to facilitate both significant economic growth and SME development.24 Altai Consultings 2006 report, Market Sector Assessments, SME Development, identified the following sectors as having high potential for SME growth and development: Poultry: with its low start-up costs, the poultry industry is appealing to those with little means; Cumin and Saffron: Afghanistans climate provides a comparative advantage in the production of these spices; Wheat Products: Wheat is an Afghan staple, and SMEs could play a substantial role in the processing of wheat into products such as cookies, flour, etc.; Cashmere: Though cashmere is produced in great quantities in Afghanistan, the industry is under-developed; Construction Industry: The need for reconstruction in post-conflict Afghanistan is obvious, and this industry touches many sub-industries from roads to transport to building materials. Soaps, Shampoo, and Laundry Detergents: This light industry is feasible for Afghan SMEs and domestic demand for locally produced (and therefore less expensive) products is high; Precious and Semi-precious Gems: While Afghanistan has large deposits of precious and semi-precious stones, extraction is crude and most raw gems are sent to Pakistan for sale. The expectation is that the Afghan government will introduce measures to legitimise the industry, and gem trading, and cutting and polishing activity will grow in the country.25 Unsurprisingly, most of the above sectors are related to agriculture.

Credit Supply to SMEs


Certain MFIs, notably BRAC, ARMP-AKDN, and CARE have breached the $1,000 loan mark. As of April 30, 2006, these MFIs had made over 3,700 loans over $1,000. In addition to this, the First Microfinance Bank (FMFB) is a player in the lower-end SME market, with microloans up to $5,000. BRACs Small Enterprise Loans can go as high as $6,000, and it is expected that when BRAC transforms into a bank in late 2006 it will remain within this range, at least initially. In the mid-range, FMFB has recently introduced SME loans ranging from $5,000 $30,000. The Afghan Finance Company is lending between $7,000 - $250,000, with the
23

RAMP website. The Agricultural Sector, Principle Source of Jobs and Income. http://www.rampaf.com/overview/index.html#sectSector 24 Altai Consulting, 12. 25 Ibid, 13.

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bulk of its loans falling beneath $50,000. And a new player may be entering the market. Tameer Bank has applied for a banking license, with the intention of lending to microbusinesses (with loans to $500) and SMEs (with loans from $500 $1 million.)26 Commercial banks are lending to SMEs on a limited basis, tending to concentrate on the higher end of the SME sector, with loans over $50,00027. Smaller SMEs simply do not have the financial records that banks are looking for, and the pre-approval process for a loan can be daunting. For example, in lieu of consulting a credit bureau for client information (as there is no credit bureau in Afghanistan), National Bank of Pakistan requires potential clients to open up a bank account for 6 months to one year until the bank is comfortable enough with the customer to consider lending. Much like an MFIs step-crediting methodology, NBP starts with smaller loans, providing future larger loans at better terms once the customer has proven himself. In general, Afghanistans banks prefer to deal with larger firms, preferably with an international affiliation, or at least international customers with receivables that can be assigned to the bank. However, the SME lending of the above institutions are constrained both by technical capacity of staff and systems, and in some cases - access to adequate capital resources to take their lending to scale. At each level of the pyramid (see Fig. 2 below), demand for SME credit exceeds supply.

Figure 2: Potential Financiers of SMEs by Loan Size

$50k $300k Upper Tier of SMEs

Served by commercial banks

Served by financing companies, microbanks

$10,000 - $50,000 Loans/Leases Mid-level SMEs

$1,000 - $10,000 Loans/Leases Lower Tier of SMEs

MFIs

26 27

Nadeem Hussain, Personal Interview. OTF Group and CCCA, 22.

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Figure 3: Overview of SME Sector in Afghanistan view


Economic Overview
1. 2. 3. 4. 5. 80-90% of economic activity informal (World Bank, i-ii). Opium production accounts for nearly 1/3 of GDP (ibid). Agriculture accounts for 47% of GDP in 2003 (ibid). Est. 90% of investment in Afghanistan financed through international aid (ibid). Per capita GDP estimated at $800. (CIA, World Factbook)
rd

Definition of SME by the International Finance Corporation Small # of Employees Total assets 10-50 $100k -$3M Medium 50-300 $3M $15M

SME Priority Initiatives


1. Facilitate transfer of SME lending methodologies to commercial banks and MFIs. 2. Expand SME-related investments/funding. 3. Advocate for additional funding to MFIs for core programs. 4. Facilitate guarantee fund mechanisms to banks, financing companies, and MFIs to support SME lending. 5. Advocate for credit bureau development and for improved legal environment for creditors.

Proposed definition of SME Loan for Afghanistan: $1,000 - $300,000

Existing SME Lenders


Credit Facility MFIs (Source: MISFA) ARMP-AKDN BRAC CARE First Microfinance Bank Total # of loans as of 1/31/06>$1,000 Microloans /leases Microloans Microloans Microloans >3,800 To $3,000 Range

Defining Features of Afghanistans SME Market


1. 2. 3. To $6,000 To $1,000 $300 $30k 5. 6. 4. There are an estimated 250,000 750,000 SMEs, indicating that the sector is grossly underserved (Altai Consulting, 237); Regional infrastructure remains poor, increasing the physical costs of lending in rural areas; Most banks are concentrated in Kabul, while the activity of MFIs are primarily outside the capital city (World Bank, 21); Bank pre-qualification process is lengthy and expensive for small businesses, including opening a bank account, registering the business, having a business plan created (usually by a fee-based BDS firm), and assessing collateral (OTF Group, 10); Only 2% of the general public gets credit from banks (Altai Consulting, 242); MFIs remain undercapitalized.

Commercial Banks (Source: OTF Group, 22) Afghan Finance Company (AFC) Afghan International Bank (AIB) Bank Millie Afghan Export Promotion Bank National Bank of Pakistan Pashtany Tejarty Bank Leases Loans Loans Loans Loans Loans Microloans <200 $7500-$250k $50k $4M $50k $1M $50k-$900k $50k-$1M $10k-$2M $5,000

Other Environmental Factors


- Business Environment
Relatively simple regulatory environment; ease of starting a business ranking 16 and paying taxes ranking 7 in the World Banks Doing Business 2006 rankings. However, Afghanistan ranks 122 as to the ease of doing business, 150 for registering property, 153 for getting credit, 145 for protecting investors, and 93 for enforcing contracts.

- Access to Enterprise Support Services


Business training sector is thin; certain business services are available in larger cities, but sustainability in doubt.

- Access to Information
Little well-organized business information, limited access to internet.

Punjab National Bank Total # loans as of 1/31/06 > $1,000

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Barriers to SME Lending in Afghanistan


Banks
The perception of the bankers interviewed was that barriers to SME lending were primarily external, however, many of these external problems might be resolved with new internal systems and methodologies. The four primary barriers to lending reported were: 1. Opaque borrower information; 2. Lack of management capacity of borrowers; 3. Weak legal infrastructure, with little protection to creditors; and 4. Lack of insurance to cover collateral. In addition, it has been observed that the lengthy pre-qualification process demanded by banks acts as a barrier to potential SME borrowers, with the vast majority of borrowers turning instead to informal sources, such as family and friends, rather than bank credit28.

Opaque information and lack of management capacity among SME borrowers


Few Afghan businesses have the capacity to produce detailed historical or proforma financial statements, much less business plans. In secondary research29 and confirmed by interviews, this along with a lack of skilled management was cited as the key barrier to lending to SMEs in Afghanistan. There are two possible solutions to this: change the borrowers, or change the banks through training/technical assistance. With an estimated 250,000 750,000 SMEs in Afghanistan30, in the short to medium term, changing the banks is probably more efficient than training the businesses. Programs in the past (such as USAIDs RAMP program) have linked financial service providers to business development service (BDS) firms, the latter which worked with potential borrowers to create business plans. Currently, USAID has a large SME proposal on the table slated to provide BDS. It is indisputable that skills training for Afghan entrepreneurs is badly needed. However, BDS alone is not enough to successfully inject SME credit into the financial system, for the simple reason that BDS providers work for the SME, not the bank, and are not empowered to determine whether the SME can repay the loan. Though professionally designed business plans and financial projections from BDS providers are helpful to bank officers, the bank must still conduct its own analysis of the potential borrowers character, skills, and capacity to repay. This author has attended credit committee meetings in Kabul, where financial service providers relied too heavily on the information provided by the BDS firm, abdicating their own loan assessment responsibility. If the loan went bad it was someone elses fault. And when the donor-funded BDS project closed, the financial service providers were left floundering, with untrained credit officers unsure how to
28 29

World Bank, 21. OTF Group and CCCA, 8-9 and Altai Consulting 240-241. 30 Altai Consulting, 237 - 242.

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attract clients, and convinced financial analysis in the SME/Afghan environment is impossible. However, in other developing nations with equally opaque and chaotic environments, banks have demonstrated that it is possible to extract relevant financial and client data from SMEs without the benefit of customer-provided business plans or audited financial statements. Trained credit officers from Kenya to the Caucasus31 work with the basic records the SME does have frequently no more than a daily cash book and the credit officers develop simple balance sheet, income statement, and cash flow statements. In the process, the credit officer gets an intimate understanding of the potential borrowers character, business acumen, and potential to repay. According to Mustafa Kazem, Chief Operating Officer of the Afghan Finance Company, You must really know your client and think outside the box as to how to analyze them. There are no financial records, no bank accounts. Everyone is working in an informal manner To lend here, you must have people who know how to ask the right questions and be aware of how things work in Afghanistan.

Weak Legal Infrastructure


Up-to-date legislation on collateral registration, mortgages, We need contract act, land titling, contracts law, and secured transactions does negotiable instruments act, so not yet exist in Afghanistan. This is a serious issue, which that securities or bills that we has exacerbated banks reluctance to lend to SMEs. While get signed from our borrowers development of these laws are currently being addressed can become real securityso by the Afghan government and its central bank, it may be the banks can go to a court of another one to two years before any legislation is passed32. law and ask for their money. Further, bank officials interviewed worried that even if At the time being, nothing as well-written laws were enacted, enforcement would be such exists. They simply understand the mortgage of ineffective. The concern is valid. Many, if not most, their houses or their lands. developing countries face this issue. And again, many These papers are still not valid banks in developing countries have learned to lend in spite legal documents, Syed of it, for example by utilizing collateral substitutes (e.g. Mohmood-ul-Hassan, General pawn, leasing, or the assignment of receivables) or Manager, NBP. supplements (e.g. guarantors with steady, full-time employment). And as important as collateral is, by placing too much emphasis on it SME lending is extremely limited. Banks can increase their SME client base by placing greater emphasis in their loan analyses on the borrowers real capacity and readiness to service commercial loans. For example, in Armenia in the late 90s, where the seizure and liquidation of collateral was questionable, the Armenian Development Bank and INECOBANK loan officers utilized guarantors as a collateral supplement and determined repayment capacity by

31

K-Rep Bank in, Kenya, TBC Bank in Georgia, and Rabita and Azerigas Banks in Azerbaijan are just a few examples of banks that have developed SME lending programs in opaque and anarchic environments. 32 Mark Meassick, Personal Interview.

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constructing financial statements and analyzing the quality of the SMEs management through regular interviews and visits to the business site33.

Lack of Insurance
Afghanistan lacks a strong insurance industry, and this affects banks at several levels, most notably with regards to collateral. Uninsured collateral is unreliable collateral. Unfortunately, this is not the only reason why collateral is unreliable (see Weak Legal Infrastructure, above). Developing a bonafide insurance industry is clearly beyond the capacity of an organization like MISFA. However, until such an industry exists, banks can learn to lend without such reliance on traditional collateral, by focusing on collateral substitutes, character, and repayment capacity.

High Access Barriers


Though banks surveyed were optimistic about untapped demand, it has been posited that Afghan SMEs face extensive access barriers during commercial banks prequalification processes34. According to a study by OTF, Unless the loan pre-qualification process is streamlined, businesses will have few incentives to engage the formal financial sector.35 While the SME market is grossly underserved when it comes to bank credit, that does not mean that banks and other financing institutions should ignore one of the basic tenets of marketing: give the clients what they want. Streamlining processes is also an efficiency measure for banks. Smaller loans shouldnt require the analysis and paperwork that a $1 million loan requires. Policies and procedures for analysis need to balance the requirement for credit officers to have a more intimate awareness and knowledge of client SME operations, with streamlined application and analysis tools, backed by appropriate systems, training, and MIS. Banks need to determine the excact information requirements they need to understand an SMEs capacity to borrow, market potential, and risk. Is a business plan really necessary for a $30,000 loan? Or is it enough that the borrower can articulate a realistic plan for the use of the funds, and the loan officer can reliably construct a cash flow statement demonstrating the clients ability to repay? The work involved in eliciting information from a client, in terms of time and money, may seem daunting. However, according to an article in the Microfinance Centres Fall 2001 newsletter, a few banks try to solve the problem [of SME lending] differently by investing in the development of new relationship management systems to render dealing with small firms profitable. These new systems rely on account analysis, qualitative scoring, call centre filtering, routing clients requests and developing the clients by training them in key areas to make them more profitable (upgrading).36

MFIs
The MFIs surveyed reported two primary barriers to SME lending:
33 34

Fran Toomey, Personal Interview. OTF Group, 10. 35 Ibid. 36 Evers, Jan, 11.

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1. Lack of funding; and 2. Lack of technical know-how. A few MFIs, such as BRAC, CARE, and ARMP, are starting to push past the $1,000 loan size in Afghanistan. Others have stated a desire to move into larger loan sizes due to client demand, but they do not have the funds to do so (e.g. Women for Women). However, all the MFI managers surveyed admitted that a lack of understanding of SME lending was an obstacle to introducing this loan product. When asked why they were considering moving into larger loan sizes, for example, Mr. Najibullah Samim, of DAACAR said: There is a huge demand [for larger loans] from all our offices where we work everybody needs more money and bigger loan sizes, but we have to be careful Even before launch [of] this loan product, I think we need to have an expert or somebody who has good experience in how to start it and how to monitor the project, and also how to define what kind of enterprises need to be helped.

Lack of Funding
MFIs in Afghanistan have made great achievements during their short lifetimes. However, as of this writing, only one, ARMP-AKDN, was operationally self-sustainable (i.e. covering all of its cost with the interest/fee income earned). Perhaps, not coincidentally, ARMP-AKDN also has on average the largest loan sizes among MISFAs partner MFIs37. The other MFIs lack of sustainability at this point in time should come as no surprise. According to a 2005 study by the Microfinance Mix, it takes on average five to seven years for an MFI to become self-sustainable38. However, post-conflict Afghanistan is hardly the average environment for any industry, and it may well take longer for MFIs to become sustainable here. MFIs interviewed reported concerns that they would be unable to divert their current microfinance funds to SME lending without damaging the growth of their core programs. MISFA, on its part is concerned that the microfinance industry continue its upward trajectory and follow lending best practices. A funding diversion might sacrifice both. To offer both small business and microfinance products, most MFIs would need funding for both existing microfinance and new small business loans.

Lack of Technical Know-How


Most MFI managers interviewed recognized the higher risks involved in making larger loan sizes, particularly without the safety net of a large group guarantee, and that their staff and management would require training to assess and manage small business loans. This capacity issue is linked to a general lack of qualified professional staff in Afghanistan. Over two decades of conflict have wreaked havoc with Afghanistans educational system, and the negative impact of this is felt in most professional sectors. Most constraints to SME lending are internal there are not enough people qualified to do the work.39
37 38

MISFA. April 2006 Consolidated Report. Gonzalez, 1 39 Personal interview with Bernd Leidner, TA provider to FMFB.

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Fig. 4: Barriers to Lending in Afghanistan

Barriers to lending to SMEs

Possible solutions

Commercial Banks

1. SMEs opaque financial information/low managerial capacity; 2. Weak legal environment; 3. Low demand; 4. No insurance.

1. Train bank loan officers to lend in opaque environments; 2. Train banks to work within existing environment; 3. Train banks to shorten prequalification period; 4. Train banks to rely less upon collateral.

MFIs

1. Inexperience with risk management of larger loan sizes; 2. Lack of funds for SME lending and core operations.

1. Train Management and Loan Officers to lend to SMEs; 2. Increase funding to MFIs.

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SME Support Delivery Mechanism


Recommended TA Mechanism within MISFA
It should be possible to work within MISFAs existing structure to provide wholesale SME funds and technical assistance to MFIs and possibly to banks as well. MISFA is experienced at managing funds and the provision of technical assistance, knows the market well, and has a history of examining MFI expansion proposals with a critical eye a vital condition given the risk of mission drift to MFIs taking on SME lending. However, MISFA currently does not have the technical capacity to deliver technical assistance (TA) on SME lending. To work within MISFA, therefore, a separate SME unit would need to be set up, bolstered by external SME specialists to train MISFAs local staff. This unit would ideally include within its mandate, the following key objectives: Focused Market Assessment in support of specific MFI objectives, provide support to assist management in understanding the local dynamics of SMEs in the markets they serve or seek to serve; Product Development responding to market demand, technical assistance to MFIs in the design, development, and pilot of viable products for SMEs; Loan Officer and Manager Training practical, hands-on classroom and on-site training in the specifics of loan origination, underwriting, and servicing for SME clients, including basic principles of financial analysis and applications of cash flow tools; Risk Management with an emphasis on both operational and portfolio risk management, to ensure that systems, staff capacity, internal controls, products and policies/procedures are properly aligned to manage the internal and external risks of lending to the SME market in Afghanistan; Capital Facilitation both direct assistance for investment readiness assessment of MISFAs MFI partners, as well as development of strategic partnerships with other donor, public, and private actors to leverage resources in support of expanded SME lending.

Recommended Procedures
The delivery of technical assistance (TA) and possibly of loan capital for SME lending should be demand-driven, and the procedures should partially be determined by whether loan capital is attached to the TA or not. If the TA is attached to funding, then organizations may only reluctantly accept the TA as a precondition to funding, and not fully utilize it. Applicants to grant or guarantee mechanisms would, therefore, have to be carefully vetted to ensure the applicant financial institutions are sincerely motivated and understand the potential risks and rewards of SME lending. If TA is not linked to capital funding, the appetite for TA would likely diminish. However, there are still many organizations happy to accept free training and consulting

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services simply because they are free, rather than because the MFIs or banks have serious plans to lend to SMEs. In order to remove or reduce this distortion and to keep such TA demand-based, it is recommended that organizations go through an application and assessment process for technical assistance, leading to the signing of Memorandums of Understanding (MoU) or Technical Assistance agreements that define the obligations of the TA provider and of the recipient, with, for example, expected timeframes, inputs, and achievable lending targets. Asking the financial service provider to do some work to acquire the technical assistance would not only give the TA provider a better sense of the bank or MFIs motivation, but also enhance the financial service providers commitment to the new SME loan product. The dangers of an unenthusiastic banking partner are highlighted in an IPC paper, Critical Issues in Small and Microbusiness Finance. The author states: the small-scale financing activities were not really considered to be a worthwhile undertaking, i.e. "serious banking business", and, consequently, the worst manager in the entire bank was regularly put in charge of the small-scale lending department, in the hope that his laziness would keep the institution from squandering too much money.40

A Model for Afghanistan? Widening Harmonized Access to Finance (WHAM) is a project sponsored by the United States Agency for International Development to expand outreach of credit services to Pakistans missing middle of small and medium enterprises. Like Afghanistan, Pakistan faces a gap between SME credit supply and demand. Only 7% of Pakistans SMEs are estimated to have any kind of access to formal financing for their business*. To help remedy this, WHAM provides technical assistance to upscale MFIs and downscale commercial banks. It also engages in a range of industry strengthening initiatives.
*Source: SMEs Awaiting Critical Policy Changes. The Dawn, September 19, 2005. pg. 13.

Proposed SME capacity-building activities undertaken by MISFA in support of partner MFIs would follow the process flow detailed in the following diagram:

40

Schmidt, 51.

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Fig. 5: Sample Process for Providing Direct Technical Assistance

Step 1: Expression of interest process and application form.

Step 2: Financial institution self-assessment of readiness for SME lending

Step 3: On-site assessment by TA provider.

Step 4: Develop TA Agreement/MoU to define the roles of the financial institution and the TA provider

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Technical Assistance (TA) Needs


Though both banks and MFIs requested training for their loan officers in analyzing potential borrowers, some elements of the TA required will differ. Banks would be making significantly larger loans than MFIs, for example, and their lending methodologies would, therefore, require more detail and due diligence than at the MFI level. Technical assistance could be provided directly to banks and MFIs, or through a formalized training program, e.g. a bank training academy, which would include SME lending as part of the curriculum. Though the idea of a bank training academy for Afghanistan has been occasionally discussed, to date, a program has not begun, and this is unfortunate. Both banks and MFIs are constrained by a lack of qualified local staff. Without outside assistance in training Afghans to work in financial institutions, the banks will continue to recruit from other South Asian countries to compensate. A longer term approach would be to develop the skills of the indigenous people.

Commercial Banks
Based on proven technical assistance to banks in other developing countries, the following is a list of topics to be considered for SME loan officer training. The aim of these topics is to increase the capacity of SME lending within the bank. A summary outline of a TA program for commercial is as follows: SME Loan Product Design: Developing an SME loan product with a strategic fit to the banks market and current operations. Determining target market, loan sizes, terms and conditions, and collateral substitutes/supplements. Lending to Agricultural SMEs: Understanding and mitigating the risks associated with lending to SMEs along the agricultural value chain. Client Screening for Banks: Techniques in effective SME client interviewing and handling, with a focus on time management and customer service. Introducing initial stage data collection systems and procedures. Focused segmentation analysis will enable further tailoring of products and services over time. Business Analysis & Loan Memorandum Preparation for SMEs: Loan officers learn to spend time with SME business owners to build a relationship with the client, learn the operations, the business environment, and the flow of cash through the business. From this, loan officers practice preparing the information extracted from the SME for presentation to the banks Credit Committee. Cash Flow for SMEs: Loan officers practice approaches to put Afghan SME owners at ease in discussing their financial position. Most Afghan entrepreneurs only keep a basic cash book on their inflows and outflows. The loan officers learn how to build simple financial statements historical and pro forma balance sheets, income, and cash flow statements from this rudimentary information. Financial Statements, Trends, and Ratio Analysis for SMEs: From the financial statements developed by the loan officer, loan officers learn to calculate ratios to determine the financial health of the business. A review of financial

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statements may be covered, according to the needs of the bank(s), so that trends, significant items and overall financial health of a company can be assessed. Marketing for SMEs: Customer service, sales techniques, and marketing plans to reach the Afghan SME market. The loan officer/relationship managers are the primary source of deal-flow, and must learn that they cannot sit behind a desk and wait for customers to come to the bank, but rather are responsible for getting out and building a large and high quality portfolio. Loan Monitoring and Problem Loans: The practices and objectives of loan monitoring, plus problem loan management based on the Afghan context. As the legal infrastructure for enforcing contracts is extremely limited, loan officers must learn unconventional techniques in recovering problem loans, including enlisting the assistance of local/provincial government officials. On-going contact with borrowers and rapid response to changes in behavior are the keys to maintaining a quality portfolio.

MFIs
A summary outline of a possible TA program for MFIs is as follows: Small Business Loan Product Design: Developing a small business loan product with a strategic fit to the MFIs market and current operations. Determining target market, loan sizes, terms and conditions. Screening Clients: Defining basic eligibility requirements of borrowers in order to develop a streamlined, quick, and simple initial and secondary screening processes. The secondary screening process includes on-site appraisals of the business operations and the clients character. Loan officers learn to evaluate the character of the potential borrower through reference checks and to evaluate the business ability to repay the loan. Due Diligence: Loan officers learn to conduct simple due diligence for small businesses. The procedure consists of investigating the following items project description, project cost, business history and description, management experience, suppliers, customers, competition and seasonality of the business. Basic Financial Analysis for Credit Officers: Rather than developing pro forma financial statements, loan officers construct simple financials examining the business ability to repay the proposed loan at its current level of activity without the loan41, taking into account historical averages and seasonality cycles. Lending to Agricultural Businesses: Understanding and mitigating the risks associated with lending to small businesses along the agricultural value chain through product design and portfolio allocations. Marketing the Small Business Product: Staff and management learn creative and low-cost marketing techniques to reach the small business target market. Marketing should be a central part of a loan officers work to build relationships with the clients. Loan Monitoring and Problem Loans: Monitoring is of fundamental importance to the timely repayment of loans and as such needs to be built into the MFIs lending methodology for small business loans. The purpose of monitoring
41

Churchill, 54.

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is to build an honest relationship with the client, to oversee the health and development of the business, and to identify early any adverse factors that might effect the borrowers ability to repay. Portfolio Management for MFI Managers: Managing a portfolio consists of creating, interpreting and using reports of information on the loan disbursements and repayments. MFI managers are exposed to principles of portfolio diversification as it applies to balancing the microfinance and small business loan portfolio as well as diversification by industry and geography. Cost and risk management are also covered, the latter including internal control systems, fraud, and preventative controls.

Funding SME Lending


Technical assistance is a critical part of the SME lending equation, but a dedicated funding source for SME lending is critical as well. Commercial banks view SME lending as high risk, and are reluctant to commit funds, despite the high demand a clear example of market failure where donor intervention is required and appropriate. Most MFIs in Afghanistan have limited access to capital, and do not wish to divert their existing microloan resources to address the new SME market.

Wholesaling Funds
With its experience as a microfinance apex institution, and with some of its partner MFIs moving into the low-end of SME lending, MISFA is well positioned to act as a wholesaler for SME funds, particularly for microfinance institutions. MISFAs existing infrastructure is capable of evaluating funding applications, disbursing funds, and monitoring achievements against SME lending targets.

Guarantee Funds
One possible way to alleviate this funding barrier is through the use of a guarantee fund for both commercial banks and MFIs. Fortunately, a guarantee fund, the Afghan Credit Support Program (ACSP), targeting SME lending in Afghanistan already exists. It is managed by DEG, and the organization is willing to consider expanding its partnerships with financial institutions. ACSP is funded jointly by USAID and KfW. Criteria for MFI/bank eligibility for the ACSP guarantee fund include: The financial service provider will use the guarantee for loans ranging in size from $5,000 $300,000; The financial service provider is strategically oriented towards a long-term relationship with DEG; The financial service provider has the capability, capital, and human resources, outreach, and quality of portfolio to justify the guarantee fund42. Under the DEG, participating banks cover 10% first loss, and the DEG mechanism covers 80% of the remainder.43 For lost interest, the DEG covers the same percentage,
42 43

Interview with Bernd Leidner. For example, if the loss is $10,000, the first loss for the bank is $1,000. The DEG then covers 80% of the remaining $9,000 (i.e. $7,200).

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limited to three months accrued interest. The bank pays a fee to ACSP for this guarantee scheme44. Under this mechanism, loans from MISFA to MFIs for SME lending might be guaranteed45, as well as loans from commercial sources to MFIs. Given the lack of internal funding among MFIs, the option of leveraging an MFIs existing funding is less realistic. Because guarantee funds require a specialized skill set to run and manage, partnering with an existing organization, such as ACSP, may be preferable to starting a new one. For example, guarantee funds run the risk of moral hazard once the borrower or MFI know the funds are guaranteed, incentive to repay declines. Additionally, there is a delicate balance between pushing the bank to do volume and laying back and following the bank into what they are doing. E.g. you could originate the loans yourself and have the bank join you, or you could have the bank originate the loans and join the bank in doing what they want to do, says Bernd Leidner, of DEG. Finally, the DEG is involved in assessing and approving loans an activity which requires significant resources46. MISFA could, of course, introduce its own guarantee fund. However, this would entail further development of MISFAs staff to appropriately monitor and manage it. For this reason, it might be preferable for MISFA to act as a facilitator for the existing ACSP fund instead or somehow leverage the fund to reach the commercial banking sector.

Conclusion
There is no question that key external barriers to SME lending, most particularly a weak legal infrastructure, must be addressed to increase the access of SMEs to credit. However, the barriers to SME lending in Afghanistan are similar to those facing SME lenders everywhere, and as such, they appear surmountable given additional funding, appropriate product design, and loan officer training. MISFA is well positioned to facilitate technical assistance and funding for SME lending to microfinance institutions in Afghanistan. While MISFA has less experience providing support to banks, there are no significant barriers to it doing so, as the work would nicely complement any such with MFIs. As the leading apex provider of capital and assistance to Afghanistans emerging micro, small, and medium enterprise sector, it is recommended that MISFA set up an SME unit, in order to provide TA, facilitate funding to qualified banks/MFIs, and to monitor participating financial service providers.

44 45

Ibid. In the past, MISFA has supplied MFIs with grants for operating expenses and loans for the MFIs operating capital (i.e. for the MFI to relend). As the MFIs become more sustainable, the percent of grants to loans has fallen. 46 Ibid.

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Bibliography
Anonymous. SMEs Awaiting Critical Policy Changes. The Dawn, September 19, 2005. pg. 13. Altai Consulting. Market Sector Assessments, SME Development. UNDP. Kabul, Afghanistan. March, 2006. Balkenhol, B and H. Schutte. Collateral, Collateral Law, and Collateral Substitutes. ILO. Geneva. 1996. Berger, Allen. A More Conceptual Framework for SME Finance. The Federal Reserve. Washington, DC. October, 2004. Churchill, Craig. Client Focused Lending, The Art of Individual Lending. Calmeadow. 1999. CIA. The World Factbook. http://www.cia.gov/cia/publications/factbook/geos/af.html Washington, DC. 2005. Cole, Rebel, Lawrence Goldberg, and Lawrence White. Cookie-Cutter versus Character: The Micro Structure of Small Business Lending by Large and Small Banks. August, 2001. Evers, Jan. What Banks May Want to Learn From You. Fall, 2001 Newsletter, Microfinance Centre for Central and Eastern Europe and the New Independent States. Warsaw, Poland. 2001. Gonzalez, Adrian. How Long Does it Take to Achieve Sustainability? Glimmers from Ongoing Research. Microfinance Mix. http://www.microfinancegateway.org/content/article/detail/24108. March, 2005: 1. Microfinance Centre for Central and Eastern Europe and the New Independent States. MFC Member Statistics. Warsaw, Poland. June, 2003: 2. MISFA. April, 2006 Consolidated Report. May, 2006. Kabul, Afghanistan. OTF Group and CCCA. Situation Analysis of the Afghan SME Finance Cluster. Kabul, Afghanistan. January, 2006. Schmidt, Reinhard. Critical Issues in Small and Microbusiness Finance. IPC. Frankfurt. 1994. ShoreBank Advisory Services. CSFP Final Report. 2002. USAID. RFA No. 306-06-010 APSO ARIES. 2006. World Bank. The Investment Climate in Afghanistan. Finance and Private Sector Development Unit, South Asia Region. December, 2005. World Bank and International Finance Corporation. Doing Business in 2006. International Bank for Reconstruction and Development. 2006. Washington, DC.

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Interviewees
Interviews were conducted in person, by telephone, and by e-mail. Ahmad Zia Baha, Branch Manager. CHF. Amjad Arbab, CEO. MISFA. Meagan Andrews, Project Director. Women for Women. James Blewett, Chief Private Sector Development Advisor, Ministry of Commerce, Islamic Republic of Afghanistan. Hedvig Boserup. Peace Dividend Trust. Greg Chen, Chief of Party. Widening Harmonized Access to Microfinance (WHAM). Pakistan. Muhammad Fahd, Head of Corporate and Institutional Banking. Afghanistan International Bank (AIB). Marilyn Garson, Project Manager, Afghan Business Center. UNDP. John Haye, CEO, Afghanistan International Bank. Rob Henning, Acting Chief of Party. On The Frontier (OTF). Nadeen Hussain, President and CEO, Tameer Microfinance Bank Ltd. (Pakistan). Ruth Jacobs, Program Manager. Women for Women. Raza Shah Kakakhail, Branch Manager. Bank Alfalah Limited. Mustafa Kazem, Chief Operating Officer. Afghanistan Finance Company (AFC). Daan Koppejan, Senior Banking Adviser. AIB. Alexis Lebel, Chief Financial Officer. OXUS Afghanistan. Franck Lefebvre, Country Director. Madera. Bernd Leidner, Director. Afghan Credit Support Program (ACSP). Mark Meassick, Deputy Office Director, Office of Economic Growth, USAID Afghanistan. Syed Mohmood-ul-Hassan, General Manager. National Bank of Pakistan (NBP). Mark McCord, Country Representative. Center for International Private Enterprise (CIPE). Abdul Karim Muradi, SME Loan Officer. First Microfinance Bank. Paul Robinson, Regional Director. Foundation for International Community Assistance (FINCA) Afghanistan. Abdulali Somji, National Programme Manager. Afghanistan Rural Microcredit Programme Aga Khan Rural Support Program (ARMP-AKDN). Glenn Tasky, Advisor to the General Director, Department of Financial Supervision Da Afghanistan Bank, BearingPoint, Inc./USAID Economic Governance and Private Sector Strengthening Project. Fran Toomey, Rural Finance Director, RAMP, Afghanistan. Gerald Turnbull, Chief of Party. Citizens Network for Financial Assistance (CNFA). Pierre Van Hoeylandt, Managing Director. ACAP Partners Ltd Afghanistan Renewal Fund. Faqir Wais, Chief of Operations. ARMP-AKDN. Zakera Wahidi, Microfinance Deputy Program Manager. CARE. John Yancura, Credit and Training Manager. FINCA Afghanistan.

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