Mid-Term Review of the Microfinance Sector and MISFA in Afghanistan

This report presents an interim status review of the microfinance sector and the role of Microfinance Investment Support Facility for Afghanistan (MISFA). The review was carried out in 2006.

Afghanistan’s microfinance sector has made significant strides in outreach. Review findings include:

• Microfinance has enjoyed strong government and donor support to follow best practices, and build MFI capacity and capital base;
• Client outreach has scaled up rapidly;
• MFIs strive for social impact although they do not explicitly target the poorest;
• High operating cost and focus on achieving wide geographic coverage have delayed sustainability,
• MFIs are heavily dependent on MISFA for loan funds, covering the costs of lending, and building internal capacity;
• Many MFIs can become financially sustainable in the next three years with continued support and an enabling environment;
• MISFA needs to continue to channel funds to MFIs to improve their capacity, outreach, and sustainability.

Finally, microfinance in Afghanistan will have to move away from a short-term action oriented approach to a goal oriented long-term one, requiring all stakeholders to collectively define a vision for the industry and develop a clear roadmap for achieving it.