Finding the Money: Informal Credit Practices in Rural Afghanistan

This study aims to build an understanding of the role that informal credit plays in rural livelihoods. It studies the informal credit practices in three villages, namely Herat, Ghor, and Kapisa in Balkh province of Afghanistan. The report discusses the existence and importance of informal credit and presents eight case studies that illustrate dimensions of informal credit practices accessed and used by poor, middle ranking and rich households. The study lists key issues related to the pervasiveness of informal credit and examines the implications of findings for development of formal microcredit systems. The study concludes with some lessons learned, including:

• Most household do not have access to one or more diverse forms of informal credit systems;
• Use of informal credit systems is very different from that of microcredit;
• Informal credit systems and formal microcredit exclude the effectively poor;
• Formal microcredit can become parasitic on informal credit systems.