In Afghanistan, IIFCs Take Root

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KABUL, Afghanistan-Despite weekly, sometimes daily, security risks across parts of Afghanistan, the country's Islamic investment and finance cooperatives (IIFCs), or credit unions, are providing increasing levels of working capital to small and medium-scale business owners and farmers.

WOCCU reported that in the last quarter alone, 30 IIFCs distributed nearly 8,000 loans worth $7.4 million and increased total membership by 10%. WOCCU said it will soon test a new hybrid loan product with the IIFCs that will combine financial leasing and lines of credit to offer larger and longer-term loans to small business owners and farmers in Helmand province.

With funding from the U.S. Agency for International Development (USAID) through its WOCCU-managed Rural Finance and Cooperative Development (RUFCOD) program, the IIFCs have brought in an increasing number of members in high-risk provinces including Helmand, Kandahar and Uruzgan, according to WOCCU, which explained that IIFC membership development officers there work with board members comprised of shura, or community council, leaders, to travel into previously unserved areas and introduce the IIFC to groups of small farmers and business owners. A female membership development officer from Nangarhar province is reaching out to women's groups in the area, WOCCU added.

Recent funding from the U.K. Department for International Development (DFID) will build on the RUFCOD program and allow five IIFCs in Helmand province to test a hybrid loan product that combines financing for equipment leases (ijara) with working capital lines of credit (murabeha). The new product will target entrepreneurs and farmers who have the potential for expansion but lack reliable financial records or collateral to guarantee a loan. Members will be able to access larger and longer-term loans to invest in their businesses, while the IIFCs' ability to recover and resell leased assets will reduce the institutional risk in lending.

WOCCU said it expects the new product will increase loan demand and accelerate IIFC sustainability in the south.

The IIFCs are the first-and only-cooperative financial institutions in the country to offer products and services compliant with Islamic Law. Since helping the first two Afghan IIFCs open their doors in 2005, WOCCU has worked with the Afghan people in 14 provinces to establish a total of 40 IIFCs and points of service, 25 of which are located in the conflict-ridden southern and eastern provinces. Today, the IIFC network boasts a growing membership of 70,047 and US$20.3 million in assets. WOCCU estimates that nearly 45,903 jobs have been created over the past year with IIFC financing.

WOCCU said that in a country with a 28% literacy rate and few people with the financial knowledge and management skills to oversee the IIFCs where they are located, WOCCU has put a heavy emphasis on local training.

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