The Situation in Afghanistan

Afghanistan remains one of the world’s poorest countries, ranked 182 out of 193 countries and territories in the Human Development Index in 2022. In 2024 UNDP found that approximately 85 percent of Afghans live on less than one dollar a day. The country’s financial sector is largely underserved, with only 10 percent of adults holding an account at a formal financial institution and seven percent having a loan. While the country remains dependent on international assistance, NGOs have withdrawn amid a deteriorating security situation, especially in remote areas.

Microfinance

FMFB-A offers financing, deposit mobilisation, remittances, digital financial services and other commercial banking services while engaging in research, product development and innovation that help increase access to financial services.

Afghanistan was the first country in which AKAM developed finance products for small and medium enterprises (SMEs), supported by a partial guarantee fund from Deutsche Investitions-und Entwicklungsgesellschaft (DEG).

With support from the International Finance Corporation (IFC) and USAID, FMFB-A also developed a housing microfinance loan product with integrated construction advisor services. This promotes better-quality construction, including seismic retrofitting, energy efficiency, sanitation and proper ventilation. This experience is part of a toolkit that has been developed by IFC to help other microfinance institutions across the region.

The Bank is the largest provider of financial services for micro and small businesses and households, with around 15,000 clients in 14 provinces and a portfolio exceeding $22 million, including $16 million in micro and small enterprises. It has disbursed more than 738,000 loans, with a total value of over $1 billion. It also provides financial services to more than 157,000 individual depositors.

These activities are supported by multiple partnerships, including MISFA, a governmental organisation, UN agencies, Islamic Relief Worldwide (IRW), the Aga Khan Foundation (AKF), the International Fund for Agricultural Development (IFAD), Afghanistan’s Ministry of Agriculture, KfW, IFC, FMO and the ASEAN Catalytic Green Finance Facility (ACGF).

Currently, lending in rural areas constitutes about 13.4 percent of the total portfolio value, while SME and corporate constitute 27 percent of loans. Already a major provider of agriculture loans, which represent more than one-third of its portfolio, FMFB-A is launching new products in the agricultural value chain to integrate the various players – input suppliers, implementing partners and institutional buyers – to improve trust, quality, and stable supply and demand. With the support of ACGF, a third-party consultant was engaged to develop Salam and Istisna products offering cash-based shariah-compliant solutions in agriculture- and manufacturing-related transactions.

Following changes in August 2021, the bank submitted its application to the central bank of Afghanistan to receive an Islamic banking finance licence. It commissioned AVIRO Impact, a France-based consultancy firm, to support the development of mandatory policies, Shariah-compliant products and a conversion plan. FMFB-A was granted approval by Da Afghanistan Bank (DAB) for commencement of Islamic Banking Financing in late 2022 and now offers Islamic banking services across 14 provinces and 280 districts.

FMFB-A engaged with the United Nations High Commission for Refugees via AKDN to promote financial inclusion among Afghan returnees and internally displaced people, with 500 beneficiaries. It also engaged with the United Nations Development Programme, the World Food Programme, IRW and AKF in access to finance projects supporting women entrepreneurs engaged in MSME businesses.

Expanding our Reach

FMFB-A has typically depended on its branch network to acquire clients and deliver products and services. Driven by technology developments, competitive factors and increasing focus on operational efficiency, the bank is introducing digital financial services and financial technology. Over the next five years, this investment will reduce operational cost by diverting customers away from ranches to digital channels, increasing customer engagement, and positively differentiating it from competitors. This will ensure a more sustainable future for the Bank and build a solid foundation for new projects and initiatives.