CAD implements study for promoting financial inclusion of SMEs in Afghanistan

The year of 2014 is a decisive year for Afghanistan: presidential elections will be held and international military forces will complete their withdrawal. The outcome of these events will surely influence the economic development of the country; at the moment business activity is in a stand-by mode, with many investment plans on-hold until post-election time.

A stable political situation and the creation of a more business friendly environment from the side of the government are fundamental, but financial inclusion for SMEs is also critical for economic growth. SMEs in Afghanistan account for 50% of employment within the private sector and therefore are the motor of income generation by creating jobs that contribute to sustained poverty reduction. The total amount of SMEs represents approximately 80-90% of the total businesses and 50% of the GDP.

However, SMEs are extremely underserved regarding financial products, as commercial banks usually do not focus on the SME segment, and microfinance institutions target a different kind of clientele.

In order to tackle the lack of financial inclusion of Afghan SMEs and thus contribute to economic development and poverty reduction, the First MicroFinance Bank Afghanistan (FMFB-A) and the German development bank KfW have commissioned CAD, in collaboration with RSI Consulting, an Afghan-owned company headquartered in Kabul, with the implementation of an SME market assessment. The objective of this study was to gain valuable first-hand data from business owners in 13 priority provinces where FMFB-A is currently operating on the one hand, and other stakeholders at the national level on the other hand.

The SME Market Assessment

The study maps and measures the level and type of demand for financial services among small and medium enterprises in FMFB-A’s defined geographic and market segments, and current barriers to demand and access to financial services. The results focus on how obstacles and opportunities may be addressed by FMFB-A in the near future to develop and expand its SME client portfolio.

The field team of RSI Consulting has interviewed 1,189 businesses across 13 provinces, and conducted focus groups in urban and rural areas of Afghanistan. It has also conducted in-depth interviews with between three and five key informants in each region.

In addition, the international experts of CAD implemented a field visit to Kabul and Mazar, where they implemented interviews with key staff from FMFB-A as well as a number of SMEs, international organizations, Afghan government agencies and business associations.