Afghan-owned Credit Unions Stimulate Market Growth in Conflict Areas

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. In the last quarter alone, 30 IIFCs distributed nearly 8,000 loans worth US$7.4 million and increased total membership by 10%. World Council of Credit Unions (WOCCU) 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. 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.

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 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. 

“The IIFC structure is quite different from other microfinance institutions and banks in Afghanistan,” explained Barry Lennon, WOCCU’s senior vice president who oversees WOCCU’s programs in Afghanistan. “The Afghans who become IIFC members each own a piece of these Islamic cooperatives. They see the IIFCs as Islamic financial institutions where they can access fully Shari’a-compliant products and services. The member ownership and the participation of local elders have permitted the IIFCs to penetrate remote rural communities where others haven’t been able to reach.” 

Maintaining close relationships with village elders, religious leaders and local government representatives has been crucial to the IIFCs’ continued growth and stability. When the Islamic cooperatives first branched into the more conservative south and east in 2008, WOCCU staff worked closely with local religious scholars or mullahs to determine how the financial cooperative model could best serve the area in accordance with Islamic principles. The mullahs often had different opinions about what was permitted in the delivery of financial services, but the primary prohibitions were on paying and receiving interest. The mutual ownership and shared risk of cooperative members was inherently in line with Islamic values and helped the IIFCs attract new members and the support of local religious leaders.

IIFCs in the southern and eastern provinces made additional operational changes to comply with more conservative cultural and religious values there. The inclusion of shura members on IIFC boards of directors helps ensure each tribe in the area is represented. Besides building trust and support for the IIFCs, involving community and religious leaders has instilled a greater sense of ownership among members and helped reduce loan delinquency. Shuras have also served as volunteer membership campaigners in high-risk areas.

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. As part of the RUFCOD program, WOCCU is training IIFC employees on financial monitoring systems and accounting procedures so that they can successfully and independently perform their jobs in the future. IIFC financial management software was translated into Pashtu, one of the local languages, to make it easier for employees to use the system.

In November 2009, WOCCU helped organize and obtain a license for an apex association called the IIFC Group that now links the country’s growing IIFC network. The IIFC Group provides operational oversight and technical assistance to IIFC staff. Its nine-member board of directors represents a mix of Afghan intellectuals, government representatives, Islamic scholars and local shura leaders. One woman director represents IIFCs in the north.

“No one dares to visit provinces like Helmand and Uruzgan, but the IIFCs are out there in those rural and highly volatile areas serving the needs of the unbanked,” said Mahir Momand, IIFC Group CEO and director of risk management. “IIFCs have not only helped in the economic development of rural communities at large, but they have also created jobs for those who might otherwise be recruited by the insurgency.”

WOCCU began developing IIFCs in Afghanistan in 2004 with funding from the Microfinance Investment and Support Facility for Afghanistan (MISFA). WOCCU’s current USAID-funded RUFCOD program is increasing access to Shari’a-compliant financial services among small and medium-scale business owners, farmers, low and medium-income households and women primarily in southern and eastern Afghanistan. With DFID funding, WOCCU will work with existing IIFCs in Helmand province to develop a hybrid loan product that will offer larger and longer-term investment opportunities to small business owners and farmers.

Learn more about WOCCU’s RUFCOD program in Afghanistan at

World Council of Credit Unions (WOCCU) is the global trade association and development agency for credit unions. WOCCU promotes the sustainable development of credit unions and other financial cooperatives around the world to empower people through access to high quality and affordable financial services. WOCCU advocates on behalf of the global credit union system before international organizations and works with national governments to improve legislation and regulation. Its technical assistance programs introduce new tools and technologies to strengthen credit unions’ financial performance and increase their outreach.

Worldwide, 49,000 credit unions in 97 countries serve 184 million people. In 2009, WOCCU’s technical assistance programs reached 5.9 million people in 16 countries. Learn more about WOCCU’s impact around the world at


Contact: Jennifer Bernhardt
Organization: World Council of Credit Unions
Phone: +1-608-395-2077

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