The Credit Union Road to Islamic Finance in Afghanistan


By Jennifer Bernhardt, World Council of Credit Unions

Less than a decade ago, Afghan-owned and controlled financial institutions were but an idea, perhaps a hope. Hamid Karzai had just been elected, and Afghans were about to vote in their first parliamentary election in 30 years. In this context, World Council of Credit Unions was invited to help develop the country’s first credit unions.

Today, a national network of 34 Islamic investment and finance cooperatives (IIFCs) and points of service have given more than 90,000 Afghan men and women the opportunity to start or expand a business, increase their incomes and improve their living conditions. About half of the IIFCs and points of service are located in the south and east, where the insurgency is most active.

Needless to say, the road has not been easy.

World Council’s project in Afghanistan was its first foray into Islamic finance, and there was much to be learned. One lesson has been that there is no one way to provide Islamic finance. Its success depends on the openness to working with local leaders and adapting the “model credit union” to a structure that fits with and respects the culture in which it is established.

The first several credit unions World Council helped set up in Afghanistan were later restructured and renamed as “investment and finance cooperatives” to better align with Shariah-compliant financial principles, including the Islamic prohibition of riba, or interest. As the institutions expanded to the more conservative southern and eastern provinces, they were renamed “Islamic investment and finance cooperatives.” When delinquency in these regions began to soar and membership waned, World Council found that appointing tribal leaders to IIFC boards of directors helped build trust and restore authenticity to the IIFCs.

In an extremely difficult environment, IIFC members have accumulated over $4.5 million in savings shares and have borrowed and repaid more than $74 million to grow their farms and small businesses in the past eight years. As a form of zakat, or Muslim charity, the IIFCs retain 10% of their annual earnings to rebuild mosques, schools and clinics and to provide scholarships for young victims of violence.

Despite the IIFC network’s success, it would be remiss not to say the road ahead remains challenging. Afghans still fear for their safety in many areas, and the country struggles to move forward in an unstable environment that often hinders progress. Nonetheless, the staff of the IIFC Group and individual cooperatives are determined to succeed. And it’s hard to kill the spirit of a cooperative movement when they have seen their hope become reality.

Jennifer Bernhardt

Jennifer Bernhardt

Jennifer Bernhardt is communications manager for World Council of Credit Unions, the global trade association and development agency for credit unions. She leads World Council’s communications efforts to share ... Web: Details