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Informal Credit and Microcredit Systems

Founder(s): DFID
Status: Completed

“The binary or contrast of formal with informal credit presupposes an “either-or” choice…There are a number of reasons to be confident that this will not happen.”
Between 2006 and 2010, AREU undertook two research projects that examined the respective roles of informal and microcredit systems in rural Afghan communities.
Evidence suggests that initial attempts to extend microcredit programmes were not informed by an understanding of existing systems of informal credit. Across multiple case studies, the majority of households were seen to be linked in some way to informal credit structures, which were often closely tied to the development and maintenance of social networks. Such exchanges of highly flexible, interest-free credit are used to fund weddings and assist in consumption smoothing and are rarely channeled toward investment. The design of microcredit programmes therefore needs to take place with an appreciation of how such schemes may interact or compete with existing credit systems. This should be accompanied by a shift in focus away from simply extending access to credit in favour of better-targeted programmes that place greater emphasis on the economic viability of clients.

Publications from this research project:

Building a Viable Microfinance Sector in Afghanistan

AREU research on the impact of microcredit on informal credit systems and rural livelihoods illustrated the viability challenges microfinance institutions (MFIs) and their clients were facing. This briefing paper examines the changes the microfinance sector is undertaking, such as the Read More

From Access to Impact: Microcredit and Rural Livelihoods in Afghanistan

Reconstruction efforts in Afghanistan have prioritised access to and delivery of microcredit to stabilise livelihoods. Since 2003, over US$569 million in microcredit loans have been delivered to over 440,000 urban and rural clients. This paper from AREU examines the effect Read More

Microcredit, Informal Credit and Rural Livelihoods: A Village Case Study in Balkh Province

This case study is the third and final in a series of three that examines how the entry of microcredit into village and household economies in Afghanistan affects informal credit relations and livelihood outcomes, either directly or indirectly, through effects Read More

Microcredit, Informal Credit and Rural Livelihoods: A Village Case Study in Bamiyan

Focusing on Bamiyan Province, this is the second case study in a series of three that examines how the entry of microcredit into village and household economies in Afghanistan affects informal credit relations and livelihood outcomes, either directly or indirectly, Read More

Microcredit, Informal Credit and Rural Livelihoods: A Village Case Study in Kabul Province

Focusing on Kabul Province, this case study is part of a series of three that examines how the entry of microcredit into village and household economies in Afghanistan affects informal credit relations and livelihood outcomes, either directly or indirectly, through Read More

Informal Credit Practices in Rural Afghanistan: Case Study 3, Ghor

This the last of three case studies providing insight into how microcredit may intersect with and affect informal credit practices. It also provides insight into the changes in credit practices over time and their impact on socioeconomic relations within a Read More

Informal Credit Practices in Rural Afghanistan: Case Study 2, Kapisa

This report presents findings from fieldwork conducted in Kapisa Province as part of an in-depth credit and debt study undertaken by AREU to explore informal credit practices in rural Afghanistan.

Informal Credit Practices in Rural Afghanistan: Case Study 1, Herat

This is the first of three case studies providing insight into how microcredit may intersect with and affect informal credit practices.

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