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| Summary of Project Information (SPI) |
| This Summary of Project Information is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only. |
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| Project number | 24710 |
| Project name | First Microfinance Bank of Afghanistan - Standby Revolving Facility (SRF) |
| Country | Afghanistan |
| Sector | Finance & Insurance |
| Department | Global Financial Markets Group |
| Company name | First Microfinance Bank of Afghanistan |
| Environmental category | FI-1 |
| Date SPI disclosed | November 22, 2005 |
| Projected board date | December 25, 2005 |
| Status | Completed |
| Previous Events | Signed: June 26, 2006
Approved: June 7, 2006 |
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| Description of company and purpose of project |
The First MicrofinanceBank, Afghanistan (FMBA or the company) is the first licensed microfinance bank in Afghanistan after the collapse of the Taliban regime. The bank has been incorporated as full service commercial bank with micro finance being the main focus and is supervised by the central bank Da Afghanistan Bank (DAB). The sponsor of the venture is the Aga Khan Fund for Economic Development, AKFED, with additional shareholding taken by KFW. The microfinance bank is initially catering to urban micro and small businesses in the Kabul, Pul-e-Khumry and Mazar-e-Sharif, and - as and when security improves - develop a nationwide branch network in the main economic centers with extensions into semi-urban and rural areas. A technical assistance package has been secured from donors in order to overcome some of the short-term constraints imposed by the Afghan environment, in particular with respect to security, gender outreach, the lack of infrastructure, and training of staff. FMBA is incorporated as a full-service financial institution, being able to provide both credit and savings products.
The project involves a credit line from IFC to FMBA for on-lending to micro finance (MF) and small businesses. FMFM is a domestic commercial bank licensed to operate in Afghanistan. It was set up with the equity contribution from IFC and commenced operations in May 2004. It is sponsored by AKFED (51%) with shareholdings by IFC (17%) and Kfw (32%).
The Bank requires financing to grow its loan book which has grown from around $2 million at the end of 2004 to $6.7 million at the end of October 2005. Currently the funding available from local interbank market is minuscule and while FMBA is permitted to accept deposits, the funding it has mobilized consists of short term current deposits denominated in US$. These dollar deposits are volatile and fluctuate. FMBA is seeking a stable base of funding to expand its operations on a solid foundation and a sustainable basis. Therefore, they are reliant on mobilizing funding from international agencies to expand MF lending operations.
FMBA is an existing IFC client. IFC invested $1.0 million in equity as the sponsoring shareholder of FMBA alongwith AKFED in January 2004.
IFC to consider extending a facility of up to $5 million, to be denominated in US dollars, with a maturity of 3-5 years. The IFC credit facility is proposed to be structured as a "standby revolving facility” (SRF) to assist FMBA in using its low cost deposit base without running serious liquidity risk. |
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| Project sponsor and major shareholders of project company |
| The main Sponsor of FMBA is AKFED (51%) whereas other shareholders include Kfw (32%) and IFC 17%. With AKFED, IFC is currently involved in 20 portfolio projects involving an IFC investment in debt/loans and quasi-equity. More than half of these projects are in Africa with a couple in Bangladesh and one in Kazakhstan. IFC has also invested with AKFED in the First Microfinance Bank of Pakistan and the First Microfinance Bank in Tajikistan, which are handled by the financial institutions group of Aga Khan Agency for MicroFinance (AKAM). Operating in both rural and urban settings, AKAM programs have helped poor people -- from a variety of cultures -- to expand their incomes, improve the quality of life and become self-reliant. They have helped returning Afghan refugees start and expand businesses. |
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| Total project cost and proposed IFC investment |
| IFC is considering to extend upto $5.0 million standby revolving facility to FMBA with 3-5 years maturity. |
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| Location of project and description of site |
| First Micro Finance Bank of Afghanistan is head quartered in Kabul, Afghanistan. The head quarter is located in the city center. It currently has four branches : 2 in Kabul, 1 in Phol-e-Khomri and 1 in Mazar-e-Sharif. IFC’s facility will be utilized to expand FMBA’s micro finance operations in all the areas in Afghanistan where it is operating. |
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| Project Development Impact and IFC's Role |
- Development Impact:
The project is expected to have a high impact on the country’s economic development. Afghanistan has endured more than 25 years of war and civil strife with devastating results. When the Taliban regime fell in 2001, the country was ranked as one of the poorest in the world. The financial sector, like all other sectors in the economy, had collapsed. The Afghan polity and economy is recovering slowly. Through financing, the project will stimulate economic activities of the country’s poorer citizen’s (about 53% of Afghanistan’s 30 million people live on less than $2 per day) especially women, thus providing these entrepreneurs hope and opportunity. Over the next two years (2006-2007), the Bank intends to grow its portfolio to $34 million from currently $6.0 million which is expected to give a strong outreach to over 34,000 households through a network of 14 branches. Additionally, the bank is considering to target smaller and medium sized companies with critical working capital for their day-to-day operations as well as longer-term funding needed to re-establish and grow their businesses. The project will also broaden and deepen access to financial services in Afghanistan as many of the recently established banks are still reluctant to extend credit. By formalizing and conducting its activities as a bank, the project will further strengthen the nascent banking system and serve as a “best practice” for other existing banks. Finally, the proposed structure will enable the Bank to use the existing liquidity available in the country which will encourage the deposits mobilization locally and thus encourage savings in the country.
- IFC Role:
This is a “high development” impact project. IFC’s role in this project is strong. Through this small, yet significant investment, IFC will support the Afghanistan Government’s strategy of promoting microfinance as an instrument of poverty alleviation. IFC is already 17% shareholder in the Bank, providing it both equity capital as well as additional debt funding to grow its operations. IFC has already arranged technical assistance funds and is expected arrange few more technical assistance funding going forward to help strengthen the bank. The future Technical assistance is proposed to be sourced from IFC’s PEP-MENA Facility, which already has an operational program in Afghanistan and has visited the Bank for “needs assessment” of the Bank. |
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| Environmental and social issues - Category FI-1 |
This is a Financial Intermediary (FI) Type 1 microfinance project according to IFC's environmental review procedure. FMBA will be required to ensure that its operations are consistent with host country requirements and IFC's Microfinance Exclusion List. IFC will assess AKFED's capability to carry out environmental reviews. In addition, the Bank will be required to submit an annual environmental performance report.
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| To contact the project company, please write to: |
The Chief Executive Officer
The First Microfinance Bank of Afghanistan
Street West of Park Shahr-i-Naw, Charahi Ansari, Kabul
Telephone: +93 (0) 79 095 705 |
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