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| 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. |
Summary of Project Information (SPI) |
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| Project number | 11550 |
| Project name | First Microfinance Bank of Afghanistan |
| Country | Afghanistan |
| Sector | Finance & Insurance |
| Department | Global Financial Markets Group |
| Company name | First Microfinance Bank of Afghanistan |
| Environmental category | FI |
| Date SPI disclosed | June 13, 2002 |
| Projected board date | July 15, 2002 |
| Status | Active |
| Previous Events | Invested: February 17, 2004
Signed: January 16, 2004
Approved: October 31, 2002 |
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| Project sponsor and major shareholders of project company |
The main sponsor of the project is the Aga Khan Fund for Economic Development (AKFED). AKFED will be the majority shareholder in First Microfinance bank of Afghanistan (FMBA or the bank), with IFC taking a shareholding of up to 25%. Other investors may join for a minority stake. The bank will be incorporated under the laws of Afghanistan.
AKFED is one of the agencies of the Aga Khan Development Network (AKDN) and is well known to IFC. It will bring to FMBA its expertise deriving from its commercial banking as well as development banking operations worldwide. AKFED is a for-profit institution that promotes sustainable economic development, particularly in Asia and Africa, by investing in projects in industry, tourism, and financial services, often acting as a catalyst for mobilization of other foreign institutional investors into the project. Its approach is to help build economically viable enterprises through long-term equity participation combined with competent professional management, technical expertise, and support. AKFED is currently the lead shareholder in five banks in emerging markets while AKDN has approximately 40 microfinance programs in different countries, including Tajikistan and Pakistan.
IFC has worked with AKFED in over twenty several projects in Africa, Central and South Asia. Most recently, IFC has approved an investment alongside AKFED in the First MicroFinance bank of Pakistan. IFC's experience in these projects has been positive and has indicated that AKFED is a strong and committed sponsor. FMBA will profit from AKFED's experience in microfinance in Pakistan (First MicroFinance bank, Aga Khan Rural Support Program) and its microfinance operations in Tajikistan. |
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| Total project cost and proposed IFC investment |
| The total project cost is estimated at US$3 million equivalent. IFC is expected to invest up to US$0.75 million equivalent for an equity stake of 25% in the bank. |
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| Location of project and description of site |
| FMBA would first establish itself in Kabul and the North Eastern provinces initially catering urban micro and small businesses. It would then expand to gain national coverage. |
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| Description of company and purpose of project |
The project will create the First MicroFinance Bank in Afghanistan after the collapse of the Taliban regime. A technical assistance package will have to be 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 will be incorporated as a full-service financial institution to provide both credit and savings products. Currently, there is an outdated banking legislation in place and the Central Bank lacks supervision capacity. This is likely to change over the next few months with the adoption of a new law. Based upon the new regulations and respective minimum capital requirements for deposit-taking institutions, the final institutional choice will be made.
The project is expected to have a strong development impact as:
(1) It will create the first commercially sustainable micro-finance institution in Afghanistan contributing to the development of micro-finance as a viable and attractive commercial activity, and providing financial services to the poor and underserved.
(2) It will contribute to the reconstruction and economic development of Afghanistan by providing financing to the most dynamic sector of the fledgling economy - micro and small businesses.
(3) It will develop the financial sector by providing basic financial services currently not available in the market. The project will contribute to overall financial sector reform by giving an example of a best-practice institution and supporting the Interim Authority in developing the evolving legal and regulatory framework.
IFC Role: Through this small, yet important investment, IFC will participate in a pioneering effort to establish the first private sector, commercially oriented, microfinance institution in Afghanistan. The project aims to establish a successful model microfinance institution that can be replicated over time in Afghanistan. The expected increase in the supply of credit will positively impact currently underserved micro and small businesses. Working alongside AKFED, IFC will ensure that FMBA is commercially oriented and operates using international best practice to achieve full financial accountability, sound corporate governance, high quality management information systems (MIS), and strong policies and procedures. IFC assistance has been requested by AKDN to help in the identification and implementation of best practice MIS. By investing in Afghanistan at a critical time in a new financial institution, IFC will demonstrate its support for the Interim Authority's economic program to tackle crucial economic problems. IFC’s investment is expected to provide an important and positive signal to both foreign and domestic investors. |
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| Environmental and social issues - Category FI |
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: |
Peer Stein, Senior Investment Officer
Email: pstein@ifc.org
Momina Aijazuddin, Investment Officer
Email maijazuddin@ifc.org |
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