First Microfinance Bank of Afghanistan

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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 Currently, there is an outdated banking legislation in place and the Central Bank lacks supervision capacity.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.