Kabul, Afghanistan
Dec. 13 - 14, 2004 With the objective of developing rural credit and addressing the problem of opium debt, the Government of Afghanistan convened a two-day workshop to discuss experience and put forward recommendations for increasing the quality and outreach of the rural financial sector. The workshop, organized by the Ministry of Rural Rehabilitation and Development (MRRD) with support from the World Bank and the UK Department for International Development, particularly focused on the challenges the opium economy presents to rural financial markets. Opening the workshop, the Minister for Rural Rehabilitation and Development, Haneef Atmar, said “the issue of economic growth in rural areas is not just critical for poverty reduction, but also for the dignity of Afghans.” Minister Atmar stressed that the issue of narcotics could be disastrous for Afghanistan. He asked participants, in his remarks, for their help in devising creative solutions. “Please help us save this nation,” he said. Addressing many specialists in the field of rural finance, NGOs, commercial banks, international and bilateral development agencies, as well as representatives of farmers and agribusiness, Minister Atmar said that the poor in rural areas will remain marginalized unless the government comes up with concrete ideas and plans to offer real alternatives to opium debt. During the opening section of the proceedings, the UK Ambassador, Dr. Rosalind Marsden, said that “the UK is already working hard with the Afghan government and its international partners to help support the development of the Afghan economy and tackle the drugs problem, particularly to provide alternative livelihoods in poor, rural areas. The National Counter Narcotics Conference on 9/10 December called upon the international community to provide further assistance. Today's meeting, organized by MRRD with the assistance of the UK and World Bank, is looking at what more we can do to improve access to credit for farmers across Afghanistan and help break the opium debt cycle.” The Country Manager for the World Bank in Afghanistan, Jean Mazurelle, said that “the government has launched a massive rural reconstruction effort which the World Bank and other donors are supporting. Rural finance is a key element in reviving the rural economy, and in supporting the robust and rapid economic growth essential for the country’s development.” Presenters from different organizations articulated options for rural finance promoting alternatives to Afghanistan’s opium economy and presented a map of current practices and challenges for the country. The workshop emphasized the collective effort of the Government of Afghanistan and donors to strengthen ongoing national programs such as the National Solidarity Program (NSP), Microfinance Investment Support Facility for Afghanistan (MISFA) and National Emergency Employment Program (NEEP). Some of the recommendations from the workshop were:
 The creation of a task-force, led by the World Bank and DFID, to look at modeling options for refinancing opium indebtedness. The task-force was also asked to look at options for scaling-up and developing pilot programs.
USAID agreed to seek ways to develop better coordination between all programs to further develop licit alternatives for producers, processors and traders building on the current Rebuilding Agriculture Markets Program (RAMP). DFID will complement the effort on preferential markets.
NSP, MISFA and NEEP will seek to extend activities in the seven largest poppy producing provinces and look at linkages between their programs at the national level.
The World Bank agreed to provide an options paper on the informal financial sector and existing Afghan financial institutions as they relate to developing alternatives to the opium economy.
Speaking at the conclusion of the workshop, Minister Atmar endorsed the recommendations of the workshop and emphasized the need for prompt delivery of actions. Minister Atmar acknowledged the support from the World Bank and DFID in dealing with this important development issue.
The Sessions of the Workshop Objectives: (1) review the current situation in Afghanistan’s rural financial sector, actions that have been taken to provide/enhance rural finance, and options for scaling up, (2) learn about possibilities for further development of rural finance in the light of global experience, (3) assess the challenge of the opium economy with respect to rural financial markets – in particular the issue of opium-related indebtedness, and (4) develop practical ways forward. Audience: Government (including CND), the formal financial sector, MISFA, NGOs involved in rural finance, key international and bilateral development agencies, representatives of farmers and of agribusiness. This event was hosted by the Ministry of Rural Rehabilitation and Development, the UK Department for International Development, and the World Bank.
Brief welcoming remarks by H.E. Ms. Rosalind Marsden, Ambassador of the United Kingdom, and by Mr. Jean Mazurelle, Country Manager for Afghanistan, World Bank Keynote introduction by H.E. Mr Haneef Atmar, Minister of Rural Rehabilitation and Development Session A. Current situation of rural credit supply and demand Chair: Mr. Ehsan Zia, Deputy Minister MRRD Facilitator: Anthony Fitzherbert (MRRD)
Discussant: Christopher Ward (World Bank)
Rapporteur: David Radcliffe (DFID) Background documents: approach paper by Stephen Rasmussen (World Bank), preparatory study by Karri Goldner (DFID consultant) Presentations: Rural finance in Afghanistan (based on DFID preparatory study, supply and demand, lessons for rural financial markets in general and opium in particular, presented by Karri Goeldner, DFID consultant) Overview of the organized financial sector (including microfinance: outreach, issues, prospects etc, presented by Stephen Rasmussen, World Bank with MISFA staff) Building on the informal financial system (bringing hawala and salaam into the mainstream, presented by Samuel Maimbo, World Bank)
Key questions to be addressed in the presentations
1. What is known about demand for rural finance and generally how that demand, or parts of it, are currently being met?
2. Most rural finance supply is presently through the informal system. What do we know about the largest informal provider system, the hawala system, and what could be done to bring it more into the mainstream of the formal sector?
3. Which are the current providers of rural finance? What services are being provided and how much outreach exists? What issues and challenges are being faced? What are the plans and prospects for scaling up? How are these efforts taking into account the need to be sustainable in the future?
Further questions likely to be raised in discussion
4. What is being done to develop the agricultural sector? What particular constraints are being faced and what opportunities exist (e.g. high-value crops)? How does rural finance fit into this picture?
5. What are the gaps between supply and demand and what might be done to address them?
6. How can the major issue of scaling up rural finance to reach most rural areas be addressed? What needs to be done? What can we reasonably expect in the short term?
7. More general question: How can the various suppliers of rural finance contribute to the development of an integrated rural finance system that boost economic growth and also contributes to poverty reduction, in the process addressing some of the challenges emanating from the opium economy?
Session B. Addressing rural finance needs: some case studies Chair: Mr. Ehsan Zia, Deputy Minister MRRD Facilitator: Anthony Fitzherbert (MRRD)
Discussant: David Mansfield (FCO)
Rapporteur: Erick Zeballos (DFID) Scaling up microfinance and small business finance in rural areas: BRAC’s experience in Bangladesh and Afghanistan (presented by Amin ul Alah, BRAC) Rural finance and commercial banks (presented by Olivier Messaert, FMFB-A)
International experience in rural finance relevant to Afghanistan Facilitator: Anthony Fitzherbert (MRRD)
Discussant: Erick Zeballos (DFID)
Rapporteur: Shantini Dawson (MRRD) Presentations: Trends and lessons from global experience with rural finance (experiences from countries with difficult-to-reach remote areas, lack of or poor state of physical and market infrastructure, no banking system in rural areas, etc. Experiences from Europe and Central Asia that were implemented in rural areas: formal financial institutions; set up of a system of financial cooperatives/credit unions; founding of a specialized institution to provide credit to farmers; issues related to existing or new state-owned agricultural banks; linking commercial banks to small “village banks”; set-up of microfinance institutions that also work somewhat in rural area; set-up of a specialized microfinance bank; revolving credit lines for commercial banks attached to larger projects focusing on rural development; support to commercial banks in urban areas in entering rural markets; farmer support centers equipment leasing, possibly leasing of livestock. Presented by Renate Kloeppinger-Todd, World Bank) Supply Chain Financing: Scope for Rural Finance Interventions (Presented by Douglas Pearce, DFID) Key questions to be discussed 1. What specific entry points and ways forward for Afghanistan can international experience indicate? – Considering specifics of Afghanistan such as post-conflict situation, debt overhang, extreme vulnerability, entrenched problems of access to production factors, security and political risk (e.g. from warlords, salaam lenders), lack of support services (extension, business advice).
2. What do we learn from international experience about issues of sequencing, scaling up, gap plugging, etc. relevant to the Afghan situation?
3. What are the international lessons with respect to institutions of rural finance?
4. How does international best practice deal with the problems of integrating rural finance as one among many inputs essential to poverty reduction and rural growth?
5. What are the options in terms of linking finance and marketing, to provide linkages with final demand?
Session D. The specific financing challenges of the opium economy Chair: Dr. Hussaini, Head of Alternative Livelihoods Section, CND Facilitator: Anthony Fitzherbert (MRRD)
Discussant: William Byrd (World Bank)
Rapporteur: Christopher Ward (World Bank) Background document: preparatory study by David Mansfield (DFID Consultant) Presentations: Livelihoods and alternative livelihoods (the livelihoods approach to rural poverty, growth, and poverty reduction, the role of finance in livelihoods strategies with specific application to the problem of the opium economy, presented by David Radcliffe, DFID) The opium economy and rural finance (presentation of preparatory study: characteristics of the opium economy and its financing, debt/land/credit nexus, entry points, presented by David Mansfield, FCO) Opium specific finance products (the opium debt problem in Badakhshan, opium debt buy back, mortgage relief, other possible instruments, presented by Armando Sirolla and Henri Suter, ARMP-AKDN) Key questions to be addressed in the presentations and discussion 1. What are the specific problems of the “opium economy” (different from rural growth in general) that we are trying to solve?
2. What are the RFM [again, better to spell out] components relevant to those problems? (The problem of accessing consumption and production credit; the problem of accessing means of production, including access to land; the problem of vulnerability and consequent growing indebtedness; the problem of finding a viable alternative activity and financing it.)
3. What is the range of situations of opium producers that has to be considered (a typology of opium farmers – resource poor, resource rich etc. – and an idea of their numbers and location)?
4. What prima facie is the relevance of current initiatives in rural finance for the opium economy, and what else may be needed?
5. What are the risks and constraints of existing or potential future instruments to address the opium debt problem?
6. Aside from finance, what are the other components of an alternative livelihoods strategy and how can they be orchestrated along with RFM development?
Session E. Practical ways forward Chair: H.E. Haneef Atmar, Minister of Rural Reconstruction and Development Rapporteur: David Mansfield (FCO) The objective of this session is to develop and thoroughly discuss concrete options for moving forward with (1) effective mechanisms to provide rural finance for the rural economy as a whole (including alternative livelihoods for farmers shifting away from opium poppy cultivation), and (2) mechanisms to address and resolve the opium-debt nexus (in particular the problem that many farmers appear to be deeply mired in opium-denominated debt) which is an important obstacle to progress against drugs. The main areas where some concrete recommendations are hoped for include: a) enhancing formal rural finance mechanisms
b) scaling up current initiatives on a sustainable basis
c) plugging gaps in current provision
d) possibilities for utilizing and channeling informal rural finance
e) integrating rural finance with other factors to revive growth
f) rural finance and alternative livelihoods for poppy farmers who are not deeply indebted
g) options for addressing the problem of deeply-entrenched opium-related debt Introductory remarks, including strategic summary of main points emerging from workshop: John Gordon (DFID) and William Byrd (World Bank) Discussion, with contributions from resource people and the floor Summary, by rapporteur Closing synthesis on findings and concrete steps forward, by H.E. Mr Haneef Atmar, Minister of Rural Reconstruction and Development |
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