Facing Up to the Challenges for Co-Ops in Afghanistan
Whenever credit union political activists grow frustrated at their work with federal or state legislators, when the doors seem closed or telephone calls go unreturned, they could pause to reflect on the duties performed by Mahir Momand.
Momand is the CEO of the Islamic Investment and Finance Cooperative Group, the organization charged with establishing, growing and representing financial cooperatives, the equivalent of credit unions in Afghanistan. These cooperatives, IIFCs, are financial institutions organized and managed to the tenets of sharia or Islamic religious law. The IIFCs are being founded and grown amid armed conflict.
This means that where credit union representatives in countries with established credit union industries might fight to expand credit union powers or resist attempts to limit them, Momand worries about whether some newly formed IIFCs in some parts of the country can survive their board members threatened, attacked or even killed.
In 2011 alone, Momand reported, 13 board members from IIFCs were killed by insurgents and this has led to a small trend of staff leaving some IIFCs for fear of attack, according to the organization.
“But we are coping with all those challenges and still make remarkable progress,” Momand writes in an email from the organization's headquarters in Kabul, Afghanistan, “as we are in 50% of the 34 provinces of Afghanistan.”
Only allowed under Afghan law since 2005, Momand added that there are currently 41 IIFC's spread across 17 of Afghanistan's provinces and that they have 83,000 members with the equivalent of $5.5 million on deposit in share accounts. They also have the equivalent of $23.3 million in assets, with just over 23,000 borrowers holding roughly 90,000 loans worth almost $20 million in outstanding balances.
But it is the loans where the question of sharia comes up. To comply with the tenets of sharia, a Muslim cannot lend another Muslim money and charge interest on the loan. So what IIFCs and other sharia compliant financial institutions have established are the so-called Murabeha loans.
In a Murabeha transaction, the IIFC buys a property or animal or piece of equipment with a free and clear title. The IIFC and member agree upon a sale price (including an agreed upon profit for the IIFC) that can be made through a series of installments or as a lump sum.
But Murabeha can have snags too. The IIFC cannot be compensated in addition to the agreed upon terms of the contract. If the buyer is late on payments, the IIFC cannot charge late penalties. This can mean that the purchaser, as part of the contract, can build late payments into the contract that are then refunded if the purchaser is never late.
Given the social and political environment, Momand reported that politics and an effective political relationship building become all the more important for the IIFCs. Along with building and maintaining relations with the national government and its ministries, IIFCs have to take particular care to reach out to provincial and local Afghan leaders as well. The IIFC Group also maintains close relationships with the World Council of Credit Unions and the U.S. Agency for International Development.
To this end, in the autumn of 2011, Momand and other executives with the IIFC Group organized tours of IIFCs and opportunities for leaders from the national government and local governments to meet their members.
Momand reported that the visits were meant to create and enhance awareness of the IIFC’s significant role in the economic development of the rural and urban communities among Afghan senators and the Afghan government at large. They also wanted to seek support for the promotion and further strengthening of IIFC’s base from relevant governmental agencies in Balkh, Nangarhar and Kunar provinces.
Such trips are crucially important, Momand explained, because the IIFC Group has taken some pains to help Afghans see the IIFCs as primarily Afghan institutions, created and supported by Afghans.
“Funds and technical assistance to the IIFCs are channeled through the national association,” Momand wrote. “The IIFC Group is an Afghan-led institution and thus in a lot of areas people perceive this as an Afghan initiative rather than foreign.”
The IIFC adopted this strategy both to help forestall the immediate risk of attack and to prepare the institutions for when international troops and assistance are gradually withdrawn.
“It is going to be hard for Afghans and IIFCs particularly should the support be stopped,” Momand wrote. “Although a lot of the IIFCs are designed in a way that they become self-sustainable before the departure of the foreign assistance organizations. What it means is that the IIFCs will not be dependent on donor subsidies and we have made a lot of progress at that end as well,” he added.
Momand explained that the national association is entering into partnership relations with some national and international organizations to keep the flow of funds going to the IIFCs for their growing demand of capital. “We are also forcing saving mobilizations to be able to pay for the increasing demand on the loans side,” he added.
The other focus of the group's relationship building has been to emphasize the IIFCs' local impacts.
As part of the autumn tour, IIFC staff and board members described the different financial services their IIFCs provide to meet the financial needs of various segments of the people such as small businesses, farming and households. The senators also met with some of the borrowers who have benefited from the financial services of the IIFCs.
The delegation had a chance to visit several members of the IIFCs, including women at their residences, and spoke to them about what type of benefits these IIFCs provide to them. On one of the visits, an IIFC member who had been a member of Balkh district branch for over two years, proudly displayed a very fertile and lush field that two years before had been barren. The transformation was made possible by the sweat of his brow and the IIFC.
The senators were impressed with the direct tangible impact, as they saw with their own eyes, as a result of the IIFC’s financial services, Momand reported.
While Momand noted that advocacy in contemporary Afghanistan carries an additional edge that similar work in the countries with established credit union industries would not, there are a lot of similarities as well. For example, just as in the West, Afghan advocates for IIFCs repeatedly sought to educate lawmakers about the work of the IIFC's and to demonstrate their worth and to translate that education into legislative and administrative progress.
This visit of the senators to the IIFCs demonstrates a greater support of the Afghan parliament to the IIFCs in Afghanistan, Momand reported. “IIFC Group will continue its advocacy and lobbying campaign in support of the IIFCs both within the Afghan government and international community to transform the IIFCs into more vibrant and viable Afghan financial institutions,” Momand added.