Thursday, August 11, 2005

Aga Khan Agency for Microfinance Helping The Poor Climb Up The Financial Ladder

This is the third in a series of articles about the Aga Khan Development Network. The first was on the Aga Khan Development Network itself, which is the parent organization. The second article was on the Aga Khan Foundation.

The Aga Khan Agency for Microfinance (AKAM) operates in both rural and urban settings, helping poor people from a various cultures, to expand their incomes, improve the quality of life and become self-reliant.

Partnering with several other agencies, such as the Canadian International Development Agency (CIDA), the Microfinance Investment Support Facility for Afghanistan (MISFA) and Kreditanstalt fur Wiederaufbau (KfW), just to name a few, they it offers a range of microfinance services.

In addition to and external organizations, AKAM also works in tandem with other Aga Khan Development Network agencies "to integrate microfinance and maximize synergies with complementary development activities."

The Agency seeks to help people become self-reliant and eventually gain the skills needed to graduate to the mainstream financial markets in order to reach its underlying objectives, which are to: "alleviate economic and social exclusion, diminish the vulnerability of poor populations and reduce poverty."

It says that the underlying principles of this approach are:

Assessment of Impact: Through careful targeting, monitoring and evaluation, AKAM works to maximise the impact on poor communities.

Sustainability: The aim is to cover inflation-adjusted costs through revenues and to generate a modest surplus that can contribute to expanding the range of services and geographical coverage.

Easy Access and Flexible Solutions: AKAM has devised a variety of institutional approaches and instruments that facilitate access and address different contexts, cultures and local requirements.

Efficiency and Transparency: A major focus of AKAM staff is to enhance the quality of credit through clear, detailed lending procedures, well-documented manuals, properly trained staff and the use of best practices that ensure financial discipline and cost control.

Evolution: As a microfi nance programme grows, it can evolve as required by demand and circumstances, from small microfinance initiatives to microfinance banks.

Business Development Services: Loans are accompanied by training in basic business concepts so borrowers can become financially disciplined, self-reliant entrepreneurs.

Partnerships: AKAM works closely with governments, international agencies and professional organisations such as CGAP.

The Agency acknowledges that microcredit can play a critical role in helping the poor to break their economic and social isolation through a "graduation" process often referred to as the "MICROFINANCE LADDER" that takes time but has proven effective.

The first step of this graduation process usually takes the form of an informal business. Here, the borrower purchases a small quantity of goods on credit to sell nearby within days to generate a small profit.

In the next step, the borrower may engage in manufacturing or processing, providing employment for a few family members.

Afterwards, the borrower may initiate a small business, adding significant value to a commercial item. The borrower may at that point employ several people outside the family. This stage is often described as the threshold from which an entrepreneur steps out of poverty; and it is believed to be the level at which real job creation begins to take place.

There is a parallel between the individual ladder out of poverty and the institutional ladder that assists that individual at the various levels:

Initially, there are "entry-level microfinance programmes", usually at the community level;

Next, a there is a "second tier of microfinance institutions" that may offer a range of services, including savings;

Finally, "microfinance banks, which are regulated entities that lend to micro and small enterprises and offer a range of services comparable to those of local commercial banks. (And sometimes these microfinance banks offer a broader range of services than do the commercial banks.)

AKAM's microfinance initiatives are very diverse and range from village lending cooperatives to self-standing institutions, and its rural development programs initiated several of these programs. The Agency is operating programs in Afghanistan, Burkina Faso, Egypt, India, Kenya, Kyrgyz Republic, Madagascar, Mozambique, Pakistan, Syria and Tajikistan as part of an integrated development strategy within each country.

The development strategy may include business or technical advisory/training extension services and business development programs that work directly with local entrepreneurs. They may also include a regulated microfinance bank that offers a much wider range of services.

Some examples of the programs are listed below.

Burkina Faso

In Burkino Faso, a microfinance initiative was begun in 2004 in the Banfora area, home to 70,000 some people. The Banfora area is home to SN-Sosuco, a sugar plantation and refinery that was acquired under the Burkina Faso privatization program by the Aga Khan Fund for Economic Development. This company employs nearly 4000 permanent and seasonal workers farming its own sugar cane plantations and operates the country's largest sugar refinery.

There, the microfinance program is designed to complement and expand the input credit scheme currently managed by SN-Sosuco. This program targets seasonal workers (and the population at large in the area), who often must find other economic activity during the off-season. Credit is available several uses, including: education, health, housing improvement, economic diversification and group credit and emergency loans. AKAM is considering expanding this program to other regions in the country.


In Egypt, partnering with the Social Development Fund, the European Union and KfW, the microfinance program is concentrated in the district of Darb al-Ahmar of Cairo's Historic City. It focuses on the revitalisation of a poor and neglected neighbourhood and damaged by an earthquake in 1992, which is adjacent to one of the Aga Khan Trust for Culture's largest projects, Al Azhar Park.

The Darb al-Ahmar district is home to 250,000 people and the program is meant to support local ownership, stimulate the development of tourism and ensure sustainability of the rehabilitation work. Since the program began a variety of businesses have been either started or further financed; principally within the industries of manufacturing shoes, furniture and handicraft goods. Loans are used to purchase materials for traditional workshops or to create new businesses, such as a dry cleaner and an Internet café. Dilapidated houses are being rehabilitated using housing credits, preserving the historic character of the area while increasing the availability of housing, for which there is a high demand.

As I mentioned earlier, in addition to these programs and others in Kenya, Madagascar, Mozambique and Zanzibar, the Aga Khan Agency for Microfinance also has programs in Afghanistan, India, The Kyrgyz Republic, Pakistan, Syria and Tajikistan.

Microfinance is not an uncomplicated matter; and I am not sure that I did the topic justice, or did justice to Aga Khan Agency for Microfinance. But more information can be found on both subjects at:

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