8002ENUJ­LIRPAOutcomes Quarterly IFC Advisory Services Newsletter featuring Business News, Trends and Results from Emerging Economies 43267 Microfinancing Stimulates Growth and Development in Conflict-affected Afghanistan Mustafa, a young Afghan man, owns and operates "As in any developing economy, the poorer a pharmacy near the Maiwand hospital in Kabul. households and microenterprises need and use He has been in the pharmacy business for the financial services all the time. They save and past 6 years. Starting his business and keeping borrow to take advantage of business opportuni- it going was no easy task -- landlocked and ties, invest in home repairs, and pay expenses mountainous, Afghanistan had suffered from such as school fees and so on. Coming out of war, such chronic instability and conflict during Afghanistan did not have a financial system its modern history, that its economy and to cover them and that is why FMFBA was Mustafa owns and operates a pharmacy in Kabul, Afghanistan. infrastructure were in ruins, and many of its created." says Mr. Muslim ul Haq, the CEO of people had been displaced from their homes. FMFBA. Agency for Microfinance. "My primary concern when I started my FMFBA is Afghanistan's first licensed postwar In December 2006, Mustafa applied for business was how I would finance my operating bank of any kind. It now has a loan portfolio his first loan of AFA 75,000 (US$ 1,500) costs, and, in particular, purchasing stock. At the of more than US$ 17 million, serving more from FMFBA. Before receiving the loan, his time there was virtually no place that I could go than 20,000 clients. IFC provided both working capital was AFA 500,000 but within for affordable loans to start my business. The equity capital and debt funding to the bank to 6 months it had increased by 30 percent to few options available, namely, the moneylenders expand its operations, as well as extensive AFA 650,000. His sales also increased by over were expensive and risky and this was a big Advisory Services to build capacity at the 15 percent. concern for me." explains Mustafa. bank. "My business is growing and I am at a point The ousting of the Taliban in 2001, which "Microfinance is one way we identified to where I am thinking about applying for a second signaled the end of the war, exposed a huge unmet support the return of Afghan refugees and the loan once my first is all paid up. My customer base need for financial services, especially for poor resumption of economic activities in urban and is ever expanding and as such I am buying even people and microenterprises. To address rural areas. We look forward to establishing a more stock. I have even hired someone to help me this issue, IFC and the Aga Khan Fund for sustainable and high-impact institution that and who knows, in a few years I may be giving Economic Development (AKFED) created responds well to the needs of the Afghan people, even more of my people job opportunities." the First Microfinance Bank of Afghanistan creating employment opportunities and helping continues Mustafa. (FMFBA) in 2004. IFC and AKFED were later alleviate social inequities." notes Mr. Jacques joined by Kreditanstalt für Wiederaufbau (KfW). Toureille, General Manager of the Aga Khan EUSSISIHT 1 Microfinancing Stimulates Growth and 4 Measuring Results of Microfinance 7 When a Frontier Market is on the Development in Conflict-affected Projects in Conflict-affected Front Lines: Lessons from a Project Afghanistan Countries Design in Afghanistan 2 5 questions for Mr. Muslim ul Huq, 5 Tajikistan's cotton farmers break 8 From healing emotional scars to CEO of FMFBA, Afghanistan their debt cycle creating economic opportunities in NI 3 Developing the Private Sector in 6 Reconstructing and Rebuilding Sierra Bosnia and Herzegovina Conflict-affected Countries Leone: Supporting Sustainable Private Sector Development Outcomes: Quarterly IFC Advisory Services Newsletter featuring Business News, Trends and Results from Emerging Economies 5 Questions for Mr. Muslim ul Haq, CEO of First Microfinance Bank of Afghanistan (FMFBA) 1) Who are your typical clients? 4) What was the value in working with IFC? Typically our clients are traders though we finance a IFC helped establish FMFBA and continues to be wide range of businesses in agriculture, pharmaceu- our partner, providing both an equity investment ticals, manufacturing and handicrafts as well as and a standby credit line. It provided a US$ 4.5 women-owned businesses such as sewing and million loan which helped us to become a full- tailoring establishments. service financial institution targeting micro and small businesses. Mr. Muslim ul Haq, CEO of First Microfinance Bank 2) What size loans do you give and is there a big We also value the of Afghanistan (FMFBA) demand for such financing? substantial Advisory Services Generally, we can lend up to US$ 1,000 to finance IFC has provided over the the working capital requirements of these growing years. With this advice we businesses. In terms of demand -- yes, there is a were able to develop a big need for our financing. We have disbursed over strategy and business plan, 50,000 loans since we began four years ago and we which included a `gender currently have more than 20,000 clients. lending' component, which We have been working actively to support the focuses on helping to FMFBA focuses on providing Government's campaign to `de-dollarize' the economy improve access to finance Afghani women with access by supporting the use of the local currency, the by Afghani Women. We to finance. Afghani. As a result, we are trying to lend in local also received assistance to train and build capacity currency where possible. of our staff as well as to hire expatriate consultants. 3) What other options for financing are available 5) What impact has microfinance had on the in the country? lives of people in Afghanistan? The banking system collapsed during the war and Microfinancing is one of the main sources of livelihood we were also left without any functioning credit in our country's post-conflict economy. At a sector level, cooperatives and NGO microfinance institutions. last year the Afghan microfinance sector grew at more With the ending of the war, however, options for than 40 percent with more than 250,000 active clients, financing have increased in particular micro- the majority of them women. financing, though there are still a large number of Through micro-financing we are able to reach and Afghans who can not get the savings or credit create opportunities for more than 15 percent of people services they need. classified as very poor. We are also seeing increased employment opportunities for the youth -- the sector itselfalreadyemploysmorethan2,500peopleandmicro- enterprises create employment for thousands of others. APRIL­JUNE 2008 Developing the Private Sector in Conflict-affected Countries as a Way to Attain and Maintain Peace By Nigel Twose and Mary Porter Peshka IFC is active in 52 countries that have outstanding exposure of $2 billion. Our been classified by the World Bank Group investment projects range from microfi- as `conflicted-affected.' We currently have nance and small business, to commercial over 200 staff stationed in 24 of these banking and international corporations. For countries. We work together with the other example, in addition to microfinancing in agencies that comprise the World Bank Afghanistan, we also have investments in Group, as well as various other partners mobile phone services and banking. In including donors and investment clients. other countries such as Iraq, we have (See page 7 for a SmartLesson note about invested in women's entrepreneurship, Nigel Twose and Mary Porter Peshka are co-chairs of IFC's Working Group on Conflict-affected Countries. how we work in conflict countries) banking and the development of specific industries. Advisory Services Our work in conflict-affected countries is Conflict -- most often intrastate -- has Although each conflict-affected country is a critical part of our strategic priority to become a major impediment to development unique in the causes and consequences strengthen our focus on frontier markets and it is likely to remain an issue over the of its conflict, most confront similar -- markets which include many nations medium term. After hostilities cease, a problems, including lack of government affected by war. In the long term, we see country typically has a 40 percent chance institutional capacity, weak and balkanized potential for large scale investments in of relapsing into conflict within five years, business association's, corruption and lack certain countries, and in the more interme- but this risk is significantly lower if the of basic infrastructure. The advice we diate term, our Advisory Services work economy is recovering. There is a unique provide covers a range of issues: ways to helps us add value that goes beyond just role for IFC Advisory Services to contrib- improve the business enabling environ- financing. ute to the development of a sustainable ment, access to finance and working directly To help us meet our strategic private sector in countries that are affected with firms to improve their corporate social goals, a working group has by conflict. Our advisory work is carried responsibility programs for local communities, been formed to prepare out with an aim to increase the quantity among others. The demand for this work is a set of practical and development impact of private growing rapidly -- from 2003 to 2006, the recommendations financing, and at the same time, it has a annual growth rate of Advisory Services (by to further increase direct and growing link to IFC's own value) was more than three times the overall the quantity and investments, which in turn catalyze other annual growth rate for IFC Advisory Services. improve the private flows. No other international development development agency provides this inte- Investments impact of this grated service globally, and so IFC is Since 2000, IFC has made over US$ 5 work. The positioning itself to take an even greater billion in investment commitments to working group leadership role in conflict-affected coun- countries affected by conflict. At the start is expected to tries. of FY08, IFC's total committed exposure in report back in these countries stood at $3.3 billion, with an April this year. Outcomes: Quarterly IFC Advisory Services Newsletter featuring Business News, Trends and Results from Emerging Economies Measuring Results of Microfinance Projects in Conflict-affected Countries Advisory Services are a growing and dynamic business for IFC. Advice is offered to private Some key highlights of the findings sector and governments and the work is · 31 microfinance Institutions or departments were created and/ structured, within IFC, into 5 business lines or branch operations expanded in Afghanistan, Angola, Congo DRC, Sierra Leone, Tajikistan, West bBank and Gaza that address: · 54, 540 loans worth US$ 80,593,030 disbursed in Afghanistan, · Business Enabling Environment Congo DRC, Tajikistan, West Bank and Gaza · Access to Finance · 3,419 active women borrowers and 697 active women · Environmental and Social Sustainability depositors in Afghanistan and West Bank and Gaza · Infrastructure · US$ 958, 885,600 worth of new deposit accounts opened in · Value Addition to Firms Afghanistan, Angola, Congo DRC, West Bank and Gaza; Savings portfolio of US$ 2,270,000 in West Bank and Gaza The advice and training offered to banks · 14 training events delivered in Afghanistan, Cambodia, Tajikistan, West Bank and Gaza Women entrepreneurs in Angola. which provide microfinancing such as the First Microfinance Bank of Afghanistan · 141 people were trained in Angola, Cambodia, Chad, Congo (See pages 1 and 2) falls under the Access to DRC, Lebanon, Sierra Leone, West Bank and Gaza · 23 reports produced in Afghanistan, Cambodia, Congo DRC, Finance business line. Work in this business line supports the Lebanon, Liberia, Papua New Guinea, Rwanda, Sierra Leone, expansion of financial services available to micro and small Tajikistan, West Bank and Gaza businesses and low-income households. Projects and programs · 4 laws/regulations adopted in Cambodia also cover banking, credit bureaus, housing and property · 2 recommendations implemented in Afghanistan and Tajikistan finance, insurance, municipal finance, securities markets, and trade finance. Recently, IFC commissioned an independent evaluation of 13 million in our microfinancing projects in conflict-affected countries. The investment and evaluation was of the 16 projects we have in a selection of financing was enabled conflict-affected countries, namely Afghanistan, Angola, in Afghanistan, Cambodia, Chad, Congo DRC, Lebanon, Liberia, Pakistan, Cambodia and Papua New Guinea, Rwanda, Sierra Leone, Tajikistan, and Congo DRC, and West Bank and Gaza. nearly 190,000 The evaluation covered the 4 year period between July 2003 people were positively and June 2007, during which time IFC spent US$ affected in Afghani- 12,184,574. on Advisory Services projects in the countries stan, and Congo reviewed. DRC. Microfinance client in Cambodia. As a result of Advisory Services for microfinancing projects, the evaluations also showed that among results about US$ For more on how IFC measures results of its programs write to resultsmeasurement@ifc.org or visit: http://www.ifc.org/advisoryresults APRIL­JUNE 2008 Tajikistan's Cotton Farmers Find Ways To Break Their Debt Cycle Nasirullo Babagulov, the general manager of solutions to this MMM Farm in southern Tajikistan, has to drive problem has been over an hour to reach the nearest bank in Kurgan- a key concern Tyube. Jointly owned by its 44 members, MMM in Tajikistan. Farm is unique among other farms in the region -- Fortunately for not only does it count 34 women among its owners, Babagulov, the but MMM is one of the few farms that has closest bank to him remained free from debt to private financiers -- is TojiksoderotBank commonly referred to as "investors" -- since its (TSB), Tajikistan's establishment in 2005. third-largest bank. "These investors are the main cause of cotton TSB has partnered farmers getting into debts that they have a difficulty with IFC's South repaying," notes Babagulov. Tajikistan Cotton Tajikistan's private financiers are often the sole Lending Project source of financing available to cotton farmers. (which is funded by However, their loans (usually for inputs such as the Canadian seeds and fertilizer) is expensive and at the same International time, farmers do Development not always fetch Agency) to develop high enough prices a new loan product for their crop to for cotton farmers MMM farm cotton field. offset these like him. charges. In fact TSB worked closely with IFC to develop credit recent studies risk tools for the farms and also to institute estimate that thorough due diligence procedures. This advice and cotton debts in training enabled TSB's loan officers to assess MMM Tajikistan amount Farm's request for a loan and approve US$ 16,500 to nearly US$ 420 to finance inputs and harvesting costs. million as a result As of December 2007, TSB's cotton loan Women find many opportunities working of this unsustain- portfolio in Kurgan Tyube region has grown to on Tajikistan's cotton farms. able system of nearly US$ 300,000 with loans to 14 farms which financing. With roughly 75 percent of the rural employ over 500 workers, most of them women. population employed in the cotton sector, finding Outcomes: Quarterly IFC Advisory Services Newsletter featuring Business News, Trends and Results from Emerging Economies Supporting Sustainable Private Sector in Sierra Leone Five years after the end of a drawn-out and guarantees against the underlying trade shattering civil war, hope for sustained transactions of three of the country's peace and prosperity prevails in Sierra leading banks, covering the banks' payment Leone. Attention is now focused on risks and helping increase Sierra Leone's reconstruction of infrastructure and share of global trade. As of June 2007 and rebuilding the country's economy. As a since the country became a member in result, IFC is scaling up its activities in the 1962, IFC has committed country and implementing a strategy a total of US$ 54.2 million to projects in which involves working closely with the Sierra Leone from its own account. That government to improve the country's figure is expected to rise as IFC puts in investment climate, strengthen the place an array of Advisory Services and domestic financial sector, finance investment approaches to assist the select private sector companies, country's post-conflict recovery. and support private participation The country is also receiving advice and in infrastructure. These activities training from IFC. For instance, working are being carried out as part of a with the United Kingdom's Department for Celetel phone shop, Sierra Leone. regional initiative -- the International Development, the IFC - conflict-affected countries World Bank Investment Climate team for also creates awareness in government and initiative for Africa -- which Africa is advising Sierra Leone's government the general public about key issues facing also covers the Democratic on how to implement reforms to improve business. The IFC-World Bank Investment Republic of the Congo, the country's investment environment and Climate team for Africa has also began a Central African Republic and on how to remove obstacles to private project to identify public policies and Liberia. sector development. The program will instruments that would attract responsible Some highlights of IFC's work with the government of Sierra Leone international private investment into activities in the country include to simplify customs procedures and ease tax sectors such as mining (in particular an investment, in June 2007, hurdles and other regulatory requirements diamonds) and tourism. The goal is to of US$ 25 million in Celtel that make it difficult or unappealing for improve and increase corporate social Sierra Leone, a mobile phone smaller businesses to enter the formal sector responsibility programs of companies and company. In addition, IFC of the economy. stimulate improved business standards. mobilized a further US$ 25 million An important part of the program Sierra Leone's economic viability depends from other investors to help the is fostering dialogue between the govern- heavily on the success of these reforms. The company expand and upgrade its ment and the private sector. country ranked 160 out of 178 in the 2008 fast-growing networks in the The Sierra Leone Business Forum was Doing Business report, an annual survey country. In March this year, IFC formed to address that need. The forum released in September by IFC and the under its Global Trade Finance provides a platform for the private sector to World Bank that ranks countries on the Program, signed agreements to issue promote investment-friendly policies and ease of doing business. APRIL­JUNE 2008 Shade drying raisins in Afghanistan. When a Frontier Market is on the Front Lines: Lessons from Project Design in Afghanistan advantage. Shindokhani raisins and Afghan nature of the product, world market trends, pomegranates in Kandahar Province capture and existing export experience. the highest value in export markets and have Through value chain analysis, the comparative advantages over Indian and other potential and bottlenecks for export of raisins Asian markets, providing an attractive were analyzed. Attention was turned to shade- opportunity for growth. The project is: dried raisins, particularly the Shindokhani, 1. Supporting farmers in improving the quality which are predominantly grown in the less and quantity of the raisin drying process stable south. Shindokhani capture a significantly and pomegranate fruits management, high value, and have potentially attractive through technology transfer of more export markets in South Asia. The competitive IFC's Private Enterprise Partnership for the efficient drying techniques from lead advantage of Afghanistan in these varieties Middle East and North Africa (PEP-MENA) producer countries; is higher, due to unique climatic conditions; is piloting interventions in the `Value Addition 2. Working with traders to establish or and competition is lower, as production is to Firms' Advisory Services business line strengthen direct links with farmers to limited to a few countries. PEP-MENA decided (which focuses on interventions at a company improve quality control; and to focus on those products where it could level) in several conflict-affected countries. 3. Helping farmers to understand demand in have the strongest competitive advantage, and Mary Porter Peshka and Bas Auer work for key export markets, assess their competi- therefore have the best potential in recovering IFC's PEP-MENA and what follows is an tive position, and identify potential clients. its export base. excerpt from a note they submitted to the SmartLessons Program. The note considers APPROACH TAkEN AND LESSONS LEARNED About the Authors the suitability of the application of this particular business line -- and specifically Bas Auer, Operations Officer, PEP-MENA. Prior to joining IFC "Value-Addition" Projects in IFC in 2005, Bas had gained extensive experience in firm-level assistance -- to further IFC's Conflict-affected Countries private sector development, particularly in areas of small mission in these countries by examining Recover export base: The crucial task of and medium enterprise (SME) support and microfinance. tentative lessons drawn from experience recovering the export base is twofold, and Mary Porter Peschka, Senior Operations Manager, PEP- in designing the Afghanistan Horticulture includes restoring existing export capacity MENA. Mary, prior to joining the IFC, held a variety of Export Clusters Development project. while adapting to changes in the regional and positions in both the public and private sectors, world economy that have taken place during including USAID, the U.S. Department of Commerce, Market Access International Inc., Emerging Africa Gold Afghanistan Horticulture Export Clusters the years of conflict. Because of the importance Inc., and the Banco de Credito of Ecuador. Development Project (AHEC) of agriculture in Afghanistan, PEP-MENA Given the importance of the recovery of the sought, in dialogue with government, key export base to reconstruction and the private sector players, and the donor commu- dominance of agriculture in the Afghan nity to identify agricultural products for The SmartLessons program is a first of its kind in the economy, PEP-MENA is concentrating its which the country could have a relatively World Bank Group. It fosters peer-to-peer dialogue to efforts on enhancing the competitiveness of strong competitive advantage. Raisins were share lessons learned in development-oriented Advisory Services and investment operations through the local firms in agribusiness products where singled out because of the scale and consistency submission of easily accessible, four-page notes. Please Afghanistan has a potential competitive of production, the relatively nonperishable contact the SmartLessons Program at smartlessons@ifc.org Outcomes: Quarterly IFC Advisory Services Newsletter featuring Business News, Trends and Results from Emerging Economies From Healing Emotional Scars To Creating Economic Opportunities In Bosnia and Herzegovina APRIL­JUNE2008 In 1995, when Nejira war-torn nation, the organization has chickens, typically using the animals' milk or Nalic was director of increasingly focused on meeting its clients' eggs to feed their own families and selling the BOSPO, a humani- economic needs. In 1996, the organization -- surplus to repay the loans. But today, that type tarian organization by then it was a Bosnian-chartered nongovern- of customer represents only 55 percent of the that helped women mental organization MI-BOSPO -- received organization's client base; the remainder -- recover from the World Bank funding to explore opportunities now 45 percent and growing -- want to start emotional wounds of for microcredit. By the year 2000, it was or expand businesses and intend to plow the Bosnian war, she registered as a nonprofit microcredit institu- much of their profits back into their busi- visited a female refugee tion. And now, with Advisory Services from nesses once the loans are repaid. in Zivinice, a town in IFC's corporate governance project based in Mirjana Pejic, who with her father, Rudolf, northeastern Bosnia Sarajevo, it is becoming a commercial runs a family restaurant on a mostly wooded and Herzegovina.The microcredit company. 7.5 acres near MI-BOSPO's headquarters in woman,Tifa Patkovic, The changes at MI-BOSPO reflect broader Tuzla, typifies the new breed. She raises fish for had been receiving shifts in Bosnian society. Ten years ago, Bosnia the restaurant in a man-made pond on the therapy, but when was still reeling from war. Places like Zivinice property.The family would like to borrow asked what she would were overwhelmed with refugees, and many 50,000 to expand the business -- among An MI-BOSPO client has opened do if she had money, citizens were living at subsistence levels. other things, by putting up bungalows for a hairdressing salon.she revealed that her Survival -- both economic and emotional -- overnight guests. It's a successful business and concerns were economic as well as emotional. "I was the top priority. Today, while scars remain, hence an attractive investment opportunity for would do what I do best," she said. "I would buy the desperate concerns of the initial postwar MI-BOSPO. But to serve such clients, MI- a goat." days have given way to a focus on economic BOSPO needs to raise more capital and free The encounter made a lasting impression advancement. itself of legal restrictions on how much on Nalic and began a transformation in MI-BOSPO's own client base reflects the nonprofit organizations can spend.Nalic is BOSPO that is still underway. Initially change. In 1997, 90 percent of its clients were determined to do just that. But she insists that established by the Danish Refugee Council to people like Tifa Patkovic in Zivinice. They the organization will remain true to its original provide psychological and social services in the borrowed small sums to buy goats, cows, or mission of helping women. IFC's Advisory Services (AS) have expanded rapidly in scope, geographic coverage and staffing. Currently, nearly one third of the Corporation's staff is engaged in full-time delivery of Advisory Services, with the vast majority based in IFC's regional facilities. IFC Advisory Services and donor partners have provided more than US$ 1 billion in program support to build small enterprises, to accelerate private participation in infrastructure, to improve the business enabling environment, to increase access to finance, and to strengthen environmental and social sustainability. Outcomes IFC Outcomes is a quarterly newsletter on Advisory Services published by IFC. IFC is the private sector arm of the World Bank group, set up with a mission to promote sustainable private sector investment in developing and transition countries, helping to 2121 Pennsylvania Ave., N.W. reduce poverty and improve people's lives. For more information go to www.ifc.org Washington, D.C. 20433 USA Please send your comments to tmoyo@ifc.org