Islamic banking principles behind new microfinance services in Afghanistan

DACAAR’s microfinance programme MADRAC launches new credit services for needy people in rural areas based on the Islamic banking system called 'Murabaha'. Murabaha means 'profitable' in Arabic and is an alternative way to do banking without dealing with often discussed issues of loan interest. With the Murabaha principles, MADRAC introduces new loan products that provide assets instead of cash to the clients.
- Interest is one of the biggest challenges and a risk to the microfinance sector in Afghanistan, especially in rural areas. Particularly in rural communities people reject interest bearing loans and see these as un-Islamic. MADRAC, mainly operating in rural areas, accepted interest issues as one of the challenges and risk to its operation, and after a year we see a need to develop our services according to the needs and requests from people. In order to better provide people with appropriate opportunities, we decided to try Murabaha in four of our areas of operation, MADRAC's manager Najibullah Samim explains.

Initially, Murabaha will be offered through MADRAC offices in Guzara and Pashtun Zarghun in Herat Province, in Khwaja Omari in Ghazni Province and in Mehterlam in Laghman Province. If the provision of Murabaha proves successful, MADRAC will introduce the system in other areas as well.

- If people prefer Islamic banking as the Murabaha-system, and we can thereby better provide them with what they need to improve their lives, then we have an obligation to try this. We will start by offering Murabaha in the coming five months and see how it is received, says Najibullah Samim.

Besides the introduction of new microfinance services, MADRAC has opened two new offices from where microfinance services are offered to men and women in rural and semirural areas of Afghanistan. The newly opened offices are located in northern Pashtun Zarghun in Herat Province, and in Alishing in Laghman Province.

MADRAC has now been operating for more than a year, and is offering microfinance services from six branches in Herat, Laghman and Ghazni provinces to more than 5,500 clients. Two more MADRAC offices in Logar and Parwan provinces are planned to open before the end of 2006.

With the financial support from MISFA, MADRAC plans to reach a total of 35,000 clients during the coming three years. MADRAC aims at becoming self sufficient in 2009.

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