Key Strategic Areas
Throughout all its activities ACGF carefully considers most pressing development challenges and specific needs in the country.
Access to Finance for Women
According to the World Bank Afghanistan Private Sector Rapid Survey, women-owned businesses in Afghanistan face several significant challenges, including difficulties in accessing inputs, greater financing needs, and limited engagement with regulatory bodies. They are more likely than men-owned businesses to close down in response to challenges, with low demand, lack of funds, and uncertainty about the future cited as the top three constraints. A lack of demand is a particularly acute issue for women-owned firms, which are also less likely to use formal banking channels, with only 2 percent utilizing banks for domestic payments.
ACGF has been committed in supporting its PIs to provide gender-sensitive financing products, e.g. by fostering the development of specific female lending products, increasing guarantee coverage for financings given to female-owned MSMEs to 90%, and considering women as one of its main beneficiaries in its grant and awareness programs. Going forward, the focus on gender-specific financing mechanisms shall enable women to overcome the existing challenges of accessing finance, carefully considering the country specific environment. As of Q2 2024, ACGF has 33.5% share of women in its outstanding guaranteed financing portfolio
Islamic Finance
Islamic banking and financial services and products are relatively new to Afghanistan’s financial and banking system. Since 2021, however, a gradual transition process for the financial sector to fully become Shariah compliant has begun. Islamic financial systems, among other principles, prohibit the payment or receipt of interest and require financial providers to share in the risks of the business activities they finance, following a profit and loss sharing model.
Since 2018, ACGF has been offering an Islamic guarantee product, and following the events of August 2021, it has fully restructured its guarantees and operations to be Sharia-compliant. Due to a relatively low level of financial literacy in Afghanistan, many people lack an understanding of Islamic banking principles. To address this gap, ACGF is actively supporting its PIs by enhancing Islamic banking services and products. ACGF also provides additional financial education to the public, conducting Islamic finance workshops and awareness campaigns.
Agriculture Finance
Access to adequate and timely financing is crucial for the growth and development of Afghanistan’s agriculture sector, particularly for smallholder farmers. Given agriculture’s vital role in driving the country’s economy and supporting livelihoods, ACGF conducted the Agriculture Finance Assessment in 2023/2024 to identify the challenges and constraints in agriculture financing and recommend solutions to address them.
About 70% of Afghans live and work in rural areas, mostly on farms, and 61% of all households derive income from agriculture. Despite a decline in its share of Afghanistan’s overall economy, the sector still employs 40% of the total work force, and more than half of Afghans living in rural areas contribute to agriculture. The agriculture sector accounts for less than a third of GDP due to insufficient irrigation, drought, lack of market access, and other structural impediments.
Agriculture financing in Afghanistan faces significant limitations and challenges. These include limited access to finance for smallholder farmers in remote areas due to distance; financial literacy gaps among farmers hindering effective engagement with financial institutions; vulnerability to seasonal and climate-related risks without adequate risk management tools and insurance options; collateral and credit history requirements that smallholder farmers often cannot meet.
The ACGF is actively addressing these challenges by working to improve the capacity of PI to lend to the agriculture sector. Through tailored TA and outreach fees, ACGF aims to enhance the agri-lending capabilities of PI, enabling them to offer innovative and flexible financial products suited to the needs of MSMEs in the agriculture sector. Additionally, ACGF is focused on increasing the agriculture business volume and the agri-business portfolio share of its PI. By providing risk-sharing mechanisms like credit guarantees, ACGF helps mitigate the risks associated with agri-lending, thereby encouraging PI to expand their reach and provide more financing to the agriculture sector. This strategy not only strengthens the financial ecosystem but also promotes sustainable growth for Afghanistan’s agricultural economy.