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New Study Indicates a Drastic Decrease in Availability of Credit in Herat

in Afghan Business

New Study Indicates a Drastic Decrease in Availability of Credit in Herat

The Afghanistan Research and Evaluation Unit (AREU) launched a research paper titled “On Borrowed Time: The limits of informal credit for livelihood security in Herat, Afghanistan” at an event in Kabul on 1 July 2019.

The event was attended by a number of high-ranking government officials, national and international organizations and civil society organizations representatives who discussed in detail the findings of the paper. It should be mentioned that this paper was produced as a result of a joint effort between AREU and the Secure Livelihoods Research Consortium (SLRC) and the Overseas Development Institute (ODI).

Within Afghanistan’s deeply socially embedded economy, informal credit is a key mechanism through which markets operate and through which the distributional economy provides access to land, labor and income for rural households. This study undertakes an in-depth examination of informal credit practices in two villages in Herat that differ in size and economy, exploring how credit operates. In particular, it looks at the ways in which credit is used and negotiated, its interaction with livelihood churning, how credit mechanisms are gendered and the extent to which social relations are underpinned by informal credit.

The study has found that the availability of credit has drastically decreased in recent years. It has linked this to a number of factors such as declining job opportunities in Iran, drought, access to water, longer-term land subdivision and demographic trends that has reduced the viability of agriculture as the mainstay of livelihoods.

The study notes, “Nonetheless, credit access remains widespread with few exceptions (namely opium addicted individuals) and religious norms ensuring loans are cost free and often with indefinite repayment periods enable most households to manage remarkably large debts averaging USD 2500.” The study found that a credit system had stretched to the limit, with poorer households in particular mortgaging their land, exhausting saleable assets and reducing consumption not just in the short-term but for years on end.

According to the study, informal credit systems are also highly gendered with women frequently participating in small in-kind exchange, but access to cash remains limited. The study found “The absence of men through work in Iran has to an extent increased women’s access to credit, as permission to borrow is granted by husbands before departure.” Although women are increasingly accessing credit, the study also noted that “ownership of the loan and responsibility to repay remain with the men and women’s agency is constrained by this as much as a lack of independent earnings and in rare cases, household factors combined with women’s agency and ability to work enables them to circumvent these norms to a degree.”

This paper is one of eight pieces of research conducted in Afghanistan, Nepal, Pakistan, Sri Lanka and Uganda. The study was conducted by the Afghanistan Research and Evaluation Unit (AREU), Centre for Poverty Analysis (CEPA – Sri Lanka), Feinstein International Center (FIC, Tufts University – Uganda), Nepal Institute for Social and Environmental Research (NISER), Overseas Development Institute (ODI) and the Sustainable Development Policy Institute (SDPI – Pakistan).

AREU is an independent research institute based in Kabul that was established in 2002 by the assistance of the international community in Afghanistan. AREU’s mission is to conduct high-quality evidence-based research to inform and influence policy and practice and to actively disseminate the results and promote a culture of research and learning.

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