BRAC Afghanistan Bank

MIGA has issued a guarantee of $1.5 million to ShoreCap International Ltd. of the Cayman Islands to address the lack of microfinance available to small entrepreneurs in Afghanistan. Another $300,000 is being guaranteed by the MIGA-administered trust fund, Afghanistan Investment Guarantee Facility. The guarantee covers ShoreCap International Ltd.’s $2 million equity investment and retained earnings in BRAC Afghanistan Bank. The coverage, for up to seven years, will protect the investment against the risks of transfer restriction, expropriation, and war and civil disturbance (including terrorism).

The project involves the creation of a newly licensed commercial bank, BRAC Afghanistan Bank, to provide credit and other financial services to the country’s small and medium-size enterprises. BRAC NGO—the bank’s sponsor and Afghanistan’s primary microfinance provider, with 70 percent market share in terms of lenders—is one of the largest microfinance operators in the world.

After more than two decades of conflict, Afghanistan began an enormous political, economic, and social transformation in 2002. Despite some early gains, tremendous challenges remain. Capacity remains uneven and weak overall, systems and procedures rudimentary, though improving, and many areas of the country are seriously affected by conflict. Reconstruction needs are enormous and underscore the need for private sector help in meeting the challenge.

BRAC Afghanistan Bank will provide loans and savings products to micro entrepreneurs and small businesses across Afghanistan. The lack of employment opportunities in war-ravaged rural areas and the disappearance of jobs and low pay in the public sector in urban areas have resulted in the growth of a large number of small, privately owned enterprises, representing a sizeable demand for credit.

MIGA’s participation in the project is aligned with several agency priorities: encouraging investment in conflict-affected nations, and improving access to financing options for small local businesses. The agency’s support for the project is also in line with the broader World Bank Group goals in Afghanistan, particularly in promoting growth of the rural economy, improving rural livelihoods, and supporting the growth of a formal, modern, competitive private sector.