Financing Small and Medium Enterprises in Afghanistan

Abstract

The objective of this study was to investigate Financing Small and Medium Enterprises in Afghanistan. This thesis has been completed with a detailed research result with a set of findings and recommendations for the key stakeholders-Banks, SMEs and the Government. The research included surveys, visits and meetings with owners of SMEs, SME lending banks and financial institutions that lend to SMEs. The data was collected via a questionnaire through Google Forms. SME owners were the main target group for data collection. 385 was selected as sample size because the exact number of SMEs is not determined by GIRoA in Kabul city. Over 400 SMEs were approached and requested for giving their opinions, 327 responses were received. In addition of SMEs, survey with 6 banks and financial institutions was also conducted. According to findings of this study, in Afghanistan, sources of financing SMEs are personal investment, loan from relatives, loan from banks/financial institutions and loan from donors. The survey results show that around 89% of the SMEs need finance for their businesses while only 16% (of 89%) of them have really accessed loans. 63% SMEs responded that financing is critical or very important for their businesses. Banks, financial institutions, donors' programs and some NGOs are providing loans to SMEs in Afghanistan. High rate of interest (21.2% average), lack of support from government, lack of policy/regulation from Da Afghanistan Bank for banks and financial institutions, lack of Islamic loans and SMEs' low capacity in loan processing are the main challenges of SMEs financing in Afghanistan. SMEs are facing lack of access to finance and only a low percentage of them have access to loans.