Afghanistan’s Agricultural Development Fund, a fund set up to help promote the growth of the country’s agriculture sector, has approved loans worth $100 million as of mid-September to farmer associations, cooperatives and micro-financing institutions that lend to agribusinesses and farmers, according to Juan Estrada, chief of party for the USAID’s ‘agricultural credit enhancement programme’ in Afghanistan.
The fund was established in 2010 by government agency USAID, with an initial capital injection of $100 million from the US government, in collaboration with the Afghan government.
Now independently managed, ADF recently received a further commitment of $28.7 million from a European government and is in conversations with other governments about further grant arrangements.
“We want to capitalise the fund to reach $160 million over the next six to eight months and are currently looking for other sources of capital,” said Estrada, who noted, however, it planned to wait on tapping private sector sources.
“ADF will welcome private sector investment in about two years’ time after the fund can show it is self-sufficient, sustainable and can get an assured return,” Estrada said.
Returns on the loans issued range from 5 percent to 17 percent although that depends on the type of borrower. For example, financial intermediaries that on-lend to farmers pay just 5 percent whereas farm associations and cooperative will pay closer to 8 percent and direct agribusiness loans will charge between 8 percent and 17 percent.
“We use these interest levels to ensure that we do not undercut or undermine other lending facilities in the region because we do not want to discourage them,” said Estrada.
ADF expects that its supply of finance will help the agri market in Afghanistan to develop. Currently it is in a vicious cycle, according to Estrada.
“Farmers do not invest in increasing their productivity because they do not have assured markets to sell their products into, but that also prevents the buyers from making concrete plans to increase their own output without being able to secure supply,” he said.
“So the ADF lends to processors so they can provide inputs on credit to farmers and then farmers have secured a market and can improve their production with these inputs. We expect this will promote growth of the industry as a whole,” he added.
Wheat farming is the most prevalent in Afghanistan although ADF also works with producers of dried fruit, nuts and also livestock – dairy, beef, goats and sheep, poultry – and some fresh fruit, vegetables and saffron.