Aga Khan Agency for Microfinance

Meaning

These are institutions primarily set up to provide softloans for those who want to open small scale businesses

History and Conceptualization of the Agency

Introduction

Microfinance is the supply of financial services to people living in poverty. These financial services, like those available in developed countries, help individuals to build assets, stabilize consumption, and shield against risks. Citation | title = About Microfinance | year = 2003 | url = http://www.cgap.org/about/faq01.html | accessdate = 2007-11-02] Microfinancing first began as a “fringe activity” in Bangladesh but today affects up to five hundred million people in the developing world while over twelve thousand microfinance institutions are currently in existence worldwide.Citation | first = James | last = Wolfensohn | title = Remarks on Microfinance (Speech at the Palais Des Nations)| year = 2005 | place = Geneva, Switzerland] As an agency of the AKDN, AKAM is strategically placed to complement many of the current programmes and initiatives of the Network. It draws on the microfinancing experience of the Aga Khan Fund for Economic Development (AKFED), which was previously responsible for this. The Fund itself was preceded by the institutions set up by the late Sir Sultan Muhammad Shah Aga Khan III.

AKAM operates in twenty different countries. At the end of its first year of operation it had already opened one hundred branches between South and Central Asia and East Africa, with a workforce of over nine hundred people. Since its establishment in 2004, AKAM has assumed responsibility for microfinance programs and banks that were administered by other agencies within the Aga Khan Development Network (AKDN) for more than 25 years. At the end of June 2006, the agency managed a loan portfolio of over USD $52 million in outstanding microloans to over 97,000 beneficiaries in 12 countries.cite web | title = Microfinance | work = About the Aga Khan Agency for Microfinance | publisher = Aga Khan Development Network | url = http://www.akdn.org/microfinance/about.html | accessdate = 2007-11-02] The agency and its predecessors have made about 183,000 loans totalling over USD $139 million.

The Aga Khan Agency for Microfinance was established in 2004 and formally inaugurated in February 2005 by His Highness the Aga Khan and the former president of the World Bank, James Wolfensohn.cite web | title = Aga Khan Agency for Microfinance: Annual Report 2005 | publisher = Aga Khan Development Network | date = 2006 | url = http://www.akdn.org/microfinance/downloads/microfinance_ar2005.pdf | format = pdf | accessdate = 2007-11-02] The not-for-profit Agency was created under Swiss law, is based in Geneva, Switzerland, and is governed by an independent board of governors chaired by the Aga Khan. The AKAM brings together the vast programming of the AKDN, which has been involved in microcredit since 1946, unifying and consolidating their objectives and principles of development under one institutional umbrella.

The Agency belongs to the Network’s social development branch, which above all, is mandated to espouse an ethic of compassion and sharing of not only material wealth but also intellectual, spiritual, and physical ability.cite web | title = Aga Khan Development Network: An Ethical Framework | publisher = Institute of Ismaili Studies | date = 2000 | url = http://www.iis.ac.uk/SiteAssets/pdf/akdn_ethical_framework.pdf | format = pdf | accessdate = 2007-11-02] As such, the AKAM, which operates in both rural and urban settings, seeks to alleviate poverty by helping to improve incomes and quality of life through various programmes, initiatives, and partnerships. Today, the Agency operates in developing countries including Afghanistan, Burkina Faso, Egypt, India, Kenya, Kyrgyz Republic, Madagascar, Mali, Mozambique, Pakistan, Syria, Tajikistan and Tanzaniacite web | title = Aga Khan Agency for Microfinance: An Agency of the Aga Khan Development Network | publisher = Aga Khan Development Network | date = 2005 | url = http://www.akdn.org/microfinance/downloads/brochure.pdf | format = pdf | accessdate = 2007-11-02] and provides various microfinance opportunities whose “versatility allows it to be adapted to the needs and circumstances of the poor in urban and in rural environments.”Citation | last = His Highness the Aga Khan | title = Remarks on Microfinance (Speech at the Palais Des Nations)| year = 2005 | place = Geneva, Switzerland]

The Microfinance “ladder”

The Microfinance “ladder” refers to the process by which beneficiaries of the microcredit system progress from a state of ultra-poverty and social isolation to breaking away and pursuing an entry level microfinance programme – the first echelon of the microfinance “ladder”. Groups and individuals progress by “graduating” from one level to another. The second echelon is characterized by a tier of microfinance institutions that offer a wider variety of services. The final level involves microfinance banks from which entrepreneurs can access a significant array of services like those offered by local commercial banks. This stage is considered the “threshold from which an entrepreneur steps out of poverty”. The process is lengthy and may involve an entire family, but it is also the level at which “real job creation begins to take place.”

Objectives and Principles

The underlying objectives of the Agency are to “alleviate economic and social exclusion, diminish the vulnerability of poor populations and reduce poverty” so as to make the beneficiaries “self-reliant and eventually gain the skills needed to graduate to the mainstream financial markets”. To articulate its approach, the AKAM has formulated a series of key principles. These are:

#Providing a broad range of microfinance services
#Maximizing impact of programmes through monitoring and evaluation
#Aiming to balance costs with revenue but also generate a modest surplus so as to contribute to the expansion of services and coverage thereof
#Operating alongside other AKDN agencies to draw on their experience
#Utilizing institutional approaches and instruments that facilitate access and address the diversity of contexts and cultures
#Consolidating all practices to ensure that procedures are transparent, efficient and appropriately documented with trained staff
#Focusing on positive growth as required by contexts and circumstance
#Following up with morally responsible advice and intellectual resources to borrowers so that self-reliance and financial disciple is not beyond the realm of possibility
#Drawing on partnerships outside the Network such as governments, international agencies and professional organizations so as to expand the general frame of reference and maximize success

Partners

The Agency draws on support from numerous institutions worldwide for their expertise and resources. The list of international institutions and organizations include, the International Finance Corporation (IFC), Kreditanstalt für Wiederaufbau (KfW), the European Union, the World Bank, USAID, the Japanese Social Development Fund, the Norwegian Fund, Deutsche Entwicklung Gesellschaft, the United Kingdom Department for International Development (DFID), the Asian Development Bank, UNDP and Citigroup.

Programmes, Initiatives and Services

The Agency’s microfinance initiatives are extensive and operate in over twenty different countries. They involve providing business or technical advice and developing programmes that work directly with local entrepreneurs. Many of the Agency’s programmes were originally developed by the Aga Khan Foundation’s (AKF) Rural Support Programme (AKRSP) and Mountain Societies Development Support Programme. With the unification of microfinance activities operated by the AKDN under the Agency for Microfinance, programmes such as the Enterprise Support Facility (a small business programme in Tajikistan) and the microloans sponsored by the Aga Khan Trust for Culture’s Historic Cities Support Programme were consolidated.

In Afghanistan, the Agency operates two programmes. One provides a financial safety net for individuals who have been drastically affected by the Taliban regime. It is known as the Emergency Microcredit Programme and is based in Kabul and Pul-i-Khumri. The other programme is known as the Rural Programme, and provides credits to farmers and traders in rural provinces. In Burkina Faso, the network first began a microfinance initiative in 2004 in the Banfora area and later in Ouagadougou.cite web | title = Microfinance in Burkina Faso | work = Aga Khan Agency for Microfinance | publisher = Aga Khan Development Network | url = http://www.akdn.org/microfinance/Burkina%20Faso/index.html | accessdate = 2007-11-02 ] In Banfora, the Network assisted in acquiring the country’s largest sugar plantation and refinery, which today employs four thousand workers. Similarly, local ginneries in Ouagadougou were acquired by the Network. The aim of both acquisitions was to deliver microcredit and, by extension, provide local populations with needs beyond cotton and sugar.

In Kenya, the Agency is currently working to formulate agro-industrial projects that will create micro-loans for farming, services and retail enterprises, as well as loans to individuals. Eventually, loans for housing improvement, education and health will also be possible. In the Kyrgyz Republic, the Agency’s activities have been very popular and from 2005 to 2007, over three thousand loans have been disbursed motivating plans to establish a self-standing microfinance bank there in the near future. In Madagascar, AKAM oversees the Fanasoavana programme, which provides loans to poor families. Given the ever-changing political and economic environment in the country, the Agency is in the process of transforming the programme to dispense through commercial banks and find ways in which to develop a broader microfinance programme. Between Kenya and Mozambique, the Agency works closely with the Coastal Rural Support Programme (CRSP),cite web | title = Aga Khan Foundation: Annual Report 2005 | publisher = Aga Khan Development Network | date = 2006 | url = http://www.akdn.org/akf/AKF%20Annual%20Report%202005.pdf | format = pdf | accessdate = 2007-11-02] which aims at improving not only food security, education and health, but particularly income generation from the granting of loans to fishing cooperatives and farmers in order to raise their incomes in the long run.

In Pakistan, the Aga Khan Rural Support Programme (AKRSP) has been the Network’s key provider of microfinance services since 1982, having impacted over three thousand two hundred sixty village organizations, particularly in the Northern Areas and the Chitral district of Pakistan. In 2003, the AKDN launched its first series of microfinance facilities in five different provinces in Syria. The programme seeks to positively affect the income-generation of small-scale agricultural and industrial enterprises as well as housing rehabilitation. In Tajikistan the Mountain Societies Development Support Programme and the Enterprise Support Facility have made up the country’s chief microfinance initiatives since 1993. The former served over twenty thousand Tajik farmers during the difficult transition following the collapse of the Soviet Union. Meanwhile, the latter helped numerous business men and women launch various small businesses. In 2004, both programmes were absorbed by the First MicroFinanceBank – the first of its kind in Central Asia, which is currently in the process of expanding and by 2010, is expected to have twenty five branches nationwide.

The Microinsurance Initiative

The Microinsurance Initiative of the AKAM is funded by a USD $5.5 million grant from the Bill and Melinda Gates Foundation. It helps safeguard against a losses of savings incurred from emergencies, such as the death of a major family breadwinner.cite web | title = Bill & Melinda Gates Foundation Awards Grant to Aga Khan Foundation U.S.A. for an Initiative In Microinsurance | publisher = InterAction | date = 2006 | url = http://www.interaction.org/newswire/detail.php?id=4736 | accessdate = 2007-11-02] The Agency is currently in the process of creating a replicable model that is “financially sustainable in multiple socio-economic and cultural contexts”. The initiative first began in Pakistan but will soon expand to Tanzania.cite web | title = The Microinsurance Initiative | work = Aga Khan Agency for Microfinance | publisher = Aga Khan Development Network | url = http://www.akdn.org/microfinance/microinsurance.html | accessdate = 2007-11-02]

Importance

#Providing jobs for the populace
#Poverty alleviation
#Reduction of hunger

References


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