AlHuda-Centre of Islamic Banking and Economics (CIBE) is a well known name in Islamic Banking and Finance sector which focuses on training, awareness, advisory and publications on Islamic Banking & Finance in order to promote the industry. AlHuda CIBE has organized a successful Conference "3rd Global Islamic Microfinance Forum" held on 6th & 7th October, 2013 in Dubai. AlHuda CIBE is very much pleased to share the topics and presentations being held in the Forum.

2. Islamic Housing Microfinance:
Challenges and Approaches in
Afghanistan
3rd Global Islamic Microfinance Forum
Oct. 6, 2013
Dubai, UAE
Zaigham M. Rizvi

3. Housing Issues and challenges
A snapshot of Muslim World

4. Housing is a ‘Numbers’ game –
The Muslim World is no exception!
 The Muslim world represents
planet
1 of 4 humans on the
 Nearly the same ratio in number of countries on globe
 Represents 1 of 2 poor on the planet
 A great challenge of widening demand/supply
gap, adding to the already existing housing backlog
 Most of the housing backlog and short supply is in lowincome segment of the population
 Population growth and urbanization are further
compounding the existing urban housing backlog
 Rising costs (land, construction, construction materials
etc.) are making housing unaffordable for the poor

5. Housing Supply Challenge of Muslim World
Figures speak for themselves
 An IDB study (2012) suggests housing needs of the Muslim
World at 8 mn units/year, nearly all in Low-Income Segment:
 MENA 3.2 mn;
 Asia 2.7 mn; and
 Africa/others 2.3 mn.
 Need for new housing of 8 mn due to population growth is
based on 5-5.5 persons/Household and population growth at
2.5%
 Urban population likely to rise from 25% to 35% of total
 Rapid Urbanization is a major issue in low income segment
 Urbanization and population growth further increases the
need for Incremental Housing in major metropolises
 Supply is short and is 30-40% on new demand for housing

6. Housing Finance Challenges of
Muslim World
 As most of housing shortage is in low income segment, poor
need empowerment in housing finance
 Institutional Housing Finance is either non-existent or at
infancy stage in most of the Muslim World (Afghanistan and
some African Countries)
 Slightly advanced in some others
(Malaysia, Turkey, Egypt, Morocco, Indonesia, Pakistan and
Saudi Arabia)
 Regulatory Framework also needs major upgradation
 Additional challenges include:
o Role and responsibilities of Specialized Housing Finance
Institutions (HFIs) and Commercial Banks (CBs)
o Long Term Liquidity Facility Institutions and Instruments
o Role of Capital Markets

7. Sharia-Compatible Housing Finance
 An issue of faith e.g. Afghanistan with nearly 100%
Muslim Population
 Also an issue of Financial Inclusion. Even if conventional
finance is available, Faith-Based clients do not avail it
 Standardization and Diversification of Real Estate/Housing
Products both on Asset Side and Liability Side
 Limited supply and wide scope of Islamic REITS and MBS
Products
 Role of Islamic Banks and Windows at Conventional Banks
 Need for Research and Development Center

8. Urban Realities – A glimpse into reality

9. Some Housing Solutions for
Bottom of Pyramid (BoP)Candidates for Housing Microfinance
 Solutions are being attempted
 Success is being demonstrated
 Yet answers have no match with quantum of Issue
 Much more is needed to be done
Issues we know, Answers we need

10. Housing Micro-Finance (HMF)
 Nearly 1/5th of population (BoP) in the Muslim World is a
candidate for HMF
 At BoP income segment, people are more concerned for FaithBased Finance
 Issues with HMF are:
o Product Design
o Outreach
o Housing Microfinance Regulations
o Income Assessment, sustainability and seasonalty issues
o Appraisal, Surveillance
o Delivery; and
o Recovery

11. Challenges of HMF
 Challenges include Cost-efficient Finance , Loan
Surveillance , and timely loan recovery
 Manufacturing scale of production, Communitybased finance etc
 Credit Guarantee, Management of Default and
Loan Realization

12. Afghanistan
Issues and Answers
in
Housing Microfinance

13. Afghanistan: Socio-Economic Snapshot
 Afghanistan’s current population is 31 mn plus
 Kabul has a population of about 5 mn ( official estimate at 3.1 mn)
 Youth population, with 2 out of 3 under 24 years of age
 Three to four decades of war has partially or totally destroyed
institutional, physical and economic infrastructure in major cities
 State land has been illegally grabbed by elites and land mafias
 Land records are either destroyed or have been manipulated
 In Kabul, Land Records were recreated and computerized under
USAID funded LIETRA Project and now under LARA Project
 The only specialized HFI which existed in pre-Taliban era has not been
revived for various reasons
 Central Bank of Afghanistan (DAB) is actively working on different
initiatives on housing, and is seeking technical assistance and funding
support

14. Afghanistan: Socio-Economic
Snapshot Cont’d
Economic Challenges and uncertainties

GDP per capita: Official $542, Unofficial $ 785

41% of its population lives below poverty line. And one-third
of its population is candidate for HMF

Economy has been largely fueled by inflow of foreign
assistance since 2001, which is expected to substantially
drop in Post-2014 scenario after withdrawal of allied forces

However, large segments of the population have yet to
experience the tangible benefits of a growing economy
Political Challenges and Uncertainties

Upcoming elections in 2014

Withdrawal of foreign forces in 2014 and resulting
uncertainty in economic and peace scenario

Sustainability of Incomes, Business and Investment
environment etc

15. Financial Sector in Afghanistan

There are 14 private and 2 state-owned licensed commercial
banks operating in Afghanistan.

Serve primarily the international donors, large businesses mostly
for trade finance, foreign NGOs, and a recent trend of funding
commercial real estate.

The banks’ lending ability for housing finance, though very
limited, is restricted to short tenors of 2-3 years

Only 5% of the population uses formal banking services in spite
of the large banking sector

None of the commercial banks have assets/liability books with a
tenor beyond 2 years, while more than 90% of liability books are
in demand deposits , and largely Dollar denominated.

This leads to non-availability of local currency (Afs) based long
term funds.

More than 90% of the population being faith-driven would only go
for Islamic banking.

Currently in Afghanistan there is no financial institution
specialized in housing finance.

16. Overview of Housing

Current population of 31 mn is projected at 140 mn by turn
of the century.

Overall there is an estimated housing shortage of 1.5 mn
units

Total households are 3.4 mn, with household size of 9.1

Immigrants to neighboring Pakistan and Iran were registered
at 6 mn plus. The number of returning immigrants must have
grown substantially over three decades (some estimates say
current figure is over 25 mn).

During three decades of civil wars, most of the existing stock
of housing has been largely destroyed in cities like Kabul.

New housing supply during three decades of wars has been
much less than incremental demand.

A World Bank study of 2004 estimated an amount of US$ 2.4
billion to repair and/or rebuild the damaged housing in Kabul.
Today, the situation is even worse.

17. Challenges of housing shortage –
case of Kabul

Massive urbanization into 4 major cities, mostly to Kabul
for economic and other reasons

Of the total population of 31 mn, Kabul has 5 mn

51% of total urban population of Afghanistan is in Kabul
with a large and growing young population, seeking
housing

Challenge of Returnee Immigrants from Pakistan and
Iran, mostly resettling in Kabul

Growing informal settlements including Informal Hill
Housing on mountains surrounding Kabul

A large part of existing housing is in need of an upgrade

Kabul’s informal settlements shelter 80% of the population
and cover 69% of the residential land in Kabul

18. Nearly half of urban Afghanees live in Kabul

19. Needs of Housing Microfinance
 The vast majority of the population in the low income
category, relies on informal sources of finance like
friends, relatives, and moneylenders, as is prevalent in
over 85% of economic activity in Afghanistan
 These considerations and large market potential suggests
a micro and low-income housing finance approach,
mostly oriented towards home improvement loans.
 The microfinance sector, which is gaining momentum in
Afghanistan, is making initial efforts to expand into lowincome housing
 Potential demand in Micro and SME finance is
considerable, since four out of five people fall at bottom
of income/affordability pyramid
 Estimates suggest a total financing need of $276 million
per year for home improvement and new construction in
Kabul’s informal housing sector

20. Housing Supply Continuum
Three segments:
 Luxury Housing: Supply of luxury housing for high
end segment has seen a momentum, in some major
metropolises, mostly in Kabul.
 Affordable Housing: Commercial scale supply of
affordable housing for middle income segment is
practically nil. Some programs do exist to build such
housing for civil servants, teachers, and security
forces, while on-ground progress is nil.
 Micro-housing for Bottom of Pyramid: Growing
informal settlements and need of rural poor is mainly
met by donor driven NGO initiatives that are active
in both urban and rural micro-housing

21. Kabul Housing: From Luxury to BoP

22. Microfinance
 Overall one out of four, and in urban areas one out of
two, are at BOP, earning less than $ 200 pm.
 In Kabul, close to 90% of the population is a
candidate for Low-Income and Housing Microfinance.
 Housing microfinance is a major need and challenge
of rural Afghanistan
 The microfinance sector is active and is largely
funded by the Microfinance Investment Support
Facility for Afghanistan (MISFA).
 MISFA now supports 15 microfinance
institutions, operating in 23 provinces and 111
districts.
 First Microfinance Bank of Afghanistan (FMFB-A) is a
lead among Microfinance Institutions (MFI) operating
both in Urban and Rural housing microfinance
 FMFB is the top client of MISFA as well

23. MICROFINANCE INVESTMENT SUPPORT FACILITY FOR
AFGHANISTAN (MISFA)
 MISFA commenced its operations in 2003, with the
primary objective to promote and support
microfinance lending and entrepreneurship
development in Afghanistan.
 MISFA provides funding support to MFIs, NGOs and
other institutions in their lending operations.
 It also serves as supervisory agency for its clients
 In 2009-2010 MISFA decisively entered into housing
microfinance business.
 MISFA is operating in 80 Districts of 23 Provinces
 Its outstanding housing portfolio was Afs 135 million
as of March 2010, and by May 2013 it had reached
Afs 745 million

24. First Micro-Finance Bank (FMFB)

FMFB started its operations in 2004 under a commercial
banking license, with a business focus on microfinance

With an equity capital of $6 million, it is 51% owned by Aga
Khan Foundation, along with IFC, KFW and others

FMFB’s individual loans include consumption loans, loans for
trade finance, services, agriculture, SME, and housing finance.

FMFB has a network of 45 branches, 17 of which are located in
rural areas, covering 14 provinces

With support from the IFC, FMFB has developed a housing
microfinance loan product

FMFB is the only financial institution that has successfully
launched a rural housing microfinance product in 2010/11 with
Technical Assistance and support of USAID, IFC and Aga Khan
Foundation

Percentage of women borrowers: 19%

Average loan size in urban areas: $ 1,801

Average loan size in rural areas: $ 801

25. First Micro-Finance Bank (FMFB)
 At present, housing loan products are offered across FMFB-A’s
branch network
 FMFB-A is the market leader with a total outstanding portfolio of
$80 million and an active client base of more than 60,000.
 Kabul has the highest average loan disbursement of $1,822 for
urban while Mazar-e-Sharif for rural equalling $968 in 2012
 The pilot of the rural housing product also concluded in the last
quarter of 2012 with branches being able to achieve 99% of the
targeted 200 loans
 Seasonal repayments emerged strongly as a key need for rural
clients, given the seasonality of their income. It is expected that
this module will be installed across FMFB-A by mid-2013.
 FMFB-A is the only financial institution in the country that offers a
housing improvement product, which constitutes about 17% of its
micro finance portfolio (by value).
 As of December 2013, FMFB-A has disbursed 18,857 housing loans
amounting to over $33.6 million.

26. Issues we know – Answers we need
 Generally Political Sloganasm
 “Housing for all”,
 “Slums Free Cities”,
 “Maang Raha hai har Insaan-Roti, Kapra, aur Makan” (every individual is
demanding for bread, clothe and house), and so on……
 In some countries delivery on these slogans is SOME, and in most it is
NONE
 Every country is facing a common issue of “shelter less poor” with an
ever increasing backlog
 Recent uprising in the ME has shown that even affluent economies are
no exception
 Regional successful models are to be shared and indigenized
 IDB may assist Al-Huda to set up a digital and physical platform for
country specific Data, Information and Business Models on HMF
 Islamic Development Bank to play a pivotal role in promoting shariacompliant housing finance, more so in housing micro-finance

27. Urban congestion: hard to
imagine
Railway Train-track Veggie Market
 http://www.youtube.com/watch?v=MENjFkEAj9g

28. Thank you.
Zaigham M. Rizvi
zaigham2r@yahoo.com
• Expert Consultant Housing: The World Bank
• Senior Adviser Housing: ShoreBank Int’l USA
• Secretary General: Asia-Pacific Union for Housing
Finance-APUHF (www.apuhf.info)
This document is prepared by Mr. Zaigham Mahmood Rizvi for the sole purpose of providing a
presentation to the 3rd Global Islamic Microfinance Forum held on October 6, 2013. The
information contained in this document has been compiled by Mr. Rizvi from self study and from
different sources. He is grateful to all those serving this noble cause in some form or the other.

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