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

2. Housing Issues and challenges
A snapshot of Muslim World

3. Housing is a ‘Numbers’ game – The Muslim World is no exception!
The Muslim world represents 1 of 4 humans on the planet
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 low- income 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

4. 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 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

5. 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:
Role and responsibilities of Specialized Housing Finance Institutions (HFIs) and Commercial Banks (CBs)
Long Term Liquidity Facility Institutions and Instruments
Role of Capital Markets

6. 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

7. Urban Realities – A glimpse into reality

8. 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

9. 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 Faith- Based Finance
Issues with HMF are:
Product Design
Outreach
Housing Microfinance Regulations
Income Assessment, sustainability and seasonalty issues
Appraisal, Surveillance
Delivery; and
Recovery

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

11. Issues and Answers in
Housing Microfinance
Afghanistan

12. 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

13. 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

14. 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.

15. 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.

16. 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

17. Nearly half of urban Afghanees live in Kabul

18. 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 low- income 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

19. 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

20. Kabul Housing: From Luxury to BoP

21. 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

22. 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 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

23. 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

24. 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.

25. 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 sharia- compliant housing finance, more so in housing micro-finance

26. Urban congestion: hard to imagine
Railway Train-track Veggie Market

27. 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 (
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, 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.