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Wednesday, February 20, 2013

AKF USA Makes its First Mission-Related Investment in Afghanistan

By Evan Gill

Image courtesy of the Aga Khan Foundation

This is a slightly modified version of a post that originally appeared on the AKF USA blog.

Mohd Nabi Allah Yar runs a yarn-producing business in Afghanistan. He employs 80 local women and supports many Afghan shepherds by purchasing their wool. The impact of his business on the shepherds, his employees, and his customers would not have been possible without his first loan, which he received from the First MicroFinance Bank of Afghanistan (FMFB-A) through its Small and Medium Enterprise (SME) portfolio.

Supporting businesses like Mohd’s was the driving force behind FMFB-A, which was established by the Aga Khan Fund for Economic Development and two other organizations. The impact of the loan was immediate: It enabled Mohd to purchase the machinery necessary to produce his yarn, helping his business to grow in both the number of workers and the suppliers he supported.

FMFB-A operates in one of the world’s most fragile states and does so effectively and innovatively. It is the largest microfinance institution in Afghanistan, making nearly 50,000 loans in 2011, totaling more than US$60 million. It provides desperately needed capital to the country’s vulnerable urban and rural populations. The bank supports both business owners and individual households through complementary loan products, such as SME loans to entrepreneurial carpenters and housing improvement loans to families.
 
On Dec. 31, 2012, the Aga Khan Foundation U.S.A. (AKF USA) became an 11% owner of FMFB-A, alongside current shareholders: German bank KfW, the International Finance Corporation, and, its largest shareholder, the Aga Khan Agency for Microfinance.  Aga Khan Foundation (AKF) is one of 11 agencies that together comprise the Aga Khan Development Network (AKDN), a group of non-denominational development agencies with mandates ranging from health and education to architecture, culture, microfinance, rural development, disaster reduction, the promotion of private-sector enterprise and the revitalization of historic cities. AKF USA is one of almost 20 AKF units, and serves primarily to mobilize resources and engage in policy dialogue to support the work of the AKDN.

The investment in FMFB-A is our first impact investment from AKF USA’s newly formed Mission Related Investment (MRI) portfolio. An MRI is a type of impact investment that both furthers a nonprofit foundation’s mission and seeks a financial return. We believe investment in FMFB-A is a perfect example of a profitable business that aligns with AKF USA’s mission to enable beneficiaries to participate in the design, implementation, and continuing operation of activities that affect the quality of their lives.

The AKF USA Mission Related Investment portfolio, housed in the Foundation’s Impact Investing Initiative, has three major goals:

♦ Mobilize investment capital for high-impact social enterprises within the Aga Khan Development Network

♦ Make MRIs in support of AKDN enterprises and/or beneficiaries;

♦ Support efforts to remove barriers that prevent scaling up of the impact investing sector.

The first two goals are satisfied by making the MRI alongside other investors. However, AKF USA wants to go beyond the first two goals to support impact investing as a sector.

We see two major barriers in the sector:

  • An insufficient track record of successful impact investments.
  • A lack of information regarding how successful deals have been completed.

AKF USA hopes to address the first by monitoring, measuring, and publicizing successful MRIs, and the second, by sharing our investment processes as they evolve. We hope sharing this information will add to the excellent work being done by sector builders such as the Global Impact Investing Network and Aspen Network of Development Entrepreneurs.

Despite the uncertainties that come with any investment, we are confident in FMFB-A’s ability to both achieve a positive financial return and create increased benefit for its clients, their employees, and their customers. As part of its ongoing effort to engage with sector standards, AKF USA will work with FMFB-A to monitor and report on key social statistics. We are now reviewing the bank’s current reporting to identify overlap with standard metrics in GIIN’s Impact Reporting and Investment Standards. Please click here to read our recent blog on the efforts to bring standardized metrics to impact investment.
 
We look forward to being a part of the growing entrepreneurial acumen in Afghanistan and hope Mohd Yar will look to FMFB-A for his next loan as he continues to grow his business.

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