The Afghanistan Rural Enterprise Development Project (AREDP)

Summary

Over 75 per cent of people of Afghanistan live in rural areas where agriculture is the primary source of income. There, livelihoods are constrained by lack of access to finance and business know-how, poor infrastructure and limited economic development. To improve employment opportunities, income generation and the sustainability of local enterprises, the Afghanistan Rural Enterprise Development Project (AREDP) has helped develop supply chains and foster community groups. 

Challenge/Problem

In Afghanistan, rural areas hold very few livelihood opportunities for men and women. More than 30 years of unpredictable conflict and violence has resulted in disastrous effects on human capital, infrastructure,  financial inclusion, livelihoods, inter-sector linkages and the economy. Insecurity and fragility has encumbered efforts to link rural producers with markets and build trust among value chain actors. Additionally, lack of access to finance and business know-how, poor infrastructure, inadequate marketing and poor post-harvest practices have also constrained economic development. These factors limit on-farm and non-farm employment opportunities, further perpetuating poverty in rural areas. Meanwhile, cultural barriers discourage the economic integration of women, who make up over 40 per cent of the country’s population – even though global evidence demonstrates that greater gender equality can make institutions more representative, enhance productivity and improve development outcomes for the next generation. 

Solution

The Afghanistan Rural Enterprise Development Project (AREDP) created and strengthened supply chains to address the key challenge of developing agricultural enterprises in fragile countries: improving links between rural producers and markets. Implemented by the Ministry of Rural Rehabilitation and Development, AREDP utilized community organizations to increase smallholders’ access to microfinance, training, and value chains.

Starting at the village level, AREDP promoted savings groups that enabled smallholders to access credit for financing new microenterprises. Taken together, the quantity of new microenterprises attracted middlemen, traders and other small and medium-sized enterprises (SMEs) to the village – providing opportunities for rural people to sell their products, increase their incomes and improve their nutrition. At the same time, AREDP worked with SMEs in urban centers to develop their supply chains with rural producers. Through this market-driven approach, smallholders and SMEs could collaborate to enhance enterprise management, product quality and value added.

With this framework in place, AREDP also established further opportunities for growth. The project federated mature savings groups into Village Saving and Loan Associations (VSLAs) that are linked to other microfinance institutions for credit support. In collaboration with local and international NGOs, development partners and learning institutions in Afghanistan, AREDP also offered on-the-job trainings for skills such as accounting, marketing, business management and bookkeeping. Finally, the project promoted frequent exhibitions and trade fairs, fostering linkages and contracts between rural producers, urban sellers, distributors and governmental institutions. These partnerships significantly impacted short-term sales, employment and income generation.

AREDP is considered one of the most successful projects in Afghanistan, especially because it has helped train women as rural entrepreneurs. Its innovation and management information system has created a viable ecosystem that organizes capacity-building support for its beneficiaries, creating new opportunities for rural people to raise their incomes and sustainably develop local economies. 

Results

Since 2010, the Afghanistan Rural Enterprise Development Project (AREDP) has increased jobs and incomes in rural villages to develop community social capital. At a total cost of US$36 million, AREDP has developed microenterprises through bottom-up mobilization as well as supported SMEs to create supply chains with these village-level enterprises. The project started with small savings by rural women and men.

• Over 56,000 rural people were mobilized into more than 5,000 savings groups with sustainable revolving funds. This is a unique indigenous microfinance model based entirely on self-help. So far, nearly 12,000 loans, totaling about US$4 million, have been provided – and almost 70 per cent of them have been taken by women.
• In five target provinces, 111,000 new jobs were created. AREDP supported service microenterprises for people with disabilities and livestock microenterprises for nomadic people.
• Cumulative sales of village-level enterprises in agriculture, livestock, food processing, handicrafts and carpets have reached about US$7.9 million since 2013. The internal rates of return for all the AREDP-supported enterprises averaged 56 per cent.

AREDP supported 544 SMEs in and around urban or district centers. Between 2015 and 2016, these SMEs made almost US$58.6 million in sales. 

Lessons Learned/Potential for replication

AREDP offers four takeaways for job creation in a fragile rural space: (a) support both rural producers and SMEs through mobilization, aggregation, and matching (enterprise eco-system); (b) aggregate producers to realize economies of scale in matching with SMEs; (c) sustainably provide frequent business development services using deliverable-based payment and SMEs; and (d) emphasize self-help and mobilize local resources for village-level investments.

The project has built-in mechanisms to ensure the sustainability of its community groups and its business continuity. Its self-help based indigenous microfinance model (without matching grants), has created a sense of ownership and developed confidence among beneficiaries. Also, hiring  SMEs as business development service providers further facilitates supply chain development. This creates a potential to introduce fees for service. Finally, links with government institutions and collaboration with service providers ensures an uninterrupted self-propelled chain of business development.

Next Steps

Savings groups are currently federated to Village Savings and Loans Associations (VSLAs), which are being linked to financial institutions to leverage finance. Also, microenterprises are linked with SMEs and agribusiness firms to leverage private-sector investment and sustain themselves. Based on its achievements with women’s empowerment, the project is also being transformed into a national program that focuses on the development of women’s enterprises. It is being scaled up to additional 15 provinces that serve as regional economic hubs in the country.