Overview

The Afghan economy shrank by 20.7 percent, or 5 billion USD, between 2021 and 2022, after the power shift in August 2021. This was a huge setback, as it took almost ten years to generate that amount. The political turmoil also caused banking sector problems that hurt the macro-economic situation, the private sector, and the overall economy. International aid was cut off, leading to an economic confidence crisis. By mid-2022, the Afghan economy showed some signs of stabilization, but at a fragile low-level. This did not ease the burden on Afghan families, who struggled to maintain their livelihoods. The reduction of the service and security sectors, which depended on aid, had negative impacts on other sectors of the economy, lowering the welfare and purchasing power of the people.

Objectives

UNDP, in partnership with UNCDF, introduced a comprehensive project initiation plan to revitalize Afghanistan’s commercial banking and microfinance and to support their conversion to Islamic banking as well as facilitate private sector access, particularly women entrepreneurs, to modern Islamic finance products. The project had four key components which are mutually reinforcing. Providing support to the banking system was at the center of the project.  

• Technical assistance to the microfinance sector to support the transition to Sharia governance and Islamic finance, as well as building the capacity of MFIs in developing and serving financial products for women entrepreneurs.  
• Establish a credit guarantee fund (CGF) for Islamic Finance modalities to eliminate bottlenecks and enable the mobilization of Afghanistan’s domestic resources to reach the most vulnerable and essential sectors of the economy.  
• Access to finance for women-led SMEs through a guaranteed structure entailing a revolving credit facility and business advisory services to sustain and improve the production capacity of the women-owned SMEs, value chains, and export opportunities. 
• Strengthening the digital payment ecosystem in Afghanistan by leveraging cash-based interventions of UNDP to support the resilience of the population to the crises and facilitate financial inclusion and sustainable development in the longer term.