An Exploration of the Informal Credit Practices for Agriculture in Afghanistan: Reasons for Availing Informal and not Availing Formal Credit

Access to finance is a prerequisite for agriculture development. However, the coverage of formal credit to agriculture is shallow in Afghanistan. Most of the cash-starved farmers rely on informal credit sources for obtaining inputs and consumption smoothening. This paper aims to explore and assess the various types of informal credit for agriculture in Afghanistan, the reasons for availing informal and not availing formal credit, and the challenges faced in the acquisition of informal credit. Data has been collected from a sample of 99 informal credit users from Behsood, Balkh, and Paghman districts in Afghanistan. Descriptive statistics were used for summarizing and comparison. To assess the reasons for availing informal credit and not availing formal credit, the Garrett ranking technique was worked out. The results revealed that the informal credit has two features, the cost-free credit, which was availed based on relations and mutual help, called Qarzi Hassana, and the credit in which the lenders sought profit, which had four types, Peshaki, Musawamah credit, Grawee, and Sudh. Easy availability was the main reason for availing informal credit. The religious constraints and lack of information were the main reasons for not availing formal credit. Furthermore, the limited amount of cash and short repayment period were the main problems in informal credit acquisition. Moreover, the farmers sensed dependency and inferiority for being informal credit users. There is a need for increasing financial awareness. Peshaki and Musawamah credit should be controlled and should be included as a financial product by the formal financial institutions. Furthermore, credit should be extended to the farmers in a sufficient amount and for a convenient repayment period.