Abstract
Microfinance is important in a country’s rural development and poverty alleviation. In underdeveloped countries where a substantial fraction of the labour force is not gainfully employed, and the poverty rate rises over time, microfinance development is needed. In Afghanistan, the formal microfinance channels became active in 2003, and so far, they have provided considerable financing services to individuals and businesses. This article attempts to draw a clear picture of the impact of this sector on income, employment, women empowerment, and poverty. The article also attempts to highlight the prevailing challenges hampering the development of microfinance in Afghanistan. The findings of this article show that the microfinance sector has seen dramatic development over the past 20 years, and many microfinance institutions that provide financial services for thousands of households have been established. It further finds that there are cases of positive impacts from microfinance on income and employment. The effect of microfinance on women’s empowerment is less than expected; however, there is evidence of a positive effect for some women. The impact of microfinance on poverty is hard to conclude. In rural areas, impoverished people have not been targeted by microfinance because they might be unable to repay their debts.
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