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Afghanistan Research and Evaluation Unit

Synthesis Paper Series

FINDING THE MONEY:INFORMAL CREDIT PRACTICES

IN RURAL AFGHANISTAN

June 2007

Floortje Klijn and Adam Pain

Funding for this research wasprovided by the United Kingdom’sDepartment for InternationalDevelopment (DFID).

© 2007 Afghanistan Research and Evaluation Unit. All rights reserved. No part of this publication may bereproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, recording orotherwise without prior written permission of the publisher, the Afghanistan Research and Evaluation Unit.Permission can be obtained by emailing [email protected] or calling +93 799 608548.

About the Authors

Floortje Klijn has been working in Afghanistan since April 2000, undertaking research andprogramme implementation with a range of NGOs. She has a master’s degree in anthropologyfrom the University of Amsterdam, for which she carried out extensive fieldwork in Kyrghyzstan— studying household coping strategies during the decollectivisation process of themid-1990s. Her previous research in Afghanistan has explored water supply and watercollection patterns in rural Afghanistan, and Afghan perceptions of disability.

Adam Pain has worked on issues of rural livelihoods in the Himalayan region for the last 15years. He is a research fellow at the School of Development Studies, University of East Anglia,UK, and visiting professor of rural development at the Department of Urban and RuralDevelopment, Swedish University of Agricultural Science, Uppsala. His recent publicationsfor AREU include: “Opium Poppy Eradication: How to raise risk when there is nothing tolose?” and “Alternative Livelihoods: Substance or Slogan?”.

About the Afghanistan Research and Evaluation Unit

The Afghanistan Research and Evaluation Unit (AREU) is an independent research organisationbased in Kabul. AREU's mission is to conduct high-quality research that informs and influencespolicy and practice. AREU also actively promotes a culture of research and learning bystrengthening analytical capacity in Afghanistan and facilitating reflection and debate.Fundamental to AREU’s vision is that its work should improve Afghan lives.

AREU was established in 2002 by the assistance community working in Afghanistan and hasa board of directors with representation from donors, UN and other multilateral agencies,and non-governmental organisations (NGOs).

Current funding for AREU is provided by the European Commission (EC), the United NationsHigh Commissioner for Refugees (UNHCR), the World Bank, and the governments of Denmark,Norway, Sweden, Switzerland and the United Kingdom.

Acknowledgements

We would like to thank the households of the villages in Herat, Kapisa and Ghor who sharedtheir time and knowledge with such interest. It is their experience and accounts that formthe basis of this paper.

Many thanks also go to the members of the research team: Saghar Wafa, Fauzia Rahimi andBaser Nader, who always enthusiastically shared and discussed new findings of the day.Special thanks go to the staff of UN Habitat, Oxfam and CHA for their assistance andhospitality.

We would also like to thank Paula Kantor and Fe Kagahastian for all the useful commentson drafts and final editing.

Floortje Klijn and Adam Pain, May 2007

Table of Contents

Executive Summary ....................................................................................ix

1. Introduction.....................................................................................1

2. Context ..........................................................................................32.1. Methodology ...........................................................................32.2 Research Settings .....................................................................4

The Ghor village.......................................................................4The Kapisa village.....................................................................6The Herat village......................................................................7Village contrasts.......................................................................7

3. Household Case Studies .......................................................................93.1 Key features ...........................................................................93.2 Case studies from poor households ...............................................113.3 Case studies from middle-ranking households ..................................133.4 Case studies from wealthy households ...........................................15

4. Key Dimensions of Informal Credit.........................................................194.1 Pervasiveness of informal credit ..................................................194.2 Diversity of informal credit ........................................................214.3 Reasons for giving and taking credit..............................................264.4 Access to informal credit ...........................................................314.5 Repayment practices................................................................324.6 The outcome of credit practices ..................................................344.7 The dynamics of informal credit ..................................................36

5. Understanding Informal Credit .............................................................395.1 Existing misunderstandings and preconceptions ................................395.2 Defining formal and informal credit ..............................................425.3 The purpose of credit ...............................................................435.4 Informal credit and timelessness..................................................445.5 The moral economy? ................................................................465.6 Informal security regimes: “The Faustian Bargain” ............................47

6. Conclusions and Implications ...............................................................49

7. Annex ...........................................................................................53

8. References.....................................................................................59

Recent Publications from AREU .................................................................... 61

Glossary*Afs Afghan unit of currency; approximately 50 Afghanis = 1 USDarbab chosen representative of a villagejerib unit of land measurement; approximately one-fifth of a hectarekhairat voluntary almskhan landlordkomak assistancemaulawi Islamic theologianmozarebat a partnership between an investor and a businessman in which one provides

the money and the other provides the work; profit is divided between thetwo, while the loss is carried only by the investor

mullah religious leadermazdur daily labourerqala a walled, fortress-like compoundqarz creditqarz-i-hasana credit on good terms, with no interestqarz-i-khodadad a loan given on the understanding that the debtor will repay when God

provides the opportunityqawm kinship group, often a tribe or sub-division of a tribe; also used for the

community where one livesqurut dry cheeseramazan month of fastingsalam a well-known form of advanced payment where an advance is provided

for a future harvest at an already fixed (low) pricesawab merits gained when doing a good deed, considered as “profit” from God

or “credit” earned with Godser one ser=7 kilogramsshariq business partner who provided investment on creditshura group of elderssudh credit with interesttaifa tribal lineagezakat obligatory alms

* Transliterations in this glossary, as well as in the text, are spelled according to AREU’s editorial policyand do not reflect the opinion of the author(s).

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AREU Synthesis Paper Series

AcronymsAREU Afghanistan Research and Evaluation Unit

CGAP Consultative Group to Assist the Poor

CHA Coordination of Humanitarian Assistance

DDR Disarmament, Demobilisation and Reintegration

I-ANDS Interim Afghanistan National Development Strategy

ICRISAT International Crops Research Institute for the Semi-Arid Tropics

MISFA Microfinance Investment Support Facility for Afghanistan

NGO non-governmental organisation

NRVA National Risk and Vulnerability Assessment

NSP National Solidarity Programme

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Finding the Money: Informal Credit Practices in Rural Afghanistan

It is widely believed that there is a strongdemand for credit in Afghanistan and thatmuch of this demand is unmet, justifying amajor programme in microcredit provision.But there is very little understanding of theextent and the workings of informal creditsystems, particularly outside opium poppygrowing areas. Is there such an absence ofcredit available to poor rural households asis assumed? Do microfinance and informalcredit respond to the same needs? Is informalcredit simply the same thing as formal credit,except that it takes place outside formalinstitutions? And if there is more informalcredit available than is believed, what doesthis mean for the development and role offormal credit systems?

These key questions informed a detailedanthropological study of informal creditpractices in three contrasting villages inHerat, Ghor and Kapisa. Drawing from adetailed presentation of eight householdscase studies, and amplified with additioncase material, a number of key conclusionscan be drawn from the findings.

First, informal credit practices are widespreadwith most households both giving and takingcredit, having multiple outstanding debtssimultaneously and a variety of differenthouseholds with whom they exchange credit.Second, there is great diversity in informalcredit practices, the meanings of which haveto be understood according to social context.A large proportion of these credit transactionsare on a no-interest basis. Third, informalcredit is almost exclusively used for eitherconsumption smoothing or marriage with verylittle being deployed for investment inenterprises. Fourth, the reasons for enteringinto informal credit relations are diverse butinclude investment in social networks forinformal security, for providing assistance as

Executive Summary

well as maintaining or consolidating patronclient relations. Fifth, the majority ofhouseholds are able to access credit and haveconfidence that they will be able to do so.Sixth, repayment practices are usually highlyflexible and negotiable. Seventh, for manyof the households informal credit has positiveoutcomes in achieving immediate welfaregoals. This however is not universal and thedynamics and characteristics of informalcredit are changing over time.

The methods used in this study havehighlighted the complexity of informal creditand question the application of models offormal credit to informal credit. Notions ofdebt, interest rates and contractual periods,for example carry very different meaningsfrom those that formal credit assume.Informal credit is not just formal creditworking in an informal institutional setting.Its practices, assumptions and objectives arevery different and these cannot easily begeneralised about.

The fact that informal credit is mostly usedfor consumption needs highlights a keycontrast with microcredit, which is notdesigned to address such needs, even thoughin reality it might be used for such purposes.Given this critical role for informal credit, itis difficult to see how arguments thatmicrocredit will increase incomes and savingsof the poor can be sustained. Informal creditsystems are highly unlikely to disappear, notleast for the negotiable flexibility that theyoffer. But nor is formal credit likely to existindependent of informal credit and there iscomparative evidence that microcredit canbecome parasitic on informal credit practices.Much greater attention is needed to howmicrocredit works in practice, rather thanjust simply reporting the number of loansdisbursed.

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1. Introduction

A year ago Gulab Khan and Shafiqa(CS44-K),2 together with their four daughters,returned from Iran to their village in lowerKapisa. Gulab Khan, who is in his 60s andwith a much younger wife, worked as a driverfor some time after his return but he hasbeen jobless now for a few months. Duringthis period he has taken several loans, all

1 Hanifi, S.M, 2004. “Impoverishing a colonial frontier: Cash, credit and debt in nineteenth-centuryAfghanistan.” Iranian Studies, 37(2):199.

2 Each household case study presented in this report is tagged with a code refering to household numberand location. Thus CS1-G is case study number one located in Ghor. All households interviewed arepresented with details of their asset portfolio in a matrix in Appendix 1 and follow the same codes.

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“If money is a language, there have been many tongues spoken in Afghanistan.”1

interest free, from relatives — mainly fromhis mother’s side or his wife’s family. Althoughhis known debts have now risen to 14,000Afs (US$280 ), he recently decided to dividethe compound where he is living with hisbrother and his family into two, build a walland a new house. Halfway through Ramazanwith only three days of flour left to eat, thefamily asked Shafiqa’s maternal cousin foranother loan of 2,000 Afs (US$40). It is unclearif they had actually received it.

When Safiqa was asked where her familyseeks credit, she said: “We get credit fromthe one who knows us, who has good manners,

who does not come every day to our houseasking for their money even though we donot have money. We go to those who do notfight with us.” According to Shafiqa, thesepeople are not found much in the villageanymore. Her household often takes creditfrom her relatives who live outside the village:“We go to cousins, relatives and friends; notour paternal cousins because they have nomoney, their life is the same as ours. We goto those with a good life, who have a goodeconomy and good manners.” When GulabKhan was asked how he plans to repay thesedebts after being unemployed for a fewmonths, he replied: ”When I find the money,I will repay.”

This story is quite common in the Kapisavillage among households considered in themiddle wealth group. This illustrates aconfidence in finding informal credit, infinding the money to repay it and illustratesa reliance in the functioning of informalcredit systems. As will be shown in this report,many households from the three village casestudies (in Herat, Kapisa and Ghor) knew”how to find money.”

The case of Gulab Khan and Shafiqa (CS44-K) also reinforces the notion that there is ahigh level of demand for credit in ruralAfghanistan, fuelled in part by the perceptionsof the role that opium poppy fulfils inproviding informal credit. But while this casestudy is evidence of credit demand, it is alsoevidence of informal credit supply — aconfidence in finding the money, finding itin this case on an interest free basis, andfinding it in the case study villages where

CS44-K: Debt portfolio

Credit types: interest-free loans from relatives

Repayment: Qarz-i-khodadad-like loans, paid“when God provides the opportunity.”

Amount – credit source - credit use:2,000 Afs* – maternal cousin - for buildinghouse/food5,000 – maternal cousin - food1,000 Afs - sister, wife - food3,000 Afs – civil servant Kapisa/friend – food3,000 Afs - nephew (wife’s sister’s son) - food(*unclear if amount was received)

opium poppy was absent. This observationsits somewhat awkwardly with theassumptions of the Microfinance InvestmentSupport Facility for Afghanistan (MISFA),which estimates that a potential two millionhouseholds are in need of credit and that:

In the almost total absence of functioningbanks or sustainable microfinanceinstitutions, it was clear that substantialdonor investment would be needed tobuild a strong and diverse financialservices sector that would be responsiveto the needs of poor Afghans.3

The aim to provide access to financial servicesto 800,000 households by the end of 2010 —a key rural development benchmark identifiedunder the Afghanistan Compact and I-ANDS— clearly responds to MISFA’s perception ofthe unavailability of credit. Such perceptionis partly driven by assumptions about theeffects of the formal banking systems’collapse and, as noted above, the role ofopium poppy.

However, there appears to be very littleevidence and understanding of the extent ofavailability and workings of informal creditsystems, particularly outside the areas whereopium poppy is grown. Is there such anabsence of credit available to poor ruralhouseholds as MISFA, for example, and othersassume? Moreover if we look at informalcredit through the lens of formal financialsystems where money exchange is treatedsimply as a commodity exchange, does thisnot rather ignore the context of socialrelations in which most Afghan’s lead theirlives and the meaning and role that informalcredit plays within these relations? Can it beassumed that informal credit is basically thesame thing as formal credit — except that itjust happens to take place outside formal

institutions? And if there is more informalcredit available as the above case study hintsat, what implications might this have for thedevelopment and role of formal creditsystems?

These are among the issues that the threevillage case studies on informal credit intendto address. Evidence emerging from thesestudies challenges many of the assumptionsabout the existence and role of informalcredit and questions the extent to whichformal credit will be able to fulfil thesignificant role that informal credit provides,both for the poor and rich alike.

Section 2 of this report briefly describes theresearch methods and context in which thisstudy was undertaken. Section 3 presentseight case studies that illustrate many of thedimensions of informal credit practicesaccessed and used by poor, middle rankingand rich households. These case studies arethen used in Section 4, along with data froma wider set of case studies, to explore keyissues related to the pervasiveness of informalcredit, its diversity, reasons for giving andtaking credit, questions of access, repaymentpractices and outcomes, and how creditpractices are susceptible to change. Section5 uses these issues to develop a set of criticalarguments addressing misunderstandings andpreconceptions about informal credit:identifying characteristics of informal creditincluding its purpose and the timeless natureof its contractual aspects; questioning suchconcepts as interest rates and default; andconsidering the dimensions of a moraleconomy and a context of insecurity thatmight drive informal credit practices. Section6 concludes by exploring the implications ofthese findings for the development of formalmicrocredit systems in Afghanistan.

3 MISFA website: http://www.misfa.org/about/htm

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2. Context

2.1. Methodology

This study aims to build understanding of therole that informal credit plays in rurallivelihoods. It does not intend to formallydocument the quantitative significance ofcredit or debt but more to address questionsof access, use and consequences of takingcredit. It is based on qualitative rather thanquantitative methods, with informationcollected from an open-ended checklist ratherthan a closed-ended questionnaire. The ques-tions that were asked and the enquiry pursueddepended greatly on the interviewees, thecomposition of their livelihoods and thedynamics of the discussion. The ongoingprocess of field analysis and insights gainedin previous interviews were fed back intosubsequent interviews so that new andemerging issues could be addressed. Thisreport is based on three village case studiesconducted in Herat, Kapisa and Ghor provincesand a pilot study conducted in Balkhprovince.4 In each village, an average of 34in-depth interviews were conducted withboth men and women from different wealthgroups. Details on asset portfolios of theinterviewed respondents and their householdsare listed in Appendix 1, along with theirdesignated codes, which are used asreferences throughout the paper.

The term “credit practice” refers to allexchanges where one borrows or lends moneyor commodities to another. The term“interest” is used solely for credit where aprofit is made through a pre-determinedpercentage mark-up on the loan that increasesthe longer repayment is not made. “Creditwith profit” is a term used for the other typesof credit where costs are paid for borrowingor where a profit is made by the borrower.“Cost-free credit” is when the lender chargesno marked up value, the credit is free of charge.

Village and respondent selection

To establish whether credit practices differed,based on the extent of market penetration,three villages were selected to capturediffering economies. The Ghor village, withseasonal grain deficits, was selected for itssubsistence-based economy. Although mendid work outside the community, it was oftenwithin the district, and the majority ofhouseholds within the village were primarilydependent on agricultural production andcasual labour in the village. The village inKapisa was selected initially on the assumptionthat it produced cotton for the market. Whenfieldwork began, however, it became clearthat agricultural production was forsubsistence farming and that due to seasonalgrain deficits daily labour outside the villagewas vital for a household’s economy. TheHerat village, the last village studied, was awealthy village specifically selected for itsmarket-based economy, based on the incomegenerating activities of carpet weaving andsilk production, and the presence of shopsand service providers in the village.

In each study location the research team wasfacilitated by a development organisationalready working in the area. The Coordinationof Humanitarian Assistance (CHA) assisted inHerat, UN Habitat in Kapisa and Oxfam inGhor. In consultation with these partners, avillage was selected in each province basedon two criteria: villages needed to be averagein size and representative of village economieswithin their district. For the selection ofrespondents within the villages, quotasampling was used in order to distribute theselection of households across different socio-economic status categories. The criteria usedto differentiate these categories includedhousehold access to land and income sources.Researchers monitored the number of

4 To protect respondents’ privacy, the actual names of the villages studied and respondents interviewedare not used in this report.

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households in each socio-economic categoryinterviewed each day, aiming for equalrepresentation in the low-, middle- and high-income groups. The interview teams alsotargeted specific respondents including femaleheaded households, working women,households with mortgages, newcomers,returnees and educated people. This was nota fixed list, but depended on the villagecomposition.

Wealth categorisation

It was important for the study to ensure thatsocial assets, as well as the dynamics ofhousehold livelihood trajectories, were takeninto account in grouping the respondents inthe three wealth categories: wealthy, middle-ranking and poor. A more detailed and refinedcategorisation of respondents was used inthe analysis phase. Such grouping wascontinually reassessed throughout the studybased as new insights emerged.

After analysing each family’s economic statusin detail — access to land and its contributionto food (in)security, household size andadditional income sources, the depth andbreadth of social relations, householdtrajectory over time and their credit practices— a final wealth grouping specific to eachstudied village was developed. In addition,there were specific situations included as anindicator of a household’s wealth status, forexample, how families married off their sons,or how they were able to finance the buildingof a house, as well as their access to credit.

Although the categorisation facilitates analysisand the presentation of findings, it is not anabsolute classification; with some householdsit was unclear in which wealth group theywere best placed. For example the couple inKapisa presented in the Introduction (CS44-K), were landless, with no sons, no secureincome sources and mounting debts but werebuilding a house. Their income sources suggest

that they should be classified as poor, howeverthe fact they can still access credit and builda house suggests that they may also belongto the middle ranking wealth group.Categorisation, therefore, is used in thisreport to place household situations withina specific time; it is not, by any means, acategorical judgement about their positionin life.

2.2 Research settings

The socio-economic context of the householdsand the region has proven to be essential inunderstanding informal credit practices. Anattempt is made to draw a concise pictureof the villages, the regional economy andtheir dynamics over time. However, beforeproviding village-specific descriptions, it isimportant to identify some of the changeprocesses that have taken place.

In addition to the differing experiences ofconflict and drought over the last threedecades or so, all the villages have alsoexperienced economic changes. While conflictand drought have driven processes of de-capitalisation for many households, processesof economic change have provided new orexpanded income-generating opportunities,which can contribute to improved wellbeing.The way in which these two countervailingforces have worked out in practice forhouseholds, affecting household trajectoriesand the role of and access to credit, is casespecific.

The Ghor village5

The Ghor village in Lal wa Sarjangal district,where both Hazaras and Sayyed live, hasperiodically experienced armed conflict overthe last three decades. In 1997–1998, aTaliban-imposed blockade of the Hazarajatregion led to acute food insecurity,6 followedby a drought that lasted until 2002. All

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5 For more details, see Klijn, 2007. Informal Credit Practices in Rural Afghanistan, Case Study 3: Ghor. Kabul: AfghanistanResearch and Evaluation Unit (AREU).

6 Semple, 1998. Strategies for Support of Sustainable Rural Livelihoods for the Central Highlands of Afganistan, Draft.Islamabad: Pattan Development Organisation.

7 One jerib=approximately one-fifth of a hectare.

households are currently still recovering fromthe effects of these on asset holdings.

The Ghor village has a limited cash economyand exchange is largely on a barter basis.The village is relatively isolated and has,compared to the other two study villages,limited external economic linkages.Agricultural production is the main incomesource (income in kind), though the majorityof households and perhaps the village ingeneral—experience grain deficit annually.Livestock was previously the maincomplement to grain production but due tothe Taliban blockade and the following fouryears of drought, livestock holdings collapsedand are still in the process of recovering.Casual labour has always played an importantrole in gaining access to food security andhas now replaced the role of livestock as amain source of supplementary income. Workcan be found either in daily labour or contractlabour. For the landless, contract work, wherea labourer is hired for a pre-arranged periodand wage, has always been the main if notthe only source of income. This type ofcontract offers more than the typical workagreement in that the landlord hiring acontract labourer is obliged and expected“to take care” of the labourer and his family.One respondent (CS65-G) and his family livedin the house of his “benefactor”/landlord asa joint household.

Crop production in the Ghor village is mainlyrain-fed wheat and barley. On the valley floorthere are small plots of irrigated land, whichbelong to the wealthier households. Cashcrops, such as potato and poplar, are grownas well as fodder. An important activity inthe village is the collection of fuel (bushes)and fodder in the mountains. Winters lastfour to five months and sufficient food, fueland fodder are required for a household’ssurvival over this period. The majority ofhouseholds rely on credit to achieve foodsecurity. Besides agriculture, livestock and

casual labour, handicrafts are made and soldmainly within the village and occasionally toshopkeepers in the district market place.

Wealthy households relatively maintain largeland (more than ten jeribs of rain-fed land7)and livestock holdings (more than 15 sheep).In general, they experience grain surplusthrough which they can hire contract labourersto work on the land. Although they work ona contract basis, these labourers often liveon advances taken for labour provided in thefuture, which in some cases result in situationsof bonded labour. There was often a relationof interdependency between big landownersand landless labourers. The middle-rankinghouseholds were all small landowners(between one and ten jeribs of rain-fed land),working on their own land. These householdsexperience grain deficits on a regular basisand achieve food security through casuallabour in the village and occasionally dailylabour outside the village. Four wealthyvillagers have set up shops in the bazaar inthe district centre.

The regional economy of the Lal wa Sarjangalhas been characterised over the last threeto four decades by the establishment ofcentralised bazaars, improved infrastructure,and the establishment of education and healthfacilities. The district centre, half an hourby car, has become a small centre ofcommerce as well as a source of jobopportunities. The current (re)constructionof roads and schools, as well as opium poppycultivation in the main valley, have alsoincreased daily labour possibilities. However,those households accessing daily labour areall from the middle-ranking wealth group.Poor households do not engage in daily labourwhich can be explained through the claimsthey have on their labour through advancesas well as the loyalty in exchange forpatronage.

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The Kapisa village8

At the time the study was conducted, theresearch team encountered Pashtuns whospoke Dari in the Kapisa village, located inthe Mohammed Raqi district. The team alsoobserved how the village was still dealing withsetbacks from major events in the country’shistory: armed conflict for nearly a decadeduring the Soviet war, and the subsequentdrought that lasted from 1998 to 2002. Theseevents have led to repeated cycles ofdepopulation and resettlement, with manyhouseholds fleeing to Pakistan or Iran.

The economy of the Kapisa village is largelycash-based. Agricultural production is itsmain economic activity, even though allhouseholds studied experience grain deficitand require additional income sources toachieve food security. Families end up relyingon daily wage labour outside the village(usually in Kabul, a two-hour trip by car) toaugment their incomes. Other income-generating activities they participate in

include shopkeeping, carpentry, shoemakingand flour milling. In addition, one doctor, ateacher and a mullah were working in thevillage or in a nearby community.

The village lands are irrigated for thecultivation of wheat, maize and, at times,cotton. The majority of households own smallplots of land (up to six jeribs), which ingeneral are too small a land area to providegrain self-sufficiency. The landless householdsare not necessarily the poorest; they can relyon daily wage labour or a more regular incomethrough business or monthly salaried labourin the district centre. Many households haverelatives living outside the village in theShomali plain or in Kabul who, especially inthe case of poor households, provide ongoingassistance, often in the form of credit.

The local economy had undergone majorchanges over a course of four decades. Inthe early 1970s, land relations were stillbased on a patron-client relationship, witha small number of landlords whose land was

8 For more details see Klijn, 2006. Informal Credit Practices in Rural Afghanistan, Case Study 2: Kapisa. Kabul: AREU.

Most villagers have multiple debts owed simultaneously, including to shopkeepers in the bazaar, who are an importantsource of informal credit.

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cultivated by a large number of sharecroppers.Increased access to job opportunities in theregion (Shomali plain in Parwan province andKapisa) and abroad, monetization of the localeconomy, and changing patterns of landownership has transformed the socio-economic relations within the village. Themajority of the households interviewed havebeen able to purchase land 30 to 40 yearsago.

The Herat village9

The Herat village, located in the Zinda Jandistrict (half an hour by car from Herat city),experienced major economic setbacks dueto armed conflict in the 1980s and the recentdrought. As a result many households hadmoved to Iran, some even twice. The Heratvillage, where the inhabitants are said to beTurks, is relatively urbanised based on thecomparatively extensive labour market, thenumber and diversity of shops, smallbusinesses, facilities and services availableto residents (health clinics and secondaryeducation), and reliance on a cash economy.Income-generating activities in the villageare agricultural and silk productions, livestockbreeding, carpet weaving and wholesale,shopkeeping, carpentry, tailoring, handicraftsand daily wage labour. Women from poorhouseholds often work for other householdscleaning, washing clothes and baking bread.Labour migration to Iran is a common practiceto obtain additional income or savings. Womenin all wealth groups were actively engagedin income-generating activities: weavingcarpets, making and selling handicrafts,producing raw silk and working as teachers.Households in all wealth groups sent membersto work in Iran to avail of its higher dailylabour wages compared to Herat and thevillage. This income source providedopportunities to save or to take credit, withthe latter repaid with the money earned inIran. Iran has also influenced the villagers in

another way; there appears to be a trend ofhouseholds splitting up into nuclear families,a common practice in Iran, according torespondents. As a result, some villagers havebought small plots of land on which toconstruct new family houses.

Wealth is mainly defined by access to multipleproductive assets including shops, cars orpartnerships in business ventures (mozarebat).In contrast, poverty was often related tohousehold composition and its effect onaccess to income sources. For example, alarge household with only one adult male torely on for income has limited resources.Because he needs to support the family ona daily basis, the male breadwinner is unableto explore work elsewhere and is restrictedto the highly seasonal daily labour availablewithin the village.

As with Kapisa, socio-economic relations inthe Herat village have changed over the lastfour to five decades. The big landlords of thepast all sold their land. More recently, theHerat village seemed to have benefited froma changing economic environment,particularly from increased job opportunitiescredited to its proximity to Herat city andIran.

Village contrasts

The main trend identified in all three locationsover the last three to four decades is anapparent increase in labour opportunities.This occurred earlier in this period and isobserved to be more widespread in the Heratvillage than in the other two villages. TheGhor village, in particular, has only recentlyexperienced a significant economic change.

Increased job opportunities have had a majorimpact on household livelihood strategies inHerat and Kapisa based on the followingeffects:

9 For more details see Klijn, 2006. Informal Credit Practices in Rural Afghanistan, Case Study 1: Herat. Kabul: AREU.

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• Reduced reliance on agriculturalproduct ion as more incomeopportunities became available;

• Reduced seasonal food shortages; and• Shifts in credit sources from landlords

or wealthier households in the villageto extended family networks.

In the Kapisa village, household access tomore job opportunities, including labourmigration to Iran which started in the 1970s,resulted in families being able to buy smallplots of land.10 Subsequently, landholdingshave become smaller, often not enough toprovide a household with sufficientagricultural produce.

In the Herat village, there are many otherjob or business opportunities within thecommunity that land has lost its importance.In a recent election to choose a new arbab

(chosen representative of a village), all maleresidents, both landless and landowners,participated when traditionally this was aprivilege only land holders enjoyed.

These developments were not documentedin the Ghor village. Even though the regionaleconomy has improved, households are stillvery much recovering from the Talibanblockade and the four-year drought.

Nevertheless, households in all three studysites and in each wealth group still deal witha high-risk environment. Both seasonal andlong-term lean periods still occur, as docrises. Through these expected andunexpected challenges, credit has alwaysplayed a role in enabling families to get by.But just as socio-economic conditions shift,so do credit practices, as discussed in moredetail in Section 4.5.

10 Land was available for sale after large landowners sold small plots of land. The reason behind this sale remains unclear.Respondents alluded to either the landowner being a big spender, or that the loss was Allah’s will.

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3. Household Case Studies

This section briefly presents details on eighthousehold case studies selected to illustratesome of the different dimensions of debt andcredit found in the study sites. Narrativeaccounts of each of the Selected eight casestudies are presented in Sections 3.2–3.4.Table 1 summarises some key features ofthese households to highlight patterns ofsimilarities and differences.

3.1 Key features

The debt portfolios of the select householdshave a number of features worth drawingattention to. Their meaning in a wider contextis presented in Section 4.

1. All households have multiple debts withvarying maturity: some are short-termseasonal debts, others have been inexistence for a number of years. Somehouseholds are giving and receivingcredit; Abdul Fatah’s family (CS22-H) isone example.

2. Debts taken are either in terms of cashor food and relate either to the needsfor consumption or marriage. In the Ghorcase studies (CS84-G, CS76-G and CS63-G), the majority of debts, particularlyof the two lower ranking households areeither paid in grain or labour. Credit forbusiness or income generating activitieswas only found in Herat and isexemplified by Akbar Khan (CS12-H) whoreported taking business credit to set uphis shop and give loans to carpet weavers.

3. A noticeable number of loans areobtained either from relatives or evenneighbours (see CS58-K, CS23-H and CS63-K) and interest free loans are providedby members of all wealth groups. Whilemany of the debts represent loans thatneed to be repaid, a number ofhouseholds also receive direct assistanceof food as gifts (see CS58-K, CS25-H andCS12-H). In Ghor, however, more of the

credit given and taken betweenhouseholds within the village, includingbetween relatives, have costs attachedto them. As the case studies show (seeSection 3.2 – 3.4) and as will be exploredin more detail in Sections 4 and 5, costsdo not necessarily imply interest. In mostcases, households express a confidencein being able to repay at some stage,illustrating the flexibility in contractperiods of existing debt.

4. For households with existing debts andagain cutting across the wealth groups,there is a confidence that additionalcredit can usually be accessed from onesource or another (see CS84-K and CS25-H). CS63-G for example, had no difficultyin raising a substantial sum for his son’smarriage.

5. For households in the Ghor village, whichhas more of a barter economy andperhaps greater inequalities in landaccess but which appears to be a labourdeficit economy, debts could be workedoff with labour in kind (CS84-G and CS76-G). For households without land in Kapisaand Herat, income could be earned fromlabour for cash.

6. Households with land (middle and higherranking households) showed willingnessto mortgage it, particularly in relationto raising money for a bride price. Thereis clearly a strategic element in this asillustrated by Reza’s (CS76 –G) decisionto re-mortgage his land against risingvalues to pay off an earlier mortgage.

7. The strategic value of daughters in termsof overall debt management issystematically acknowledged; expectedbride prices are part of debt repaymentstrategies and enter into “calculations”of credit worthiness. This is evident inboth poor households, such as Parween’s(CS8-K), and among wealthier householdssuch as Zainab’s (CS33-G).

9


Case Household profile Income Debts/ Credit Means ofstudy sources Credit form provider repayment

Poor

GrainLarge Contract

Own house landowner labour

CS84–GNo land or livestock Contract

Grain ShopkeeperContract

Husband and wife with labour labour3 young daughters Labour, 2 House Contract

years ago builder labour

Multiple cash Wife’s sister,CashLoans neighbours

Dung cakes, Sister Assistance,CS58–K wood plus labour

Flour Shopkeeper CashCash Builder Cash

FoodWealthy Assistancehouseholds

CS25–H Cash Shopkeeper Cash fromCash Neighbours khairat

Middle-ranking

Land mortgage Wealthy Re-mortgagefor bride price household with rise in

land valueCS76-G Cash–

Food In-laws possiblelabour

Food Shopkeeper Labour

Daily labour Cash Village MortgageCS40-K Land, family of 12 and sharecrop Mortgage Village ?

Food Shopkeeper CashFood Shopkeeper Cash

Cash creditRelatives,

CashCS23-H neighbours

Food creditRelatives,

Foodneighbours

Wealthy

Food ShopkeepersBarter andcash

Cash for brideRelatives Cash

CS63-Gprice

Livestock forRelatives Livestockbride price

Remaining In-laws ?bride price

Material credit Carpet Carpetsweavers

CS8-H Cash credit Poor Cash/kind

Cash and food Poor Assistanceassistance

Table 1. A profile of eight household case studies and their informal credit history

G=Ghor; K=Kapisa; H=Herat; ?=no data

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No landarbab

Land, livestock,motorbike

Extended household;Land and livestock

Husband, second wife3 small childrenLand and livestockDeath of first wife,father and brother

Own houseNo land or livestockOld man, young wife4 young daughters

No land, one cowHusband disabled3 daughters and 3 sons

Occasionalcasual labour;Wife,domestic

Wife,domestic;Son, casual

Land

Casuallabour

Land andlivestock

Shopkeeperand business

TeachingSharecrop

8. Shocks that are specific to householdssuch as deaths (in the case of Reza -CS76-G), accidents (in the case of BaserAhmad - CS25-H) and even in the caseof Akbar Khan (CS17-H) whose father lostall his land, can clearly cause specifichardships and a drawing down of creditrelations, which the case of Baser Ahmad(CS25-H) illustrates best. But as Reza’scase (CS76-G) shows, it is possible torecover from these downturns.

The following three sections describe eighthousehold case studies selected from thethree locations, focusing on the debtportfolios of poor, middle ranking and richhouseholds, the type of credit householdsengage in (a detailed list of credit types ispresented in the Annex section), and theirmeans of repayment. These wealthcategories, it should be noted, are relativeto each location and are not absolute.

3.2 Case studies from poorhouseholds

CS84-Ghor: Living on advances

Safar and his wife live in their own house inthe Ghor village together with their threeyoung daughters. They own no land oranimals. Safar works as a contract labourerin houses and on the land of families in thevillage, but he mainly works for Haji KhaliqDad, harvesting on his land or working in andaround his house. Safar always receives hissalary in wheat. This year he received 210

kg wheat for working on the land and 70 kgwheat for his work in Haji Khaliq Dad’s house.Safar’s household, however, is often in needof food before even starting work. Hetherefore asks for advances on future workand in-kind loans, which he repays with work.

In essence, the whole working season fromspring to autumn Safar has been working torepay outstanding loans or services he usedthe previous year. Last spring the householdhad no more food. They borrowed 140 kg ofwheat from their wealthy neighbours withthe understanding they would repay it inlabour. Now Safar is working on hisneighbour’s land to repay the wheat borrowedlast spring. But this year Safar also workedon the land of the builder who worked on hishouse two years ago. He was never able topay his wages, after which they agreed Safarwould work on his land to pay them.Sometimes Safar buys some products on creditfrom shopkeepers in the bazaar that are fromthis village, which he then often repays byworking on their land or cleaning snow forthem during the winter.

CS58-Kapisa: Credit and assistance

Parween (30) and her elderly husband live inthe Kapisa village together with their fourdaughters, the oldest being 14 years old.They have no land or livestock but they ownthe house they live in. Parween’s husbandused to be a driver in Kabul but now he is

CS84-G: Debt portfolio

Credit types: advances, in-kind loan with profitand delayed payment of goods and wages

Repayment: all through labour

Amount – credit source - credit use:? advance – landlord - food? – shopkeeper - food140 kg wheat - neighbours - food? – builder – delayed wage payment(? = unknown amount)


Credit types: cost-free loans and delayedpayment of goods and wages

Repayment: possible bride price(s)

Amount – credit source - credit use:Bag of flour – shopkeeper (friend) - food21 kg wheat – sister - food? Cash – neighbours/ villagers - food1,000 Afs – sister - food1,000 Afs – maternal nephew – food1,000 Afs – builder – delayed wage payment2,000 Afs – builder – delayed wage payment(? = unknown amount)

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old and has difficulty finding a job at all.When he does not find work he takes credit;when he does find work he uses his wage torepay their debts. However, he does not findwork often so the debts are accumulatingand they are receiving more and moreassistance on a gift basis rather than creditbasis.

The family has just returned from Iran oneand half years ago. In Iran her husband wasa daily labourer, from the money earned theysaved 40,000 Afs (US$800) and brought itback with them to rebuild their house.However it was not enough. The wages ofthe two builders were never paid and arestill outstanding debts. They started borrowingcash loans as qarz-i-hasana (credit free ofcharge) from Parween’s sister, sister in-law,and from their neighbours and other villagers.These loans have not been repaid yet.Parween explains how some of their creditorsfrom the village come to their door askingfor their money back. “They fight with myhusband saying they want their money back.”Recently they receive more in-kind loans andassistance mainly from their relatives. Forthe winter her sister has given her dung cakesand wood to cook on. She occasionally gives

bread too. Parween helps her brother andhis wife on their land in the village andreceives some wheat or maize from them.During the interview Parween’s husband hadgone to the bazaar to borrow a bag of flourfrom a shopkeeper who is an old childhoodfriend. Asked how they will repay their debts,Parween replies: “I have young daughters, ifsome good people come to my house for mydaughters I will give my daughters. We willget 40,000 or 50,000 Afs as bride price. WhenI receive the money I will first repay thedebts.” Later she adds: “If someone comesand asks my husband or myself to work forthem, we will do so. “We are in need; wehave nothing.”

CS25-Herat: Downfall of a family

Baser Ahmad and Kobra in the Herat villagehave six children: three daughters and three

CS25-H: Debt portfolio

Credit types: cost-free loan, and delayedpayment of goods. Also provide in-kind credit

Repayment: after receiving khairat (alms)

Amount – credit source - credit use:3,000 Afs – neighbour – food3,000 Afs – shopkeeper – food

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Labour is often used to repay outstanding debts, including borrowing for food consumption.

sons. Baser Ahmad was a sole income providerworking as a sharecropper when he steppedon a mine during the war and lost both hislegs. Before the accident they had a “goodlife,” with a network of relations with whomthey exchanged credit. After the accident,he fell back on them for support. Baser Ahmadnarrates: “When I became disabled I hadgood credit relations for one or two months,but then these relations slowly ended becauseof my physical situation. Now I have no creditrelations.”

Baser Ahmad has brothers who used to livein the village but they have all moved out toother villages and started a new life there.They do not support him. He adds: “Whenyou have physical power everybody is yourbrother, when you are disabled brotherhoodmeans nothing.” Kobra’s family, who lives inIran, only supports them by letting her familystay in their house while they are away.

The first two years after the accident, theylived on their savings. When that was gone,Kobra started cleaning other people’s houses,washing clothes and baking bread. Their 12-year old son also earns some extra incomeby collecting fuel for other households. Buttogether, Kobra and her son earn little, andthey often still have to request credit orassistance from other families. They alsodepend on zakat (in Islam obligatory alms)and khairat (voluntary alms) from wealthierhouseholds.

Baser Ahmad states: “Some people supportus with khairat. If they did not assist me, mylife would be worse. People help me withcash or wheat. It is komak (assistance) notqarz (credit) because I cannot pay it back.But if we need wheat urgently we borrow itfrom some people. Then during harvest timepeople give us khairat and we repay our debt.We can never repay it outside harvest time.”

Kobra explains how they sometimes do takecredit: “Sometimes my children buy thingson credit from the shops. We are 3,000 Afsin debt to the shopkeepers. We have taken

rice, oil and wheat from them. We also takecredit in cash. We are 3,000 Afs in debt fromthe neighbours too. My husband took moneyfrom them because we did not have anythingfor household expenses. We have not repaidthem yet. I don’t know how my husband willrepay them. They come and ask for theirmoney and if we have money we repay them.But if we do not have money we tell themto give us some more time, when we makemoney we will pay them”. Nevertheless,Kobra did express confidence in finding creditwhen needed.

3.3 Case studies from middle-ranking households

CS76-Ghor: Mortgage to marry

Reza lives with his second wife and threesmall children in the Ghor village. They owntheir house, own a little less than one jeribof irrigated land and a little over a jerib ofrain-fed land, two cows, three sheep and adonkey. Although not a wealthy family, sixyears ago Reza had a good economy whenhis brother and father were still alive. Theyhad just returned from Iran with some savings,they built their house, and with some extraloans they were able to marry Reza to hisfirst wife. As Reza puts it: “We were threemen who worked, there was no time fordebt.” However, misfortune struck: first, hiswife died giving birth to their first child. Soonafterwards, both his father and brother alsopassed away. Reza suddenly found himselfon his own. He mortgaged his rain-fed land


Credit types: in-kind loan with profit, delayedpayment of goods and mortgage

Repayment: sale of livestock or livestockproducts, through labour

Amount – credit source - credit use:1,400 Afs worth of wheat – in-laws – food8,000 Afs – shopkeeper – food10,000 Afs – villager – mortgage to marry

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to pay for the bride price for his second wife,Khadija. That land has been in mortgage forfive years now. However, with the change ofcurrency in 2002 and the increasing value ofland, he transferred his mortgage to anothermortgager. He took an advance from the newmortgager to repay the old outstandingmortgage. As the land value had risen, hewas able to mortgage less land for the sameamount of money. Now, he has yet to repayhis new mortgage but has more land to usefor his own consumption.

Besides working on his own land, Reza takeson casual labour in the village. He cannotleave the village for long to work as a dailylabourer because there is no one to take careof his family while he is gone. Occasionally,Reza is forced to buy food on credit whenthere is not enough food for the family. If hecannot pay in cash or barter his debt withqurut (dried cheese), he will work for theshopkeeper. Last winter, Reza did not haveenough food and they needed to borrowwheat from his in-law. They agreed that hewould repay in cash and not in-kind and fora higher cost than the prevailing price: insteadof 70 Afs per ser (seven kg) he has to repay100 Afs per ser. Reza expresses his intent:“If I have surplus from my own land I will sellit and repay my in-laws, if it is not enoughI will sell livestock or I will work and makemoney for them.” He has to repay thesedebts this working season. However, Rezaalready thinks he would not have enoughfood for this winter and that he would againhave to go to his in-laws to ask for wheat onloan.

CS40-Kapisa: Mortgage for survival

Abdul Wahid owns three jeribs of land, andis the second largest landowner among allrespondents interviewed in the Kapisa village.However, he is far from a wealthy man.During the drought he could not cultivate hisland for three years and there was little workto be found. With a family of 12 he neededmoney to buy food. “First I borrowed moneyfrom someone in the village. But then he

regularly came to ask for his money, so Idecided to mortgage my land to him instead.I mortgaged it for 40,000 Afs (US$800) foreach jerib of land. Now we are 120,000 Afs(US$2,400) in debt.”

After this the family moved to Kabul for ayear where Abdul Wahid started working asa daily labourer. But two years later theymoved back to the village as life in Kabulbecame too expensive. He now sharecropshis own land on a 3:1 basis and works as adaily labourer in Kabul 20 days each month.His eldest son works on the land. Still theysometimes do not have enough income fortwo or three months; they then borrow extrafood from a shopkeeper in the bazaar who isa childhood friend of Abdul Wahid. They havean outstanding debt of between 4,000 and5,000 Afs (US$ 80-100).

Abdul Wahid wants to regain his own landagain but with the income he gets from dailylabour, 150 to 180 Afs per day, he cannotsave money. He needs it to provide for thedaily needs of his family. His eldest son of17 and says: “The right solution is to sell onejerib of land and from that money we canpay back the mortgage. We would get 150,000Afs (US$3,000) for one jerib.” His father’sresponse is: “Now [the mortgager] does notwant to buy, he wants his money back. Butmaybe I could sell it to other villagers.” Thereis a slim chance, however, that other villagerswill be able to pay such an amount. AbdulWahid also stressed he would need extraincome to start cultivating his land again tocover the cost of, for instance, seeds,fertilizers, and the ploughing. Abdul Wahidasks: “What shall I do with land now?”


Credit types: delayed payment of goods andmortgage; also provides cash and in-kind credit

Repayment: cash, for mortgage possible saleof part of land

Amount – credit source - credit use:4 – 5,000 Afs – shopkeeper – food120,000 Afs – villager – food

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and sometimes borrow onions or vegetablesthat they pay for later. Abdul Fatah says: “It[produce from their small garden] is actuallynot enough for selling but when they ask wecannot say no.”

3.4 Case studies from wealthyhouseholds

CS63-Ghor: Credit to invest in socialrelations

The household of Zainab is wealthy. Theyhave 25 jeribs of rain-fed land, three cows,one donkey, 15 sheep and a motorbike. Hersecond son, Momeen, goes to school in Laleveryday. He wants to become a doctor or

CS23-Herat: Credit networks

Abdul Fatah is a teacher in the Herat village.He lives with his wife and two sons, hisparents and unmarried brothers. He has twoother older brothers who live on their ownsomewhere else in the village. They own halfa jerib of irrigated land on which theycultivate vegetables and alfalfa. The incomehe gets as a teacher is not enough, this iswhy he is also sharecropping two jeribs ofland at the same time and the householdbreeds sheep.

Usually Abdul Fatah receives his salary everymonth, but sometimes it is late and he takescredit from his brothers or neighbours. Thesesame people also come to him when theythemselves need money. Nearly every monthAbdul Fatah buys food items on credit fromthe shopkeepers and repays them when hereceives his salary. He says he does not payhigher prices because he settles the debtsevery month. Abdul Fatah also gives in-kindcredits to close relatives or neighbours, thesame people he would go to when he needsto borrow money. Colleagues from schoolalso come to Abdul Fatah to borrow wheat,


Credit types: delayed payment of goods andcost-free cash and in-kind loan; also providescash and in-kind credit

Repayment: cash

Amount – credit source - credit use:? Afs – shopkeeper – food(? = unknown amount)

15


In credit networks, the same family members and neighbours who provide loans also engage in in-kind borrowing,particularly of food staples such as vegetables and wheat.

My daughter is 20 years old, the age formarriage The price is very low: 70–80,000Afs.”

CS12-Herat: Credit to assist and makemoney

When the fieldstudy was conducted, AkbarKhan was chosen as the new arbab of hisvillage. He is the son of the old khan in thecommunity and was then still living in thefamily’s large old qala (a walled, fortress-like compound). As his father had lost alltheir land, Akbar Khan had first worked as ateacher after which he became a shopkeeperand businessman. He started this shop witha partner, a shariq (business partner whoprovided investment on credit; see list ofcredit types in Appendix 2 for more detail),who was an old friend.

Akbar Khan was the only respondent whoopenly stated he gave credit: “I give a lot ofcredit.” During the drought and the Talibanreign, he sold material for carpet weavingand provided many households with the rawmaterial on credit, or provided them withadvances on their carpets. “They were inneed. When I know people are very much inneed I help them with credit.” He says hedoes not force people to repay their debts ifthey do not have the means to do so. “I donot want them to sell their daughters.” Andhe stressed how if he forced people to repayhe would lose the profit he would receivefrom God by helping people—the sawab. Healso never discusses with the people who areindebted to him when or how they will repay.He states how families who are chronicallyindebted are supported by the communitythrough zakat, khairat and komak that people

teacher later. The household has anoutstanding debt with shopkeepers in thebazaar. Zainab makes qurut with her sisterin-law, which her husband often takes to thebazaar to sell or barter “but most of the timehe uses it to repay our debts.”

Recently Momeen married the daughter of awealthy landowner from the main valley.Zainab explains how this came to be: “Myson fell in love with the daughter of this biglandowner. He asked his father to marry himto that girl. At first the landowner did notwant my son to marry his daughter, so he seta high bride price thinking we could not payit. But we were able to pay it. The brideprice was 120,000 Afs (US$1,400) as well as20 ser (one ser = 7 kg) wheat, 30 ser rice, 8ser oil and 20 sheep. For getting all thesethings my husband borrowed 80,000 from mybrother-in-law (Zainab’s sister’s husband)who just received a bride price for hisdaughter. The credit is qarz-i-hasana. Westill need to repay the remaining 40,000 Afsfor the bride price. We are also 20 sheep indebt. From last year’s surplus we saved topay for the wheat, rice and oil. We gave itall to the bride’s family.” Zainab says thatafter giving the food items for the bride priceshe is not sure they will have enough foodfor the coming winter: “We will wait and seeand otherwise sell some livestock. And if thatis not enough we will buy some food oncredit.” When asked how they will repay suchhigh debts Zainab replies: “We don’t know.


Credit type used: business credit

Credit types provided: delayed payment ofgoods, business credit, cost-free loans,suspected credit with interest.

Repayment: cash


Credit types: delayed payment of goods andbride price and cost-free cash loan

Repayment: possible bride price for daughter

Amount – credit source - credit use:? Afs – shopkeeper – food80,000 Afs – brother in-law40,000 Afs – bride’s father – remaining brideprice20 sheep – relatives – part of bride price(? = unknown amount)

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give to those families. “Within Islam the richshould help the poor.” Although not confirmedby Akbar Khan himself, other respondentsshared their concerns that he was likelyproviding loans with interest to businessmenin the village.

Akbar Khan has a network of households withwhom he gives and takes credit. This networkwas established when he was a shopkeeper.

When asked to identify them, Akbar Khanreplies: “Families with whom we exchangeddaughters, neighbours we have made closeto us through family relations.” Akbar Khanwas a wealthy man, who had establishedgood relations as a teacher, shopkeeper andbusinessman in the village: “I had goodrelations as a shopkeeper and want to keepthem as arbab.”

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4. Key Dimensions of Informal Credit

As illustrated by the individual case studiesin the previous chapter, informal credit isembedded in a set of social relations at thehousehold and wider community level. It iswidely used in all three villages, mainly forconsumption smoothing and for gettingmarried. But how general are the practicesreported by the household case studies andhow does one understand the differencesbetween households and communities withrespect to access to and use of informalcredit? This section aims to build on thespecific examples discussed in Section 3 andexplore more generally the importance ofinformal credit in rural livelihoods in thestudy villages, the diversity of practices, howhouseholds do and do not get access todifferent types of informal credit and thecontractual basis (repayment terms) andoutcomes of taking informal credit. As willbe made clear, informal credit practices arenot fixed but are undergoing a process ofchange.

4.1 Pervasiveness ofinformal credit

On the question of how widespread the useof informal credit in rural livelihoods is, theanswer is simple: all households both takeand give informal credit. Only one household(CS28-H), a poor widow in the Herat villageliving on alms reported not taking or providingcredit. Nevertheless, she admits that whenshe goes to households for alms she requestscredit out of pride even though she alwaysreceives alms. Most households interviewedreported both giving and taking credit, havingmultiple outstanding debts simultaneouslyand having a variety of different householdswith whom they exchanged credit.

In the Herat village, all households exceptthat of the old widow (CS28-H) have networksof credit relations; households that one might

approach to ask for credit could very well beneeding credit for themselves. AbdulShekabanee (CS9-H), a wealthy farmer,observes: “Credit relations are like this;sometimes you give sometimes you get.”Another middle income farmer, Dillawer Khan(CS11-H), describes credit relations as;“People who receive or give credit arespecified, they are known to one another. IfI go to a house for credit and he does nothave it, I go to another. These are people Itoo have given credit to.” Credit relationsamong the middle-ranking and wealthyhouseholds are often among family relations,neighbours, colleagues and friends. But givingand taking credit was not only practiced bythe middle-ranking and wealthy households.Baser Ahmad and Kobra (CS25-H) mentionedthey too give food to poor households whenthey can. Outstanding debts were largelyfound among the middle-ranking and poorhouseholds (see Table 2).

In the Kapisa village credit relations andpractices were mainly found within extendedfamily networks (paternal or maternal) andkin networks (tribal segments). Within boththese types of networks, credit forms includedreciprocal exchanges of small in-kind andcash credit, as well as provision of credit topoorer families by wealthier households.Habibullah (CS57-K), a mullah and smallfarmer in a neighbouring village explains:“We give and take credit between mybrothers. And we gave credit to our maternalcousin... if there is a bad situation weourselves also take credit.” Agha Mohammed(CS56-K), a teacher and small farmer, explainshow “within our qawm (tribal segment) youhave four taifas (lineage)—every taifa hastheir own credit and assistance relations.”However, those receiving credit from morewealthy households also provide credit whenpossible and requested. Sharif (CS59-K), is apoor shoemaker, who himself is heavily

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Table 2. The range and average amount of outstanding debts by location and wealthgroup

Share of Wealthy Middle PoorHHs withoutstanding Average Debt range Average Debt range Average Debt rangedebts debt debt debt

N=12 households N=10 households N=9 households8% with outstanding debt(s)11 60% with outstanding debt(s) 68% with outstanding debt(s)

Herat:41% <100 Afs 1,000 Afs 20,100 Afs 3,000-50,000 Afs 27,500 Afs 700-150,000 Afs

<2 US$ 20 US$ 402 US$ 60-1,000 US$ 550 US$ 14-3,000 US$(3,200 Afs)12 (700-18,000 Afs)

(64 US$) (14-36 US$)

N=3 households N=22 households N=5 households

Kapisa:67% with outstanding debt(s) 68% with outstanding debt(s) 60% with outstanding debt(s)

67% 20,000 30,000 Afs 23,300 Afs 4,500-124,000 7,800 Afs 4,000-30,000 AfsAfs 600 US$ 466 US$ Afs 156 US$ 80-600 US$

400 US$ 90-2,480 US$

N=3 households N=22 households N=7 households100% with outstanding 77% with outstanding debt(s) 43% with outstanding debt(s)

Ghor: debt(s)89%

59,300 Afs 8,000-120,000 Afs 20,900 Afs 4,000-60,000 Afs 5,700 Afs 10,000-20,000 AfsUS$ 160-2,400 US$ 418 US$ 80-1,200 US$ 114 US$ 200-400 US$

indebted and had to sell his mortgaged landyet, at times, he provides his services oncredit.

Credit in the Ghor village is provided by bothrelatives, as well as by wealthy villagers.Compared to the two other villages, givingand taking credit was practised but at asmaller scale and it was mainly in-kind. Ghorwas the village with the most interviewedhouseholds having outstanding debts (seeTable 2), which are mainly owed toshopkeepers since the drought.

The fact that households both give and takecredit, as the credit networks in Heratillustrate, indicates that there are not strict

or exclusive creditor–debtor definitions.Although the poor household of Baser Ahmadand Kobra (CS25-H) struggles to make endsmeet, it still manages to give in-kind creditto other poor households when possible. Itis this same household that expressed somuch confidence that they would be able tofind credit when needed, even though theywere currently facing some major incomeshortages. Many other households in thesample also expressed this confidence (forexample, Gulab Khan and Farida, CS44-K,presented in the Introduction). There werefew households that were unable to accesscredit and were considered vulnerable, as arespondent in Ghor (CS78-G) mentioned,

11 This amount is highly improbable. However, wealthy households were not as eager to reveal their debts in comparison withhouseholds from other wealth groups in Herat.

12 This average of 27,500 Afs of debt per poor household is skewed. In this sample, one household (CS31-H) had fallen intopoverty, and still has outstanding debts amounting to 100,000 Afs (2,000 US$). The other family is a female-headed household(CS24-H), which, over a course of five years, has accumulated a debt of reportedly 150,000 Afs (3,000 US$) from a shopkeeperwho is a relative. Given the bride price of her daughter, it is most likely that either it will repay the debt, or the daughterwill marry her relative’s son. In hindsight, this household most probably does not belong to the poor wealth group. Theremaining eight households form the poor wealth group in the Herat village, have outstanding loans between 700 Afs and18,000 Afs, which is, on average over the eight households, a debt of approximately 3,200 Afs (64 US$).

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because they had no relation to go to forcredit. The confidence in obtaining credit—of being able to find the money—appears tobe balanced by a certain confidence in beingable to manage the debt. Kobra (CS25-H),for example, who at first said she did notknow how they will repay the credit they hadrecently taken, then went on to say: “If wedo not have money we will tell [the lenders]to give us more time, when we make moneywe will pay them.”

During the drought there are reports of highdebts being considered shameful.13 However,in all three locations, indebtedness was neverpresented as shameful but more as somethingquite normal. This difference may lie in theimproved ability to repay the debts (whichwill be discussed further in Section 4.5).However, cases were found where large andmultiple debts were presented with pride.For instance, Zainab (CS63-G) describes withpride how the family of her son’s bride hadset a high bride price before the wedding,thinking they could not afford it, and how

they managed to pay through credit fromrelatives.

4.2 Diversity of informal credit

Given the widespread use of informal credit,it is not surprising that there is great diversityin informal credit practices.14 However, it isnot easy to identify clear categories, eitherin terms of the conditions under whichinformal credit is taken, or the way it is putto use. And the definition of categoriesrespondents gave vary, as will be elaboratedin the next section.

Diversity in categorising credit

Interestingly, the male shura of Kapisa onthe first day of field study when asked whatkind of credit types there were, replied thatthere were two kinds of credit; creditprovided within the qawm (tribe, but alsoreferred to community) and credit providedby “outsiders.”

Table 3. Share of households receiving credit (by credit type and wealth group)

Wealthy Middle-ranking Poor

Location Herat Kapisa Ghor Herat Kapisa Ghor Herat Kapisa Ghorand number 12 3 3 10 22 22 9 5 7of HHs

Delayed 62% 33% 100% 78% 50% 95% 90% 100% 71%Payment

Advances 0% 0% 0% 0% 0% 0% 0% 0% 86%

Cost-free 23% 100% 66% 78% 73% 0% 6% 80% 0%loans

Loans with 0% 0% 0% 0% 0% 9% 0% 0% 0%profit

Mortgage 15% 33% 0% 11% 50% 45% 10% 20% 0%

Business 46% 100% 0% 11% 14% 0% 0% 1% 0%credit

13 Lautze, S., E. Stites, N. Nojumi, and F. Najimi, 2002. Qaht-e-Pool: A “Cash Famine”: Food Insecurity in Afghanistan1999–2002. Medford, MA: Tufts University FIFC, http://famine.tufts.edu/research/natsios.html.

14 See Appendix 2 for descriptions of all credit types found over the three case villages.

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Cost-free credit was sourced from within thecommunity or tribal unit, while creditprovided with costs or profit attached to itwas sourced from outsiders. This last category,credit with profit or where costs are chargedis called qarz-i-sudh and considered sinful.By the end of the field study it was clear thiswas an ideal and that in practice thoseproviding mortgages were from within theqawm. For instance, Mohamadullah (CS34-K), member of the shura and present whenthe shura discussed their classification, wasthe main source of mortgages in the village.He had provided a mortgage to his cousin,Sharif (CS59-K) who had fallen more and morein debt over the last five to six years. Withlittle prospect of recovery he sold his landto repay the mortgage. Thus, the ideal andpractice are not necessarily the same thing.

Credit is often categorised by respondentsbased on if and what kind of “profits” aregained by the lender. Based on this principlethree credit groups can be identified; qarz-i-hasana, which is cost-free credit that willbe rewarded by God, though repayment isexpected; qarz-i-sudh, which is credit whereprofit is made and costs or interest is charged,considered a sin according to Islam; and qarz-i-khodadad, which is cost-free credit that isnot expected to be repaid by the borrowerbut “repayment” will be provided by God asreward (see Section 4.3 for more detail).

However, qarz-i-sudh and qarz-i-hasana areflexible labels given to different credit formsin different locations. In all three locations,sudh was largely referred to as the creditprovided by shopkeepers when buying oncredit. The marked-up price is the sudh. Thisshould be contrasted to poppy growing areas,where buying on credit from shopkeeperswas considered qarz-i-hasana15 and salampractices (a harvest of opium poppy beingsold in advance for lower than market prices)as qarz-i-sudh. It seems that qarz-i-hasanaand sudh are labels attached to certain credit

forms in relation to other forms of creditavailable within a locality.

Another example is the different perceptionsof mortgage and its costs. In Kapisa peoplereferred to mortgage as sudh, because theproducts of the land go to the one providingthe mortgage until the mortgage is repaid.This produce is viewed as profit which isconsidered sudh. In Herat, however, therewas no reference to mortgage as being sudh.In the Ghor village respondents often referredto mortgage when asked about sudh; howeverits practice was not hidden and full of secrecyas it appeared to be in the Kapisa village.The secrecy around the sourcing of mortgagein Kapisa is likely related to the newlyacquired status of Mohamadullah (CS34-K)who provides mortgages. Although his fatherwas a landless sharecropper, he himself hadgained wealth through a military check postand is currently obtaining wealth and powerthrough credit. Therefore in understandingand classifying informal credit one needs tobe aware of two dimensions: the first is thedifference between the ideal and actualpractice, and the second is the differentmeanings attached to different creditpractices between the three locations andover time.

For the purposes of this paper differentinformal credit forms have been classifiedand labeled according to the way credit istaken or provided (delayed payment, advancepayment, or credit from a third party), theterms, costs, collateral and the unit(s) ofexchange. The following credit types wereidentified:

• delayed payment of goods or wages• advances on wages• reciprocal cost-free in-kind and cash

loans• cash or in-kind loans with profit• mortgage• business credit• credit with interest

15 Mansfield, a personal account, 2006.

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The details of these are compared andcontrasted in the matrix in Table 4.A detailed description is presented in theAnnex section.

Diversity across locations

As Table 5 shows, not every credit type waspractised in each location, or by each wealthgroup in a location. Business credit and creditprovided with defined interest, for instance,was only found among the sample in the

Herat village, which is probably due to thelevel of business and trade in the village.However, in the Ghor village two credit types,loans with profit and advances on wages,were found that were not reported in theother two villages. An explanation for thiscould be that the Ghor village is largely basedon barter exchange and therefore lacksavailable cash. A respondent from the Ghorvillage (CS70-G) mentions how: “The creditsituation was better before the drought.People had money and were lending money

Table 4. Matrix of criteria for differentiating informal credit types

Credit Criteria

types Sources Range of Financial/ Timeframe Repaymentvalue material gain

Delayed • Shopkeepers Variable Variable marked- Variable; One • Credit provided in-kindpayment • Itinerant up price month - one • Credit repaid in cash

• traders season • or through barter

Advances • Large Variable Cheap labour One agricultural • Credit provided in wheat(G) • landowners (found up (profit) season • Credit repaid in labour

to 280 kg Dependentwheat) workers (cost)

Cost-free • Relatives Variable No costs/profit Varies: one week; • Credit provided in cashloan • Neighbours (found up several months; • or kind

• Friends to 80,000 several years • Credit repaid often in• Colleagues Afs = 1,600 • same unit

US$)

Loan with • Relatives Variable Profit is from One agricultural • Credit provided in wheatprofit • Wealthy (found up pre-determined season • Credit repaid in cash or

• villagers to 2,000 Afs higher value/ • labour= 40 US$) price

Mortgage • Wealthy Between Use of land Three-year • Credit provided in cash• villagers, 6,000 and contract; in • Credit repaid in cash• Relatives 120,000 Afs practice, a• In-laws (G) (120-2,400 variable number

US$) of years

Business • Wealthy Variable Pre=determined Defined time, • Credit provided in cashcredit (H) • villagers (found up to share of profit defined project, • Credit repaid in cash

• Relatives 80,000 Afs = made from or timeless1,600 US$) business

Credit • Business- no data Interest until Pre-determined • Credit provided in cashwith • men repayment timeframe • Credit repaid in cash orinterest (H) • Wealthy(H) • • kind

• villagers

G=Ghor; H=Herat

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Table 5. Types of informal credit practices reported (by location and wealth group)

Credit Wealthy Middle Poor

Herat Kapisa Ghor Herat Kapisa Ghor Herat Kapisa Ghor

Delayed payment + + + + + + + + +

Advances - - +(l) - - - - - + (l)

Cost-free loan + + + + + - + + -

Loan with profit + + + + + - + + -

Mortgage + (l) + (l) + (l) + (b) + (b) + (b) - - -

Business credit + - - + - - - - -

Credit with interest + - - - - - - - -

l=lender; b=borrower

same credit types but in contrasting ways orperceived the same credit types in diverseways. This illustrates how a credit type canbe practiced or perceived differently on acase-to-case basis. The two most strikingcases were that of “buying on credit” andmortgage.

In the case of “buying on credit,” mosthouseholds interviewed thought thatshopkeepers who were providing their goodson credit for “double prices,” were engagedin practices of sudh. Some respondents,however, were of a different opinion as inthe case of Abdul Fatah (CS23-H), a teacherand sharecropper in the Herat village, whodescribed the credit practice as:

Local shopkeepers depend on theircustomers and therefore give credit,they know the villagers do not havemuch cash... Farmers pay every seasonand they have to pay a bit more thanthe original price. The longer it takesthe more expensive the prices get. It isa kind of sudh. But shopkeepers are alsopeople in need; they too have to getmoney to buy new goods. For instancea bottle of tomato paste is 50 Afs, afterone season it becomes 60 Afs. But inbetween the repayment, the shopkeepermight need money to buy new goods,they have to do this.

to each other but now it has changed andpeople don’t have money to lend.” Anotherexplanation could be that there was littletrust in households being able to repay eitheron time or in the unit provided so that whencredit is given, the risk is covered throughthe costs.

The majority of households over all threelocations and wealth groups mentioned havingaccess to “buying on credit.” Households inKapisa reported making less use of “buyingon credit” than in the other two villages,possibly because they had fewer “relations”as shopkeepers in the district bazaars, andthe village shops did not sell wheat. Instead,the Kapisa households relied more often onborrowing money from relatives as qarz-i-hasana. In all three villages, poor householdsdid have access to “buying on credit” fromshopkeepers although the poor could rely onit less often and with lower ceilings ofaccumulated debt. Thus, although all wealthgroups reported having access to delayedpayment of goods, or in other words “buyingon credit” from shopkeepers, the actualpractice varies by wealth group.

Diversity in perceptions andpractices of credit

There were households in all three locationsand across wealth groups that were using the

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relationship between the buyer and theshopkeeper.

Another example of differences in practicesis found with mortgaging. Mortgaging of landwas a frequently used credit type in all threevillages for those owning land during thedrought. For many landowners, mortgagingout one’s land was a means to access largecash credits, inaccessible without using landas collateral for repaying accumulated debts.This occurred in two ways; either accumulateddebts are repaid through a mortgage or amortgage is taken as a debt managementmeasure in order to regain access to short-term credit through shopkeepers. Forinstance, Abdul Wahid (CS40-K) owns threejeribs of irrigated land that he had mortgagedout during the drought. He narrates: “FirstI borrowed money from someone in thevillage... But then he regularly came to askfor his money, so I decided to mortgage myland to him instead.” Although it is likelythere was some form of pressure to repaythe outstanding cash debt in order to transferthe debt into a mortgage, it also providedan opportunity to manage his outstandingdebt. Many mortgages taken during thedrought are still outstanding and land hasnot yet been retrieved even though therepayment time has passed. It is as if thesedebts are put on hold. This, however, is notthe case with all mortgages as the exampleof Sharif (CS59-K) illustrates. He and hiswidowed mother mortgaged their land alsoduring the drought, but were however“forced” to sell it to the mortgager asrepayment. Understanding the differencesin repayment practices and the outcomesbetween these two similar situations—whichwill be elaborated on in Sections 4.5 and4.6—requires looking at the larger social andeconomic context of the village.

However, mortgage is not a credit sourcehouseholds seek only in times of distress. Itwas also used in order to access large cashsums to pay for high bride prices, which againare inaccessible without using land ascollateral. This was found in all three

Asking respondents to be specific about themarked up price often resulted in respondentsreferring to “double-pricing” without beingable to say in detail what the marked upvalue was as the shopkeeper was the onlyone recording the debt and it was evidentlynot a pre-determined higher price (CS78-G,CS26-H). There may be cases (although notspecifically found) where marked-up pricesare “double,” in many instances it seemedto be more often a “matter of speech.”

The costs of “buying on credit,” with amarked-up value, is different by case andchanges over time as well. Abdullah (CS18-H) used to have a butcher’s shop in the Heratvillage but he closed it down two years agobecause nobody had money to buy meatanymore. He describes how another butcherin the village did not only have to close downhis shop but also remained in debt whenpeople did not pay their outstanding bills.

When I had a butcher shop in this villageI didn’t give credit to people, becauseanother villager also had a butcher shopin the village and he gave a lot of creditto people. But then the Taliban cameand everyone left the village for Iranand Herat and this man could not findmoney to pay the animal owner fromwhom he bought the sheep for his shop.So he left the shop and went to Iran andworked there for four years. The moneyhe earned he gave to the sheep owners,but still he didn’t receive his moneyfrom the villagers he gave credit to.

No defined practice of mark-up pricing wasfound in the study, although during thedrought, the debt burden of shopkeepersincreased, which affected access to “buyingon credit” and may have led to an increasein the practice of marking up prices. Themarked-up value may be determined by anumber of circumstances: the overall debtburden carried by the shopkeeper; theprospect of debtors repaying in a timelymanner, as well as the prospect of repayingin the longer term; and the nature of the

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Considering the different types and practicesof informal credit it is not easy to generalisethe role that informal credit plays in rurallivelihoods. This can only be understood bytaking into account the context of theexchange and the parties involved. Why dohouseholds engage in credit exchange?

4.3 Reasons for giving and takingcredit

The majority of households take credit toovercome expected and unexpected leanperiods as well as to pay for marriages andother life cycle events (see Box 1).

Credit for productive inputs and businessinvestments was only found in the Heratvillage. Providing credit to gain more assets,i.e. mortgaging someone else’s land, wasfound in both Kapisa and Ghor. Besides these

locations: in both Kapisa and Herat half ofall households who had taken mortgages usedit to pay for marriage costs; in Ghor, two-thirds of all households taking mortgagesused them to pay for marriage costs. Whatwas not encountered during the field studyin the Herat village but what respondentsmentioned occurred, was householdsmortgaging their land to access large cashsums to start businesses. Given that pricesper jerib of mortgaged land are based on thevalue of the land, debts from mortgagestaken during the drought, when land valueswere less, are lower than debts frommortgages taken more recently to pay formarriage costs. Mortgage is not used for justone purpose, it is used in times of need aswell as a strategy to pay for otherwiseunaffordable undertakings—marriage orbusiness—and its repayment practices alsocannot be easily categorised (Section 4. 5discusses this in more detail).

Box 1. Credit use

Consumption smoothingMost households from all wealth groups of the sample, do not have a regular and secure incomeand are periodically short of cash or food or face small-scale crises for which food or money isneeded. Families dependent on agricultural income sources dealing with seasonal lean periods,families dependent on labour migrants for remittances, casual labourers in the lean time ofwinter when there is little work in the village, teachers who receive their salary late, carpetweavers before the carpet is completed and sold, or poorer households trying to cope with aperiod where there is no or not enough income—all fall back on credit to overcome these leanperiods. Often, relatives and neighbours are approached to provide in-kind or cash credit. Moresubstantial income or food shortages, often encountered by the poor, were overcome throughcredit provided as assistance from relatives, through credit from predominantly neighbours andshopkeepers, or in Ghor through credit using future labour as repayment, or in Herat by askingfor credit but receiving alms if one is a recognised vulnerable person.

Life cycle eventsAnother common use of credit is to pay for expensive life cycle events like bride prices andwedding costs. Considering the amount of money a household is willing to invest, marriage isan important event. All recent post-drought mortgaging of land by respondents was to financeexpensive bride prices of which the highest reported was 150,000 Afs (US$3,000). One respondentin the middle-ranking group, a teacher and farmer from the Kapisa village (CS56-K), repliedwhen asked about possible debts, that he did not have sons of marriageable age and thereforedid not have debts. Costs related to death of household members are also included here. Poorhouseholds avoid wedding costs through sister exchange, marry cheap brides and in case ofillness and death rely more on charity to provide for these expenses. Use of credit for life cycleevents was common in all three locations but only among the middle-ranking and wealthyhouseholds.

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H and CS21-H), where middle-ranking andwealthy households had active networks withhouseholds of equal standing to give and takecredit.

In the Ghor village, credit exchange was onlyfound among the wealthy households, andonly used for larger cash requirements. Anexplanation for this is that their creditnetworks often extended outside the village,usually with relatives residing in other villages,which does not facilitate frequent creditexchange for consumption smoothing. Thegive and take of credit between householdsis based on expected returns and trust inreciprocity. An explanation provided by manymiddle-ranking households in the Ghor village,as to why there was so little reciprocal cashloans provided, was that there was no trustpeople would repay. This “distrust” lay mostlikely in not trusting that the loan will berepaid soon or in the kind in which it wasborrowed and not for instance through labour.

Credit is a way to solidify existing relationsof mutual support or, when engaging in newcredit exchanges, a way to establish orincorporate new relations within a networkof support. In Herat, Nuzamudeen (CS21-H),a Kuchi settler, is actively establishing himselfas a trader via business credit and is planningto align his family with specific families inthe village through marriage, thereby creatingnew credit relations. The arbab from thesame village (CS17-H) confirms this whendescribing with whom he has credit relations:“...with those we have made close throughmarriage.” But when the trust that the creditwill be repaid or the act returned in thefuture disintegrates, credit relations can dryup or fail as illustrated by the case of BaserAhmed (CS25-H) described in Section 3.

Marriage is thus an important event throughwhich households invest in social supportnetworks, as it provides a possibility to choosea relation one wants to “get close with” andfacilitates credit relations as well as general

three main reasons to engage in credit, thereare additional underlying dimensionsexplaining why households give as well astake credit. Credit is also perceived as aninvestment in mutual support, as a means ofproviding assistance and also as part of asystem of patronage, and it may fulfil severalof these aspects at the same time. Yet eventhis is not an exhaustive list of reasons forcredit exchange.

A. Credit as an investment in mutualsupport

Deen Mohammed (CS33-K) is the mainshopkeeper in the Kapisa village. The familywas originally not wealthy but with savingsfrom Iran, they have been able to invest ina shop and the village mill. Recently, his songot married, and in order to pay the brideprice and wedding costs he needed to borrowmoney, which he found from several differentvillagers: “Because I have influence as theshopkeeper and the miller, people broughtmoney to me to use for the wedding—around3,000 Afs (US$60) each. It was all credit.”Later he added: “If I did not have this shop,they would not have given me money.” Whywould households give Deen Mohammed creditfor organising his son’s wedding? As DeenMohammed himself explains: “Because I amthe main shopkeeper.” Providing credit to ashopkeeper is investing in, or re-enforcing,a relation of support. He adds: “Whensomeone gives me 3,000 Afs when he is inneed [himself], I give him 10,000 Afs.”.........

As this case illustrates, credit can be providedas a means to assist households in need ofcash or food but it is also a means to secureassistance for the lenders when they needcredit themselves in the future. This givingand taking of credit is more often found inshort-term credit provision for consumptionsmoothing. However, as Deen Mohammed’sexample shows, wealthier households alsoprovide larger cash credits for life cycleevents to (re)establish credit relations. Similarcases were found in the Herat village (CS17-

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failing family networks as Baser Ahmad (CS25-H) faced when he became disabled; and onthe other hand, by receiving charity andassistance credit from wealthy households.Baser Ahmad again provides an example ofthis, when he received 3,000 Afs credit fromhis neighbours even when there was littleprospect for him to repay in the near future.In the Kapisa sample, the provision of creditto assist was mainly found within family andlarger tribal networks. The household ofGulab Khan and Shafiqa (CS44-K), describedin the Introduction, is an example of havingongoing support from relatives, often outsideof the village; in this case, households whohave moved to Charikar or Kabul. Qarz-i-khodadad-like credit is not common in theGhor village, though it did occur. Zamen Ali(CS70-G), himself a middle-ranking farmer,mentioned how, “We have land, when weharvest our wheat people come to us and wegive 1-2 ser (7-14 kg) of wheat as loan knowingwe will never get it back. Some give backsome don’t. But we know their life situationis worse than ours.” Interestingly, norespondents in Ghor expressed feelingobligated to assist the poor, nor did the poorreport that they were relying on beingassisted. The reason may be related to acredit practice where poor are “providedfor” but in an entirely different manner, asthe next section will illlustrate.

Assistance is a religious as well as a socialobligation as seen in certain expectationsexpressed within the community. Obligationand religious reward are, therefore,underlying dimensions of giving credit toneedier households. Who is entitled to thisassistance, or who can claim this assistancewill be discussed in more detail in Section4.4 on access to credit.

C. Credit as part of a system of patronage:a means to security and social standing

In the Ghor village a specific credit relationwas found that was not observed in the other

mutual support. It provides an importantopportunity for households to strengthen andbroaden their range of support opportunitiesand possible credit sources. Poor householdsin Kapisa were marrying their daughters offwith no or low bride price with theexpectation that it will provide a source ofassistance in the future. Middle-ranking andwealthy households go out of their way in allthree locations to collect or borrow enoughmoney to pay for the costs of bride price andwedding, often going into significant debt asthe number of mortgages taken to financethe event exemplifies (see also CS76-G, CS63-G, CS33-K, CS20-K and CS21-H). This showsmarriage’s importance as a socio-economicinvestment.

B. Credit as a medium of assistance

Whereas the previous point related to creditbeing used as a means of building mutualsupport mechanisms, which was largelypracticed between households of more orless equal standing, credit was also a meansto assist other households; this was foundpredominantly between households ofdifferent wealth groups. This form of credit,described as qarz-i-khodadad in Section 4.2,is credit provided as assistance under theagreement that if the borrower gets theopportunity to repay, he or she will do sobut if not, the lender will receive repayment“through God.” This term is not widely used,although reference to it and its practice wasfound in the Kapisa and Herat villages. In allhouseholds in the sample, there was a generalunderstanding that wealthy families shouldassist the poor, through charity, assistanceor by providing credit. During the fieldworkthe mullah in the Kapisa village, possiblyinstigated by this study, preached at theFriday sermon about the goodness of assistingpeople through qarz-i-hasana, contrary tomortgaging, which was considered a sin.

In the Herat village, poor households weremainly characterised by, on the one hand

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the labourers having no other choices.However, one cannot judge properly withouttaking into account the possible advantagesthis system of interdependency has for thepoor. As the livestock herds have not yetrecovered and many households aresupplementing their food income withcontract and daily labour, there is laboursurplus in the village. Of the 32 householdsinterviewed in the Ghor village 25 had ahousehold member working as a contractlabourer (thus excluding daily labouropportunities). Contract labour can providea more secure and possibly greater incomethan casual daily labour given the guaranteedlength of work it provides; a contract of eightmonths provides for a strong adult 20,000Afs (US$400) which is the equivalent of 133days of daily labour at local rates, or overfour months of continual daily labour. Morerisk-averse households will aim to smooththeir income streams by fixing a term ofemployment, even for lower return, ratherthan depending on the uncertain daily wagelabour market in a context of surplus labour.Thus, binding oneself to a wealthy landownerthrough debt and reserving ones labour canbe a desirable condition to secure ahousehold’s food security.

Interestingly, in the Ghor village, and alsofound in the rest of Hazarajat,18 there wereexamples of joint households where wealthyfamilies with large landholdings would livetogether as one household with eitherindividuals, or in some cases with wholefamilies of those working for them on acontract labour basis. Khodadad (CS65-G) isa wealthy man with large land and livestockholdings. He is an old man now, and thoughhe and his wife had seven children they alldied prematurely. “I have a mazdur (contract

two locations: a large landowner providingadvances on future contract labour to landlesshouseholds. As this was done on severaloccasions throughout the year the labour ofa household could be fully reserved to onelandowner even before the agricultural seasonstarts. With this agreement, there is agenerally understood obligation from thosegiving as well as expectation from thosereceiving that the landowner should providecredit for the labourers working for him.16

However, accumulated advances againstfuture labour and other possible debts withthe landowner can result in a state of bondedlabour. Gulbakht (CS25-G), who lives withher elderly husband and three young sons inthe Ghor village, provides an example. Thefamily also has three daughters all of whomare working and living in other householdsrepaying debts and advances taken. One ofGulbakht’s daughters works to repay anadvance her father took two years ago. Hehad fallen sick and was unable to providethe work he had taken an advance for.Although the old debt is not yet repaid,Gulbakht just recently approached the familywhere this daughter works to request morewheat on loan, which was granted. Otherpoor households have similar conditions, asin the household of Safar (CS84-G) describedin Section 3. Thus, credit in the Ghor villageconnects landowners with large land andlivestock holdings and in need of additionallabour to the landless through the provisionof advances on future contract labour.

Long-term contract labour is approximatelyone-third of a daily wage and thus a landownergains access to cheap labour by providingadvances.17 This system can easily becharacterised as “exploitation”—providingcredit in order to access cheap labour with

16 The study from Semple, conducted in 1998 in the same region, also reports the expectation of landlords providing creditto their tenants (1998: 38).

17 Contract labour ranges between 10,000 and 20,000 Afs (200 and 400 US$), a pair of clothes and food for eight monthswhereby the person hired often lives together with the family hiring him or her. Converting the cash component to a dailywage rate gives a daily rate of between 42 Afs and 83 Afs (between 0.82 and 1.66 US$). The rate is likely to be less whencontract labour is used to repay debts.

18 Mousavi, S.A., 1998. The Hazaras of Afghanistan: An Historical, Cultural, Economic and Political Study, p.46. Surrey,England: Curzon Press.

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especially given that there seems to be anover-supply of labour in the village. Thismight be related to lenders obtaining socialstanding and political power within the villageby having others depend on them throughthe provision of credit. The positiveperception of employing labour throughpatronage relations is discussed in Tapper’sstudy on marriage practices within a Pashtuntribe in the 1970s.

It is dishonourable to sell one’s labourfor recompense in any form, while it ishonourable to employ labour, to haveclients and dependants, people to whomproduce is given in return for theirlabour.19

In the Ghor village, wealthy households builtdependency relations through credit thatmay have affected their social standing andpolitical power within the village. In Kapisaand Herat, while patronage relations such asthose described above were not found, asimilar outcome of increased social standing

labourer) who is with me since he was a smallchild. He came to me because he had no oneto look after him at that time. Now I havebrought a wife for him and he is with me.”After this interview, a member of the researchteam observed that the man working forKhodadad was “a mazdur in exchange forshelter, food and a wife.” Although, this wasnot a common situation, it does illustratehow bondedness also entails an element ofsecurity; one obtains food and other formsof security through dependency.

This credit practice was not found in Kapisaor Herat, although respondents in Kapisareported that it did occur four to five decadesago. An explanation for its decline is mostlikely related to the changed land relationsand access to more diverse job opportunitiesnow found in Kapisa and Herat.

It is important to note that there seems tobe more to it for the lender than solelyaccessing cheap labour or meeting religiousobligations by assisting poor households,

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Subsistence farming is an important livelihood but daily labour is still needed to augment income and food security.

19 Tapper, N., 1991. Bartered Bride; Politics, Gender and Marriage in an Afghan Tribal Society. Cambridge.

through having credit-dependent householdswas found. Among the members of each shurain the three studied villages “big” lenderswere found. In the Herat village, the newlychosen arbab was a known source of bothbusiness credit as well as credit to assist. Inthe pilot study conducted in a village in Balkhprovince, the village mullah was a wealthybig landowner and an important source ofcredit for many villagers. Although hedescribed his motivation as religious, it isnot surprising he too was chosen as head ofshura. To what extent are the reasons forproviding credit based on altruism or selfinterest? One can only speculate on a case-to-case basis, but it is most likely to be acombination of both. That all main creditproviders of the studied villages were alsomembers of the shura or the arbab illustratesthis.

There are several dimensions why householdsgive and take credit: one is, credit is usedto overcome expected or unexpected leanperiods and pay for expensive life cycleevents. However, credit is also used tosafeguard future access to credit and otherforms of support or assistance, either throughreinforcing mutual support relations, or withina system of patronage to meet religiousobligations and to obtain social or politicalrewards. But do all households have accessto the credit they want or need?

4.4 Access to informal credit

There are two striking findings in this study:first, the majority of households from thesample are able to access credit; and second,the confidence that many households have,including the poor, about being able to accesscredit.

Shafiqa (CS44-K), the wife of the householddescribed in the Introduction, is confidentin knowing who to go to for credit and inbeing able to access credit on good terms.However, she is also confident that she willactually receive credit when she asks for it,even though at the time of the interview

there was very little prospect of income inthe near future. Her confidence was mostprobably related to the household’s creditsource being her family and the obligationsto assist this implies. However, many similarcases of confidence are found in Kapisa, aswell as in Ghor and Herat, even among non-family credit sources. What is this confidencebased on?

In all three villages, households expressedthe expectation of being able to receivecredit and in some cases even expressed itas an “entitlement,” as a right to accesscredit. How this entitlement is expressedvaries according to the specific credit relationa household is engaged in (mutual support,assistance or patronage). Within mutualsupport networks, which are often definedby tribal or other blood relations, reciprocityamong the parties giving and taking credit isthe basis of claims to entitlement. Forexample, the Kapisa village is divided intoseveral sub-clans called taifa. Within thetaifa, cost-free credit is exchanged. As ateacher and middle-ranking farmer (CS56-K)reported: “For example, if I ask Esmatullah[a wealthy man from another taifa] for credit,he will say no, even though he has moneybecause he would rather give credit to peoplefrom his own taifa.” Wealthy householdsreserve their surplus cash to provide for theirclose relatives and fellow taifa members,who in turn “claim" their right to credit fromwithin this group, knowing others within thegroup can make claims on them. In the caseof assistance-related credit, as the obligationto assist is embedded within Afghan society,this obligation forms the basis of claims toentitlement to credit. Similarly, withinpatronage relations, claims to credit orexpressions of entitlement are based on theobligations represented by the patronagerelation.

Entitlement, however, entails exclusion ofhouseholds that do not belong to the kingroup, mutual support group, or system ofpatronage (lack a long-term tenure agreementwith a wealthy landowner). One respondent

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(CS78-G) in the Ghor village mentioned how“vulnerable households are those who do notknow people who can help them.” Anotherrespondent, Anwar (CS83-G) sold hishousehold’s assets and was ready to migrateto Herat the following day. Anwar explainedthat his household was leaving the villagebecause the landowner they used to workfor as contract labourers, whose house theylived in, had mortgaged his land. The newcreditor had hired other contract labourersto cultivate the mortgaged land, leavingAnwar unemployed. Equally severe was thatthey had to vacate the house they were livingin, and had lost their main source of credit.In one moment, Anwar lost his employment,his place of residence and credit access dueto his patron’s fall in economic status. Thisexemplifies the covariant nature of somerisks, particularly evident in a context likethe Ghor village, where livelihood inter-dependency is high.

Poor households from the Kapisa village areaccessing credit from wealthier relatives inand outside of the village. It is worth notingthat the research team did not come acrosspoor households lacking relations to assistthem. A possible explanation for this is thatthe poor households would not have survivedwithin the village and such households mayhave migrated out. However in the Heratvillage, in cases where contacts had beenbroken during the drought (CS25-H and CS21-H), other entitlements are present, includingentitlement to charity. Baser Ahmad (CS25-H) and Ghulam Mohammad (CS28-H), bothimpoverished, reported how in the Heratvillage there was a difference between thoseconsidered vulnerable, i.e. the disabled andfemale headed households, who weregenerally perceived as “in need of assistance,”and those who were poor or had beenimpoverished but where the head of thehousehold was still an able-bodied male. Thefirst group had access to charity (mainlykhairat) whereas the second group did not

and instead had to access credit, which couldresult in further impoverishment.

The underlying reasons why householdsengage in credit, as identified in Section 4.3,are linked to entitlements to credit throughthe need to reciprocate the action or throughsocial and/or religious obligation expectedby both lender and borrower, or as an integralpart of a system of patronage. Theseentitlements explain the confidencerespondents expressed in accessing credit.But once credit has been accessed it needsto be repaid at some point. Where and howdo the households find the money?

4.5 Repayment practices

“When we find the money, we will repay,”is the common response by many respondentswhen asked how they will repay their debts.A good example is Gulab Khan and Shafiqa(CS44-K) who are constantly borrowing moneyand goods from Shafiqa’s relatives, especiallysince Gulab Khan became unemployedrecently. With little prospect to repay in thenear future, the opportunity to “find themoney” lies, as Shafiqa states, in the futureincome from the bride prices her fourdaughters will most likely receive. In otherwords “finding the money” seems to refer,in this case as well as in many other cases,to an undefined time in the future when theopportunity to repay will arise. Repaymentpractices in the three villages were found tobe highly flexible, as shown through theexamples of mortgage repayment andrepayment practices with shopkeepers inGhor.

Mortgage and repayment practices

Of the 26 households in the sample whomortgaged land over all three locations, ninewere already able to retrieve it and threereported having to sell their land or a partof it.20 Respondents mentioned examples of

20 Of the nine households, which had once retrieved their mortgaged land, two had again mortgaged it out.

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more households who had sold theirmortgaged land, but as they had left thevillage the dynamics and reasons around thesales, and if they were somehow forced,remains unclear. However, 16 of the 26mortgages taken are still outstanding,although the three year repayment timeframehad passed. Why have some households soldtheir mortgaged land to repay the debtswhereas others are able to keep outstandingmortgages with apparently no pressure torepay?

For instance, Sharif (CS59-K) now a shoemakeralongside the main road used to be addictedto hashish and did not work. To pay foraccumulating debts during the drought, hehad mortgaged his land to his uncle,Mohamadullah (CS34-K). His mother, a widow,was able to retrieve his land through thebride price of one of her two daughters,within the three-year repayment period.However, falling further into debt for foodexpenses they again had to mortgage theirland. Only this time when repayment wasdue his uncle forced them to repay by selling

him a part of their land. Compare thishousehold’s situation with that of AbdulWahid (CS40-K) who had also mortgaged hisland during the drought and who is currentlystill not able to retrieve it as the household’sincome is solely based on his daily labour andthe food produced from sharecropping hisown land. Nevertheless, as he has a largefamily with both daughters and sons, thefuture prospect is one of multiple incomesources, possible labour migration to Iranand daughters who will marry and receivebride prices. The difference between thetwo households in the extent of repaymentpressure from the creditor lies in their verydifferent future prospects of repayment.

Households do take on risk when mortgagingout their land. The creditor, once thetimeframe has passed, does have the rightto request his money back. If a debtor facesmore crises, the creditor might lose trust inthe future prospects of repayment, and inresponse to the increasing risk of default,demand his money back.

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Food expenses could push families further into debt; some households are even forced to mortgage land for repayment.

Accumulated debts from during the drought

In Ghor practically all households had largeoutstanding debts of between 2,000 and20,000 Afs (40 and 400 US$) with theshopkeepers in the bazaar, accumulated fromthe time of the drought. Given the extent oflong-term outstanding accumulated debts,shopkeepers have been carrying a high burdenfor their customers. The value of theoutstanding debt was not reported to be stillincreasing (i.e. through interest charges),though marked up prices may originally havebeen included in the amount lent.Interestingly, these indebted householdscontinued to be able to buy on credit; theyobtained this access through continuedrepayment of current debts thereby bothobtaining more credit and avoiding beingcharged excessive marked-up prices. Forinstance, Zainab’s household (CS63-G) hasan outstanding debt with shopkeepers fromthe time of the conflict and the drought.However, her husband buys on credit everywinter which he often repays with livestockproducts. Thus, households seemed to havetwo debts with a shopkeeper, one highoutstanding debt that seemed to be “put onhold” and one active debt. The questionarises as to why creditors allow “default” in,for example, mortgage repayment or for long-term accumulated outstanding debts? Theanswer most probably is to be found in thesocial and/or religious obligation to assist.Sharif’s (CS59-K) words of disgrace whendescribing how his uncle, the creditor of themortgage, had forced him to repay and thussell his mortgaged land to him, exemplifythis: “All villagers know he took my land bymortgage.”

Repayment practices are characterised by acontinuing trust and expectancy that thedebt will be repaid. This can take years, evenas long as waiting for the household to age—for sons to grow older in order to work orfor daughters to get married and provide thebride prices. However, repayment practicesare an ongoing “muted negotiation,” as they

do not always seem to be discussed. Theirflexibility can shift when on the one handthe borrower is unlikely, even in the longterm, to repay the debt, or on the other handwhen the lender needs his money back. Thereare three main factors that can affect thesituation of either lender or borrower, orboth simultaneously, and which trigger forcedrepayment:

• Loss of income sources due to changesin economy, conflict, or drought;

• Changes in household composition:gradual, i.e. a large household with oneincome provider but many potentialfuture income sources; or sudden, i.e.with the death or illness of a householdmember; and

• Increasing demands for assistance andsupport from other households, anddecreasing returns from assistanceprovided to others.

In the end, repayment practices are flexiblebut contingent. When a debt is not repaid,the credit agreement between lender andborrower is adjusted according to thechanging situation of both parties, adjustingto shifting relations and circumstances.Nevertheless, renegotiation of repaymentcan fail, though there is little evidence thatit currently frequently does. Repossession ofassets due to the failure to repay debt onlyoccurred for example in the case of Sharif(CS59-K) when there was no prospect ofrepayment in the future.

4.6 The outcome of credit practices

When looking at the general outcome ofcredit practices, it is clear that manyhouseholds achieve what they want: they areable to access food or money to meet theirimmediate welfare goals and thus surviveand get by, or marry and meet theirinvestment needs. This section summarisesexperiences at two ends of the spectrum of

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outcomes—those in decline and those whoprosper due, at least in part, to their use ofcredit. Specifically, this section explores thepotential negative effects of crisis on creditpractices, and indirectly, on credit outcomes,as well as how credit can provideopportunities to prosper, though generallyamong those already relatively asset rich.

The impact of crisis

In all three locations, impoverishment fromyears of insecurity and conflict, followed byfour years of drought is widespread. Manyhouseholds are still recovering. There are,however, two cases in all three locations ofhouseholds still in a process of decline: Sharif’shousehold (CS59-K) in Kapisa, was forced tosell mortgaged land to an uncle; and GhulamMohammed (CS31-H), who has also mortgagedhis land and will most likely have to sell itin the future due to a high burden ofoutstanding debt. Baser Ahmed (CS25-H) isan example of a household who has falleninto poverty and has not been able to recoverbut has been able to stabilise its condition,though at a lower level.

All households are at risk of experiencing acrisis which can affect credit practices,particularly repayment pressures or the natureof assistance credit already received. Suchchanges in practices can ultimately lead toa decline in household security. Crisesaffecting the lender or borrower can lead tounexpected demand for debt repayment.Lenders facing unexpected lean periods orother downturns may call in debts to raiseneeded cash or food or may remove patronageties (see CS83-G), while borrowers, who facecrises may lose credit worthiness in the eyesof lenders, leading to demands for repayment.Such demands can push borrowing householdsinto decline. Their ability to recover dependson the depth and breadth of their creditnetworks, as well as the condition of thehouseholds with whom they have a relationof mutual support. During the drought, whenpractically all households faced problems,mutual support networks started todisintegrate. In Herat, there were cases likeBaser Ahmed’s (CS25-H), of familiesabandoning their relatives in order to preservetheir own security, or to avoid depleting thefew resources left in their possession. Thus,

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Drought and conflict have changed credit practices over time. Borrowers, pressured to pay, are pushed into decline.

the break-up of mutual support networks,often in the face of negative trends such asdrought or conflict, could further drive ahousehold into hardship, especially withunexpected demands for debt repaymentthat could force families to appropriate assetsif no other means existed to repay..............

In addition, not all credit provided under thelabel of “assisting” lead to a positive outcome.While perhaps given to assist a relation facinga lean period or crisis, the nature of assistancecredit may change for a range of reasons,from individual greed to larger societal shifts.This shift was reported in Herat where peoplehave lost their assets, including daughters,in order to repay accumulating debts. Forexample, one female respondent in Herat(CS19-H) mentioned how, at times, peopleoffer help only to reveal later on that theassistance will be extended in exchange forland or a daughter. This could very well bea product of what has become a moreindividualised economy in the Herat villageas a result of market development. With suchprogress, social obligations “to assist” haveshifted towards helping through charity andalms rather than through the provision oflong-term outstanding debts. Although debtsthemselves may not be the direct cause ofimpoverishment, the combination ofoutstanding debt and crisis (affectingborrower or lender) can lead to changes incredit practices which can push householdsinto serious poverty, either through reducedaccess to credit and support, or increasedrepayment pressures.

Credit and its role in building prosperity

Aside from cases of households falling intopoverty, this study also came acrosshouseholds recovering and actually gainingwealth and prosperity through credit. Oneexample is the case of Mohamadullah (CS34-K) in Kapisa, whose father had been landlessand who, through his wealth (accumulatedthrough work at a military checkpoint and

his subsequent ability to lend money) hasbecome the wealthiest man and mainmortgage provider of the village. Nuzamudeen(CS21-H) is a Kuchi, who, after losing hisanimals during the drought has settled in thevillage. He is now a sheep trader and hasestablished within a few years trust amongvillagers that they are now investing moneyin his trading activities. Whereas his oldestson is engaged to a girl from another Kuchifamily, he is now thinking of marrying hissecond son to a family from within the village.Credit has played a role not only in his attemptto integrate but also in his efforts to prosper;it is a medium exemplifying other households’increasing trust in cooperating with him.Since receiving business credit from wealthyhouseholds within the village for sheeptrading, he himself says: “I have becomemore trustworthy for them, people know Iam honest and that I can do a good job.”Another example is the household of Zainabin Ghor (CS63-G). Her household had takena large loan in order “to make close” with awealthy family through marriage, anticipatingfuture rewards from this connection via accessto new credit relations.

Opportunities of upward mobility throughcredit were not found among poor households.In general, opportunities to prosper camefrom changing household composition andmainly through the availability of more incomesources. This last change could eventuallylead to better access to other credit formsand different credit sources. These are long-term dynamics for households. However, asthe social and economic context has changedconsiderably over the last four decades, sotoo have credit practices in relation to theiruse and role in household livelihoods for thethree villages.

4.7 The dynamics of informalcredit

This section examines how credit practiceshave changed over time, due in part to the

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dynamics of conflict and drought and theireffects on households. However, equallyimportant are the changes in the regionaland village economy, including changes inland relations, market penetration andmonetisation. These have influenced socio-economic relations and household livelihoodstrategies within the villages, increased theoverall standard of living and subsequentlychanged credit practices. This is true for allthree study locations, but all in slightlydifferent ways. Whereas in Herat marketpenetration has been found in the villageitself leading to a process of urbanisation, inKapisa and Ghor, economic change has beenmainly in the regional centres, especially inthe development of bazaars, and in Kapisathe process of industrialisation in the Shomaliplain. These changes are explored by lookingat the practices of qarz-i-hasana, qarz-i-sudhand mortgaging.

Trends in sudh and qarz-i-hasana

In all three villages, respondents referred tochanges in the use of qarz-i-hasana and sudh.Respondents from Kapisa and Herat reporteda decrease in sudh and an increase in qarz-i-hasana, whereas in Ghor, respondents madefew references to these credit types and hadthe least to say about qarz-i-hasana. Bearingin mind these terms vary in their meaningand may indicate more perception thanpractice (see Section 4.2), the question thatneeds to be asked is: what are these changesin use and what do they exemplify?

In the Kapisa village three to four decadesago, the majority of landless (or smalllandowners) were grain deficit households.As no other households of equal standing hadsurplus food to provide in-kind (qarz-i-hasana)to make up for lean periods, most credit wasprovided in-kind by the few large landownersas sudh. Although no exact data on amountswere provided, these food debts needed to

be repaid with marked-up values. Since then,however, land relations have shifted, nowwith a more equal distribution of small-scalelandholdings. The number of big landownershas decreased and there are currently moresmall landowners. Increasing job opportunitiesin the vicinity of the village has resulted inseasonal food shortages being compensatedthrough other sources of income and, if notreadily available, temporarily sourced throughqarz-i-hasana instead of with in-kind sudh.21

This process also went hand-in-hand with agrowing influence of the clergy like the mullahand maulawi both under the Taliban rule andin general from within the community. ........

In the Ghor village today, similar in-kindcredit, as practiced in Kapisa three to fourdecades ago, is found where there is anelement of “gain” made, either through themarked-up value of the debt, or throughrepayment made through cheap labour. Thesecredit forms are advances (often in wheat)on future labour or wheat loans for marked-up prices in cash. As Section 4.3 illustrates,credit in the form of advances on futurelabour binds contract labourers and land-owners in an interdependent relationship.Though there is an element of gain here inthat the landowner providing the creditaccesses cheap labour, respondentsthemselves do not refer to this credit formas sudh. One respondent, a middle-rankingfarmer (CS78-G), mentioned how nowadaysthere is no sudh but there is also no qarz-i-hasana.

In the village in Herat, there is another story.As the village economy is highly urbanisedwith the majority of income sourced fromnon-agricultural activities and throughincome-generating activities in and outsidethe community, the availability of cash iswidespread. Qarz-i-hasana is institutionalisedinto networks of mutual support. This hasbrought an increase in the importance of

21 A similar finding was found in Nangarhar. Due to an increase in poppy cultivation, more families had access to cash whichresulted in an increase in qarz-i-hasana opportunities (Mansfield, 2004).

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horizontal social networks, an increasedcooperation between households of the samewealth ranking. Here too, respondents oftenmentioned how there used to be a lot of sudhand how it left the village. Although notdocumented as well as in the Kapisa village,the sudh referred to is most likely the samein-kind sudh described above. Nowadays,credit practises with an element of costs paidor profit made were found mainly in “buyingon credit” with shopkeepers and referred toby many respondents as sudh. Credit withinterest is practised for those confidentbusinessmen willing to take the risk ofinvesting in an enterprise on their own, andconfident they will be able to repay theirdebts within the set timeframe. Changingperceptions and “use” of credit typesreinforce the earlier discussion on howconcepts, such as sudh or qarz-i-hasana, arenot absolute but have meaning in relation toother forms of credit available and fromwhom.

Trends in mortgaging

There is a general trend found in all threelocations where mortgage was used duringthe drought as a form of credit to pay offaccumulating debt, but which is now usedmore as a planned action to access large cashcredits with the expectation of being ableto repay the debt and reclaim the land. Fromthe data collected in the three villages it isunclear if this is a new trend or it is an oldpractice revived.22

The practice of planned mortgage is anindication that households have confidencethey will have the resources to be able toretrieve their land; this trust is largely basedon the availability of daily labour opportunitiesin the area, in Kabul, Herat and Iran. Thedaily labour opportunities in the Ghor villagewere not as abundant as within Kapisa villagebut even there households planned theirmortgages to pay for bride prices. The

frequency of planned mortgage also mightindicate that the land within a household’seconomy—as source of food—has decreasedin economic importance as increasingly moreincome is provided through casual labour.When the proportion of food provision by theland is relatively small and job opportunitiesare available, households might be moreinclined to mortgage out their land, trustingthat the food source they are giving up could“easily” be replaced by other income sources.This is especially the case with largerhouseholds in the Kapisa village, for example,Abdul Wahid (CS40-K) who had mortgagedout his land during the drought. He has alarge family to feed, and is now sharecroppinghis own land. Both the income from his dailylabour and the products from the land areenough to provide a stable income. Thus, itis not surprising that Abdul Wahid doubts ifhe should try and retrieve his land now byselling a part of his three jeribs of irrigatedland. In order to retrieve his land, he willneed money; to provide inputs, he will needadditional cash and with a large family, theland will not be sufficient to provide for thewhole family. Thus, he will have to continueto work as a daily labourer.

Section 4 illustrates how informal credit iswidespread among all households of all wealthgroups. It is found in diverse types, themajority of which is interest-free, providedthrough different practices. The same formsof credit could also be perceived in manyways across locations and households. Informalcredit is found to be embedded in relationsof mutual support, assistance and patronage,where access to credit is perceived as anentitlement, leading to great confidenceacross wealth groups in the ability to accesscredit when needed. These new insights intothe workings of informal credit stand in starkcontrast with the assumption that there is awidespread unmet demand for credit inAfghanistan. The basis for these contrastingperspectives is explored in the followingsection.

22 Semple, in his study on rural livelihoods in Hazarajat in 1998, p.42, does mention the practice of planned mortgage butdid not encounter it in 1998.

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5. Understanding Informal Credit

Section 4 has explored some of the keydimensions of informal credit found in thestudy villages. These findings raise somefundamental questions about how informalcredit in Afghanistan is perceived and judged,the extent this has been done through thelens of formal credit, and whether thischaracterisation does justice to the meaningand practice of informal credit. This sectionexplores some of these questions consideringthe preconceptions that are held with respectto informal credit, how it is defined, its roleand its practices. Attention is also given tothe moral economy and the context ofinsecurity that continues to drive and validateinformal credit practices.

5.1 Existing misunderstandingsand preconceptions

As discussed in Section 4, the complexpractice of informal credit as widely used inthe study sites—its diverse forms, the subtlenature of access that reveals no absoluteentry barriers, its shifting nature over timeand its multi-dimensional outcomes—mayfrustrate those looking for simple stories ortruths. Expectations of such tidy stories andtruths about levels of debt and indebtedness,unreasonably high interest rates and calamity-driven exigencies have been created as aresult of research based on formalquestionnaires that strip away the contingencyof complex household relations, settings,value systems, perceptions aboutuncertainties and time.

A questionnaire could have been constructedfor this study and data collected toaccommodate such premises as: debt is aquantifiable variable for households; thatfamilies would readily share how much debtthey owe (a deeply problematic assumption);that there are clear distinctions betweenlenders and borrowers; and that interestrates are known to and therefore calculatedby borrowers. But the product from such an

approach would be essentially proof of itsassumptions and evidence of its method, andwould not reflect the complex realities ofinformal credit practices presented in thisreport.

The reality of debt associated with village-level credit is its multi-dimensional andvariable nature—in a word, its complexity.As Polly Hill, the eminent Cambridgeanthropologist puts it:

It is because... the nexus of personalrelationships involving borrowing andlending is complex, exists on so manylevels, has so many functions andentangles nearly everyone... that even[an] outline... is a deliberate over-simplification, [that] must seem to loseitself in its own subject matter; ...“thedebt” which is supposed to adhere to somany households is an illusory, every-changing, at the best of times elusiveconcept which cannot possibly be caughtby a questionnaire or any other form ofquantitative butterfly net. Onlyqualitative enquiry, suggesting generalmagnitudes, will do (emphasis inoriginal). (1986:93)

Related to the problem associated with theprimarily quantitative methods often usedto describe and understand informal andformal credit is the language that is used todescribe it: informal credit is alwaysunderstood in terms of debt, giving it asomewhat negat ive meaning andconnotations. Micro-credit, on the otherhand, talks in terms of credit creation, notdebt imposition and is therefore viewed aspositive and beneficial. Labels such as creditand debt, as well as formal and informal arenot neutral and can influence researchpractices and outcomes.

Hill in her chapter, “The Need to be Indebted”takes issue with the image that has been

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projected of “creditors [being] wickedrapacious scoundrels” (1986: 84) and debtbeing abnormal. She develops her case forthe limits of quantitative enquiry, particularlyif informed by such views from the start:

The number of farmer-creditors in anycommunity must always be considerable,though such is the coyness of creditorsthat it is never ascertainable. As for thenumber of debtors, this is invariablyvery high, both because debt is a naturalcondition and because... people oftenborrow with one hand (for one purpose)and lend with another. For all sorts ofgood practical reasons people do notthink in terms of the net balance of debtor credit... which means the bald termsof debtor and creditor are oftenmeaningless, especially as the biggestcreditors are often the biggest debtors.

The evidence that emerged from this studysupports this assessment: labels of creditorand debtor, which emphasise the financialdimension of the transaction, ignore thesocial aspects of it and the fact that ahousehold can be a creditor and debtor atthe same time. It cannot be assumed thatborrowing and lending relationships enhanceexisting inequalities in rural communities.While credit-based relationships may reflectand maintain basic inequalities, they did notnecessarily create them.

Why should debt be seen as a naturalcondition? In contexts of markedly seasonaland marginal agrarian economies, whereemployment and food production activitieshave distinctive peaks and troughs, it isinevitable (as Hill observed while working indryland areas of Karnataka in India and as

found in the cases reported here) that manyhouseholds will not always be self-sufficientfor a whole year. The unpredictability ofweather, calamities and other unforeseenevents create challenges and crises that aresimply hard to plan for. Borrowing is normalto meet the needs resulting from suchsituations, as seen in the unique set ofhousehold panel studies undertaken byICRISAT23 and the extent of risk-sharingpracticed within villages studied.

There is widespread belief in the microfinancefield in general and in Afghanistan that thereis a very strong demand for credit, and thatmuch of this demand is unmet by existinginformal or formal credit services. It is unclearto what extent this belief is a legacy of thedrought and assertions made at that timethat there was a cash famine24 whichhindsight indicates may have beenoverstated.25 Could this notion be drivenmore by perceptions of the role of opiumpoppy? This is not the place to explorequestions of method or the validity ofassumptions made and data produced in thesestudies. But the objective of extendingmicrocredit within Afghanistan, particularlyunder the MISFA program as under otherCGAP-related microfinance interventionsglobally, is to increase access to financialservices among the poor.26 This aim has alsobeen integrated into Afghanistan’s main policydocuments, the Afghanistan Compact and I-ANDS, through a rural developmentbenchmark of increasing access to financialservices for 800,000 households by end 2010.These policy-backed initiatives presume alack of access to credit in rural Afghanistan—a premise that is not supported by the resultsof the household case studies conducted inHerat, Kapisa and Ghor.

23 International Centre for Research in the Semi-Arid Tropics, carried out between 1974 and 1984 in the dry zones of India;see, for example, the discussion by Jonathan Murdoch, 2002. Consumption Smoothing Across Space, Discussion Paper,2002;55. World Institute for Development Economics Research.

24 Lautze, Stites, Nojumi and Najimi, 2002.25 Johnecheck, W., 2007. “The Evolution of Food Security Information in Afghanistan: A case of limited ‘availability’, ‘access’

and ‘utilisation’,” in Pain and Sutton (eds), Reconstructing Agriculture in Afghanistan; 69-73. ITDG Press.26 See for example CGAP, 2003. “Helping to Improve Donor Effectiveness in Microfinance: Rural Financial Services for the

Poor,” Donor Brief No. 15, October 2003.

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What is clear however from the evidence inthe case studies is that most respondentsknow “where to find the money” and how toget access to it, contrary to the view ofRasmussen27 with respect to informal creditin Afghanistan. He asserts that “access is themain constraint, not the price,” althoughagain this view may be a consequence ofperceptions of post-drought rural Afghanistan.Informal credit appears to be widely availableand the evidence is that it is only the reallypoor (see household CS25-H) who cannot getaccess, or to only a very limited extent, toinformal credit. This is consistent with thefindings of Polly Hill28 who, in a comparativestudy of dry grain farming families in Nigeriaand India, found that “the inability to borrowcash (as such), except in diminutive sums, isone of the ha l lmarks of severeimpoverishment.”

The evidence of widespread availability ofand access to informal credit in the studyvillages sits in strong contrast to othercomparative views and reports on Afghanistan.Most notable among these is the Tufts study29

undertaken in 2002-2003 in the immediateaftermath of the drought, which concludedsomewhat contradictorily that:

• Informal systems of credit areextremely stressed in Badghis, Herat,Kabul, Kandahar and Nangarharprovinces, and few rural peoplereport being able to lend food ormoney to family or communitymembers; and that

• More than 50 percent of ruralAfghans in Badghis, Herat, Kabul,

Kandahar and Nangarhar provinceshave taken loans and increased theirdebt loads during 2002-03.30

It is unclear to what extent these conclusionsreflect the timing of the study, the immediateaftermath of the long drought thatAfghanistan experienced between 1998-2002,and the method used, a formal questionnaire(the kind that Hill cautions about, asmentioned earlier). De Weijer31 also arguesthat the Kuchi, who were not covered in thisstudy, are likewise severely constrained inaccessing informal credit:

In the current situation, many Kuchihave exhausted their opportunities forobtaining credit, in particular for non-productive loans, due to past borrowingwhich has led to high levels of debt.

This view should be contrasted with thefindings from the NRVA32 on the relativelygreater wealth of the still mobile Kuchi incontrast to the average settled ruralhouseholds. Moreover, and as was found inthe Ghor study reported here, high levels ofdebt do not necessarily lead to householdslosing access to credit.

The widespread belief in the strong unmetdemand for credit is in part drawn fromconclusions about the role of opium inproviding credit to rural households. Thus,Goeldner33 refers to the overall demand forcredit and to the 2002 MISFA assessmentsthat “estimated the demand for microcreditat one million households, and that figuredid not include demand for credit above amicro level.”34

27 Rasmussen, S., 2004. “The current situation of rural finance in Afghanistan,” a paper for a workshop on “Rural Finance inAfghanistan: The challenge of the opium economy; 1-5.

28 Hill, P., 1984. Dry Grain Farming Families: Hausaland (Nigeria) and Karnataka (India) Compared; 217. Cambridge: CambridgeUniversity Press.

29 Tufts University, 2004. Human Security and Livelihoods of Rural Afghans 2002–2003. Medford, Massachusetts: Tufts UniveristyFeinstein International Famine Centre.

30 Tufts University, 2004; 176.31 de Weijer, F., 2005. Microfinance and Kuchis: Background information and recommendations for MFIs.32 Pinney, A. and S. Ronchini, 2007. “Food Security in Afghanistan after 2001: From assessment to analysis and interpretation

to response,” in Pain and Sutton (eds), Reconstructing Agriculture in Afghanistan; 69-73. ITDG Press.33 Goeldner, 2004. “Roles and Opportunities for Rural Credit Initiatives in Afghanistan’s Opium Economy,” a paper for a

workshop on “Rural Finance in Afghanistan: The challenge of the Opium Economy.”34 Goeldner, 2004;3.

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Quite how one accurately estimates demandand unmet demand is a matter for debateand nor can the use of opium in providinginformal credit necessarily be seen in thequite same light as credit demand in formalcredit systems (see the discussion below ondrawing conclusions about formal credit frominformal credit). However, the locations ofthis study were not in opium poppy growingareas and it should be pointed out that non-opium poppy growing villages must cover themajority of Afghanistan’s villages—opiumpoppy cultivation only covers about fivepercent of Afghanistan’s arable area.35 Itshould be noted that the levels of debt foundin the village studies are comparable (seeTable 2) to the UNODC reported averagelevels of opium poppy derived debt of US$700for the 45 percent of farmers who took outsuch a loan.36

One key issue challenged by the findings fromthe villages studied is the way that informalcredit is viewed through the analytical lensof formal credit and the normativeassumptions that such a perspective contains.This section proceeds to consider this in moredetail by examining the application ofassumptions derived from formal creditsystems to informal credit practices.

5.2 Defining formal andinformal credit

How is informal credit defined? ForRasmussen, “80-90 percent of the economicactivity in Afghanistan is in the informalsector and almost all credit and other financialtransactions are carried out in the informalsector.” The World Bank,37 on the otherhand, talks in terms of the banking systemthat has collapsed, “leaving the entire countryto rely on informal financial systems.”38 The

informal economy usually refers to economicactivity that is not registered for the purposesof taxation and/or regulation by the state.But it can also mean particular activitiescarried out within the formal sector thatescape state regulation.39 The key issue inthe definition is the degree to which theactivity is registered or regulated—not thatthe informal activity is seen in any way tobe far removed from the formal sector. Bythe same token, informal credit is definedin terms of what it is not—it is not formal—but otherwise its function cannot be separatedfrom that of formal credit.

This is reinforced by the language and practiceof neo-classical economics (Ellis40) wherecredit, formal or informal, is treated like anyother commodity and there is a market that“behaves”41 according to demand, supplyand a price (interest rate) that acts to balancesupply and demand. The key terminology ofthe credit market is expressed in terms of alender (individual or institution), a borrower(a person or enterprise), credit as a sum ofmoney that is lent, and the provision ofcollateral as a device for selectingcreditworthy borrowers. The differencesbetween informal and formal credit are simplya matter of the extent to which the differentsystems are bound by the legal regulations.Thus:

Credit may be informal or formal,private or state in origin. Informal creditchannels refer to the financial servicesprovided by moneylenders (rich farmers,traders and others in the rural economywho lend money on the basis of personalknowledge of each transaction). Formalcredit channels are those bound by thelegal regulations of a country, and theyinclude private banks, state banks,

35 UNODC and the Ministry of Counter Narcotics, 2006. Afghanistan Opium Survey. Kabul: UNODC.36 UNODC, 2003 Opium Survey.37 World Bank, 2006. Afghanistan: World Bank Support for Microfinance (see Reference section for complete url address).38 Indeed it is possible that the emphasis on the hawala and opium-related credit has focused understanding of the informal

on the illicit trade and has led to overlooking the dimensions of informal credit reported here.39 Harriss-White, 2003. India Working: Essays on Society and Economy. Cambridge: Cambridge University Press.40 Ellis, 1992. Agricultural Policies in Developing Countries. Cambridge: Cambridge University Press.41 “Behave” as if markets are some autonomous body and a term that simply reinforces a mechanistic view of the market.

vi42


registered cooperatives and a host ofothers. The entire system of institutionsand the way they work is called the ruralfinancial system.42

In sum informal credit practices areinterpreted and judged entirely through thelens of the construction, language andmeanings of formal credit. This is problematicbecause the dimensions of access, use,motivations for giving and taking credit andcontractual arrangements described in thisreport show that informal credit does not fitneatly within the confines of formal credit.

The way in which informal credit inAfghanistan has been interpreted throughthe lens of microcredit is revealing. Thereare certain attributes of informal creditpractices that have been praised and soughtto be replicated in microcredit programmes.Goelder43 “refers to the strong respect forcontracts laid out in Islam” that arecontributing to high repayment rates undermicrofinance. The World Bank44 commentson a “strong repayment culture” and“traditional social capital that is in supportof respect for contracts” and Rasmussen45

argues that microcredit must “try to employthe advantages of the informal credit system.”

As made clear in Section 4, repayment is farfrom being contract-bound and is subject tocontinuing negotiation and systematic default.Hill notes “that partial default and/or laterepayment are so common as to be “usual,”which is an aspect of the continuing personalrelationship that so often obtains betweencreditor and debtor,”46 not least becausethere is always the potential that the roles

will be reversed. And as Gregory47 observes,with respect to money lending in India, it isthe loans taken for non-productive purposes(marriage and funeral expenses andconsumption) obtained through informalcredit that are systematically repaid, whilethe formal loans for productive purposesissued through banks are not.

Thus, cultural practices have to be seen incontext and the reasons behind themunderstood; particular dimensions of themcannot be simply abstracted and universalisedfor other purposes without a great risk ofunintended consequences. Section 6 willexplore whether the high repayment ratesunder microcredit alluded to by Goelderreflect respect for contracts, or more aperception of the riskiness of this sort of loanand are thus more applied in formalmicrocredit.

If the positive dimensions of informal creditare to be seen in terms of a repaymentculture, then the negative dimensions aredescribed in terms of limited access,48 orthat most credit is provided at “usury rates.”49

The extent to which these perceptions areconsistent with the evidence from this studywill be considered below. First, however,there is a need to consider the purposes forwhich formal and informal credits are usedand what they imply for the transfer ofassumptions between the two credit forms.

5.3 The purpose of credit

The World Bank is clear in its view of therole of microcredit50 — its function is toenable “poor people to move away from

42 Ellis, 1992:153-154.43 Goelder, 2004:4.44 World Bank, 2005.45 Rasmussen, 2004.46 Hill, 1986. Development Economic on Trade: Anthropological Case for a Prosecution. Cambridge: Cambridge University

Press.47 Gregory, C.A., 1997. Savage Money: The Anthropology and Politics of Commodity Exchange, p.69. Amsterdam: Harwood

Academic Publishers48 Rasmussen, 2004.49 Goelder, 2004:4.50 World Bank, 2006.

43


being dependent on humanitarian assistanceto becoming economically independent bybuilding on their innate entrepreneurial spiritand skills” and to encourage them to engagein productive activities. Leaving aside theassertion that the poor are dependent onhumanitarian assistance, microcredit ischaracterised here as a means to improveincomes, savings and raise productivity andto promote growth in the rural economy;these combine output and to some extentequity objectives if the distribution of thesebenefits is considered.

This contrasts very strongly with what mostinformal credit is used for as the evidencein Section 4 shows: most credit is used eitherfor consumption purposes or for life cycleevents such as marriage and funerals. Thisis consistent with the evidence provided byGregory and ICRISAT.51

Credit and debt practices in the studylocations, given the significance of their usefor consumption and life cycle purposes,cannot therefore be readily transferred tolikely behaviour in relation to the use ofcredit for productive purposes. The same canbe concluded with respect to the broaderquestion of interest rates, contract periodsand default in the context of informal creditsystems, where again concepts from a neo-classical economic understanding of formalcredit systems are applied withoutconsideration of the complexity and meaningof practices on the ground.

5.4 Informal credit andtimelessness

As seen in Section 4 (for example with “buyingon credit” from shopkeepers), trying toestablish actual interest rates and repaymentperiods is almost impossible to do. It is notthat they could emerge if appropriate

research tools were used but more thatinterest and contract, as defined in neo-classical economics, are inappropriateconcepts for the relationships that informalcredit represent in rural Afghanistan. Theserelations are not easily bound within a costand time framework because often the moneyinvolved cannot easily be separated from theother benefits obtained. Hill articulates thispoint clearly:

[It is] very often inappropriate foroutsiders to think in terms of interestrates, both because borrowing is apt tobe timeless (interest rates are nevercomputed) and again, because of theattitude to default. From the creditor’sangle, the important question is not howlong the debt has been outstanding butthe prospects of repayment; as for thedebtor, his usual concern is to repay asslowly as possible without incurring hiscreditor’s final displeasure, and maybeto borrow more when his debt hasdiminished sufficiently.

As Gregory argues: raising the question ofinterest rates being high in rural areas“presupposes that rural money lendinginvolves quantifiable rates and that theseare high relative to urban rates”52 and, itmight be added, in relation to formal or bankcredit. If one looks at the diversity of informalcredit forms identified in Section 4 it can beseen, developing from Gregory, that theycan be grouped as follows:

• Cost-free: those for which no meaningof interest can be attached in any way—the qarz-i-hasana, which is most widelyused for consumption smoothing in theKapisa and Herat villages;

• With interest: those which make anexplicit (in practice it is coded andsecretive although it is well understood

51 See Morduch, “Consumption Smoothing,” Discussion Paper, 2002: 55.52 Gregory, 1997:213.

vi44


what it amounts to) reference to interestas with business loans with interest;

• With flexible uncertain costs: those thatcontain an implicit reference tointerest/profit although the value andtime associated with this are very flexibleand uncertain. Many of the forms ofdelayed payment on goods fall withinthis group;

• With collateral where use of land orlabour are the costs: those for which, asGregory states, “the notion of an interestrate is unmeaning. For this kind of moneylending... it makes no sense to talk abouta high rate of interest because the notionof rate of interest is just not there to befound.” Within this category, borrowingagainst land (found across the threevillage locations) or labour (as in theGhor village) is probably the mostimportant form of informal credit—atleast in terms of equivalent cash valuesraised. This form of credit Gregory terms“usance” (use in exchange) to distinguishit from usury and interest.

With respect to the first category, which isinterest free, exchanges of cash orcommodities, their importance andprevalence as a credit form should beemphasised. The second and third categoriesall contain some dimension of cost, but exceptperhaps for the second category where itmight be possible to determine an interestrate, interest rate costs are not easilycalculated, if at all. But it is with respect tothis fourth category of informal credit, whichinvolves an exchange of either money forland, or labour for food, that the notion ofinterest particularly breaks down. Time hereis a notional but flexible part of the exchangeand the transaction is more a form of rentaland the giving away of use rights, rather thanthe payment of interest for the duration ofthe contract. Gregory elaborates on thispoint:

From the perspective of the lender, thecontract can be analysed as a tenancyagreement. He gets land for which hepays all his rent in advance. The moneyborrower is therefore acting as landlordand the money lender as a tenant... theborrower receives rent in advance; hedoes not pay interest. The cost to theborrower is the loss of the use of aproductive asset for the duration of thecontract.53

Naturally, the money borrower has to payback the rent that was advanced against theuse of the land and the longer this is delayed,the cheaper the annual rent (a fixed amountof money for use of land over a longer period)that the lender has had to pay. But this isnot a system in which interest accrues,although the price of land that is foreclosedmay well reflect a hidden charge. But asnoted, foreclosure in the study villages wasrare. In the case of borrowers who have noproperty but rely on their labour, as foundin the Ghor village, the position is as follows:

They are forced to mortgage their labourin exchange for money. From theperspective of the lender... the contractcan be analysed as a wage-labourcontract with the difference that allwages are paid in advance. Thus theborrower receives wages in advance, asit were, he does not pay interest. Thecost to the borrower is the surrender ofhis freedom to the landlord for theduration of the contract.54

While lending against labour as the securitycan be and usually is an exploitativerelationship, it is essentially a social relationand absolutely different from formal creditor bank money lending. In the latter, whichis governed by principles of interest-bearingcapital, unpaid debt grows according tocompound interest scheduled against fixed

53 Gregory, 1997:220.54 Gregory, 1997:221.

45


contract periods. Failure to repay underformal credit leads to loss of assets or landas has been found in many cases in India.55

What is striking about the case studiesreported in Section 4 is first, how rare theforeclosure on mortgaged land is and second,how strongly it is disapproved of when ithappens. What is also clear is how negotiablerepayment periods are, without necessarilyincurring any form of increased interest(although this does happen with shopkeepercredit). For the term interest rate to havemeaning, an exact time period has to bespecified. Time is not a variable applicableto many of the village-level credittransactions.

All of this is to point out that terms such as“interest rate” and “contract period” thatderive from neo-classical economicperspectives on formal credit are not directlytranslatable to the practices that governinformal credit. Lender and borrowerpractices and behaviour have to be seenwithin the social context of informal creditand not universalised to market relations.

None of the comments are made toromanticise informal credit or to argue thatit is more equitable and fair than formalcredit systems. Clearly there is much aboutit that is extractive and unequal, even thoughit remains legitimate56 within its context.But to assume that market-based practicescan be inserted into the social context ofinformal credit and selectively capitalise onthe same patterns of behaviour ispresumptuous and likely to lead to failureor, at minimum, unintended consequencesdue to over-simplification.

5.5 The moral economy?

The point made earlier about loans forconsumption and marriage (non-productive

purposes) being usually repaid needsemphasising since it points to some moregeneral characteristics of informal credit inthe study villages. Although there are clearinequalities in land and asset ownership inthe villages, there do not appear to be rigidclass differences between borrower andlender. This statement needs to be qualifiedwith respect to Ghor and historically forKapisa, but as the Kapisa example shows,such class differences have not beenentrenched. In this sense there is no clearlyidentifiable class of “moneylenders” in theway that they are found in India, for example.

Three dimensions of Afghanistan’s ruraleconomy have contributed to this outcomein the study locations. The first, as borne outin the evidence from the case studies, is thatthe economy of Afghanistan has been fairlyprecarious, particularly in its moremountainous reaches, and even successfulfarming families can face dramatic changesin business or employment conditions. Thiscan be reinforced, secondly, by the underlyingrandomness of family demography whereshifting dependency ratios, marriageexpenses, inheritance, health, family labouravailability can all rapidly have negative andadverse consequences for a householdeconomy. Third, land division acrossgenerations inexorably leads to a decline infarm area per household. This sharedprecariousness of life, and the value ofsustaining relationships for reasons of self-interest, underpins many of the informalcredit transactions.

Reference has been made above to thelegitimacy of informal credit practices andthere is clearly a moral code or set of moralassumptions that underlies them. Part of thisis a context in which there are a set ofexpectations and choices about the relationsbetween the relatively well-off and the poor.

55 Harris-White, B. and D. Colatei, 2004. “Ruler Credit and the Collateral Question,” in B. Harris-White and S. Janakarajan(eds). Rural India Facing the 21st Century. Essays in Long-term Change and Recent Development Policy, 252-283. London:Anthem Press.

56 This is a practice regarded as acceptable even if it is unequal.

vi46


Much of the language used in the reportedcase studies, such as assistance, considerationand helpfulness, often fall under the effectiveumbrella of patronage. These dimensionsapplied to the provision of employment andhelp all operate within a web of respect,loyalty and social recognition in which thepolitics of reputation can be fundamental.Indeed the evidence of creditors not pressingfor repayment, as found in all three villagesis part of this framework and De Weijer hadsimilar observations with respect to the Kuchi:

In Nangarhar and Laghman there was noevidence that they were put under strongpressure to repay their debts;most ofthe loans were taken from relatives whounderstand that they need to rebuildtheir assets before they can repay alltheir debt.57

This moral economy has several dimensions.Part of it is the way in which custom andsocial pressure work to regulate individualbehaviour to conform to traditional norms,and this of course can be employed as muchby the poor as the rich, for reasons of mutualinterest. Traditional Muslim practice, as themullah in Kapisa reminded the mosque, isabout religious values imposing limits onindividualistic economic behaviour. But thereis also a strand of the moral economy thatcan be used to regulate behaviour ofavaricious merchants or traders, and can beused as a means of protest against authority.58

And there is of course more than a degreeof self interest in lending, particularly withrespect to the horizontal relations: today’slender may become tomorrow’s borrowerwhich may well induce a leniency in pressingfor repayment.

But one can also read against the grain withrespect to the moral economy and much of

the evidence related to “vertical relations”for credit exchange. As exemplified by theGhor case study, this can be interpreted asthe attempt of households to seek and achievesecurity and protection through informalmeans in the context of acute insecurity andrisk.

5.6 Informal security regimes:“The Faustian Bargain”59

As discussed earlier, the major use of informalcredit found in the village studies was forconsumption smoothing and for householdreproduction (marriage) to provide assistanceinto old age—all actions designed to achievehousehold survival. The objective of meetingconsumption needs is entirely understandablebut the significance and importance placedon investment in marriage by households,draws attention to the emphasis given toreproduction and family and household levelinter-generational transfers—the logic ofpeasant behaviour under conditions of acuteinsecurity and risk.60

This risk is not just a matter of randomexternal shocks (unemployment, harvestfailure, etc.) or challenges that are household-specific. But as Wood argues,61 theenvironment of risk should be seen asrelational and institutional, induced by theaction of individuals or unaccountableinstitutions, both informal and formal. These“structural aspects of risk induced byinequality, class relations, exploitation andunaccountable power and social exclusion”are widespread in Afghanistan. Exposure tothese risks should not just be seen as shocks(which implies some degree of randomnessabout them) but they should be understoodmore as hazards that the poor constantlyhave to negotiate.

57 de Weijer, 2005:21.58 Scott, 1976. The Moral Economy of the Peasant: Subsistence and Rebellion in Southeast Asia. Yale University Press.59 Wood, 2003. “Staying Secure, Staying Poor: ‘The Faustian Bargain’,” World Development, 31(3): 455-71.60 Ibid.61 Wood, 2004. “Informal Security Regimes: The strength of relationships,” Chapter 2 in Gough and Wood, 2003. Insecurity

and Welfare Regimes in Asia, Africa and Latin America: Social Policy in Development Contexts. Cambridge University Press.

47


Afghanistan without doubt can becharacterised as an environment of extremerisk and insecurity. Under such conditionsthe poor seek protection through themaintenance of and investment in patron-client relations, which reinforce positions ofdependency, as illustrated in the Ghorexamples of contract labour. This protectionsystem however reduces their long-termchoices—The Faustian Bargain—where futureprospects are traded against survival and

security in the present. In economic termsthe poor are risk averse: they sharply discountthe future for the immediate present andemphasise loyalty over voice in the absenceof exit options. These are elements of thecontext that undoubtedly contribute to theinvestment in social relations and themaintenance of informal credit practices,although how this plays out may be variableaccording to context and socio-economicstatus.

vi48


6. Conclusions and Implications

“...formal order... is always and to some considerable degree parasitic on informalprocesses, which the formal scheme does not recognise, without which it could notexist, and which it alone cannot create or maintain.”62

What has emerged from the evidence anddiscussion on informal credit is a picture thatlacks clarity, where dimensions such asinterest rate and contractual period areblurred and where distinctions betweenborrower and lender shift and depend ontime and place. This is not a system that canbe disciplined into clear unambiguous order,dependent as it is on personal and socialrelationships and characterised by diversity.Thus, simple statements on what informalcredit is or is not and what can be done toaddress some of its more coercive andexploitative practices presupposes not onlya capacity to legislate and act and providesecurity through formal state-provided socialprotection or market-based mechanisms(which in the current context is unrealistic)but also an assumption that formal credit isan alternative and replacement to informalcredit. What do these insights into informalcredit practices mean to the specific modelof microcredit that is so strongly promotedin Afghanistan? The binary or contrast offormal with informal credit presupposes an“either-or” choice. Formal credit systemswith their clearly defined parameters—borrower, lender, collateral, contract andrepayment period—can replace the muddleand mess of the informal. There are a numberof reasons to be confident that this will nothappen.

First, the functions that informal credit serve,if one looks at just the direct utility of it andignores the broader social role that it fulfils,are specifically concerned with reproduction—either through meeting consumption needs

and immediate survival or longer term inter-generational transfers through marriage.Informal credit practices appear to be hardlydirected toward “productive” use which isseen to be the primary role of formalmicrocredit. It might be argued thatmicrocredit, where it uses group lendingpractices and links lending to group savingsschemes, will provide at least the means toaddress consumption smoothing, if not ofmarriage.

However, it will depend on the extent towhich the poor effectively become membersof these savings groups and are able to save,and the extent to which group formationprocesses reflect and build on the informalnetworks that already exist. It remains to beseen whether or not the formal and relativelyinflexible rule-driven nature of group lendingactually provides the flexibility andresponsiveness to demand and allowance ofmultiple levels of debt that informal creditsystems appear to provide.

Second, comparative evidence points to thepersistence of informal credit systems ingeneral, alongside established formal creditsystems. Gregory, for example, notes how“village money lending is still the most popularform” of lending even where there is banklending available.63 Harriss-White & Colateiconcludes that despite a long history of formalbank credit targeted toward the poor, in thestudy villages in Tamil Nadu, “70 percent ofhouseholds borrow from informal sources”and a majority of these borrow only frominformal sources.64

62 Scott, 1998. Seeing Like a State: How Certain Schemes to Improve the Human Condition Have Failed.Yale, Yale UniversityPress: 310.

63 Gregory, 1997:223.64 Harris-White, Colatei, 2004:260.

49


In part, this points to some of the advantagesthat informal credit offers over formal credit—its flexibility, its ready access and negotiablecontract periods and the lower risk of losingcollateral such as land, which is a real risk65

with formal credit. Indeed the requirementfor collateral in formal bank credit systems,which is usually land, has effectively actedas a rationing mechanism to exclude the poorand particularly the landless from accessingsuch credit. As Harris-White and Colatei foundin Tamil Nadu: “The access of all kinds ofsocially disadvantaged households to formalcredit is extremely constrained.” In contrast,there is a wide diversity of credit types ininformal credit accessible to the poor andthese are often cost free and renegotiable.

Microcredit, where it uses group lending andsavings practices, is argued to sidestep theproblems of targeted credit for the poor andto promote sustainable financial systems forthe poor. The Grameen Bank is widelyacclaimed as a model for microcredit lendingthat is pro poor and promotes savings, securityand income growth possibilities. But it shouldbe pointed out that there is evidence66

questioning the claims of success attributedto the Grameen Bank model and this leadsto the third point.

The evidence from the study of microcreditpractice under the Grameen Bank points veryclearly to the fact that the formal microcreditsystem was not simply running in parallelwith the informal credit system but that theywere closely intertwined, and not necessarilyin a positive way. The contractual basis onwhich group lending based microcredit worksis to shift all the risk of default on paymentfrom the lender (the bank) to the group andto impose a strict timetable with respect torepayment. Rahman’s study points tonumerous cases where group repaymentpressures had demanded that the individualhad to take loans from informal sources inorder to meet the repayment, effectivelyputting them more into debt rather than less.This mirrors examples cited by Gregory ofrecourse to informal credit to manage formalcredit debts.

Arising from this is the fourth point: it islikely that the very poor who do not evenhave access to informal credit, but at leastkeep access to assistance, are even less likelyto have access to group-based microcreditsystems with their emphasis on investmentfor productive purposes and the building ofsavings.

65 Gregory, 1997.66 Rahman, 2001. Women and Microcredit in Rural Bangladesh: An Anthropological Study of Grameen Bank Lending.

Philadelphia, PA:Perseus.

Box 2. The “success” of group-based microcredit (as of September 2006)

• Total outreach has crossed 250,000 clients.• Three-fourths of the clients were women.• 35 percent of the clients lived in the rural areas.• Services had reached 22 of the country’s 34 provinces.• US$120 million has been disbursed in half a million loans.• 98 percent of loans were repaid on time.• Microfinance institutions had mobilized US$6 million in savings by poor people.• Loans were used for service businesses and trade (58 percent), crops and livestock (22

percent), and handicrafts and manufacturing (20 percent).• Average loan size was US$200.• The number of microfinance service providers had risen to 14, from three in 2003.• The sector was able to cover 80 percent of its operating costs.

vi50


Finally, following on the points raised above,attention needs to be paid to how microcreditis formally monitored and what is beingreported. A good example is what has beenreported (see Box 2) by the World Bank67

with respect to the “success” of the ongoingmicrofinance programme in Afghanistan.

While attention should be drawn to the urbanbias of the programme—and this contrastswith the rural basis of the studies reportedhere— particular note should be paid tobroader indicators on which the programmeis claiming success: number of serviceproviders, financial disbursements, use ofloans, loan size, financial sustainability andthe repayment of loans. This is the publictranscript of success68 and the language andunderstanding of formal credit but it tells usnothing of the way in which loans are actuallyused and negotiated within a context ofinternal and external household andcommunity dynamics and power, and whoseinterests they serve in practice. This is whatScott would call the “hidden transcript”—precisely the dimensions reported byRahman69 and which may qualify the waysuccess is seen and claimed.

Policy recommendations do not naturally flowfrom this study of informal credit and thereis much that remains unclear about its natureand practices. But there are some importantlessons to be derived from this study thathave relevance to microcredit. They can besummarised as follows:

• Informal credit systems appear aliveand well and, contrary to some ofthe assertions referenced earlier,most households do have access toone or more of their diverse forms.The way in which they function,based on social rather than marketrelations, strongly questions the use

of a formal credit approach tounderstand the principles andpractices of informal credit. Thisapproach critically misreads thenature of informal credit. Inaddition, the formal approach doesnot leave much room for distinctionin equating “informal” with “illicit”in describing the roles of opiumpoppy in village-level credit and thehawala in transfers of opium-derivedincome.

• The role that informal credit systemsfulfill is very different from that ofmicrocredit. In their use forconsumption smoothing andmarriage, the practices are drivenby a household need for survivalunderpinned by a combination of amoral economy, which cannot beassumed to apply to microcreditsystems, and the need to achievesecurity in an insecure context.Microcredit is highly unlikely to fulfillthis broad range of functions andpotentially might undermine orsubvert the significance, principlesand role of these informal systems.

• Both informal credit systems andformal microcredit will exclude theeffectively destitute. The villagemoral economy clearly providesassistance to such people;microcredit does not address thisgroup, nor does it aim to.

• Informal credit systems are highlyunlikely to be supplanted by formalmicro-credit practices. Butcomparative evidence indicates thatformal microcredit can becomeparasitic on informal credit systems

67 World Bank, 2006.68 Scott, 1990. Domination and the Arts of Resistance: Hidden Transcripts. Yale University Press.69 See also Pain, 2001, for evidence on the contrast between the public text of success for a group lending scheme for women

carpet weavers and the private reality of probable adverse consequences (”Livelihoods under stress in Faryab Province,Northern Afghanistan,” a report for Save the Children (USA), Pakistan Office.

51


in that informal credit can be usedto pay back formal loans.

• This raises questions about what ispromoted as success with respectto microfinance. The reported highrepayment rate for microcredit loansis surprising particularly in the lightof the high “default” rate oninformal credit. This is certainly notdue to “a strong repayment culture”as some would claim. Might it bemore due to pressures imposed undergroup lending practices? This needsto be examined more closely.

• There is also a need to gain betterunderstanding of the linkagesbetween opium poppy sourcedinformal credit and other informalcredit systems. Has the availabilityof such credit significantly alteredinformal credit systems and

practices? What effects occur whenopium poppy becomes newlyestablished in an area, compared towhen it is in decline?

In response to the questions raised by manyof these points, AREU is in the process ofconducting two additional studies on creditsystems in Afghanistan. One addresses thefinal point and will explore the linkagesbetween opium poppy sourced informal creditand other existing sources of informal creditin one village in a region with decliningcultivation, and in one village in a regionwith increasing cultivation. The aim is tounderstand how these cultivation-relateddynamics affect access to and the prevalenceand practices of informal credit. The secondstudy focuses on formal credit systems andaims to assess their effects on rural livelihoodsand informal credit systems. Results of bothstudies are forthcoming in 2007-08.

vi52


CS1-H 6 2 100 3 X X WCS2-H 10 4 20 2 X X WCS3-H 11 2 20 6 X X WCS4-H 9 4 10 2 X X X X WCS5-H 20 5 8 7 X X X WCS6-H 15 2 60 7 X X X WCS7-H 11 4 36 6 X X X WCS8-H 13 8 10 2 X X WCS9-H 7 4 70 4 X X WCS10-H 6 2 1 1 X X WCS11-H 7 2 20 X X X WCS12-H 8 1 10 X WCS13-H 9 3 8 27 X X X WCS14-H 5 3 X X MRCS15-H 7 2 1.5 X X X MRCS16-H 18 4 X X X X MRCS17-H 4 2 X MRCS18-H 8 3 1.5 X X X MRCS19-H 10 5 X X MRCS20-H 8 3 1 X X X MRCS21-H 9 2 0.5 X MRCS22-H 7 1 0.5 X X X X MRCS23-H 9 6 X PCS24-H 5 1 X PCS25-H 8 2 1 X X PCS26-H 11 5 X PCS27-H 2 1 PCS28-H 1 X PCS29-H 10 2 X PCS30-H 4 3 X X PCS31-H 8 1 1 1 X PCS32-H 7 2 2 X X X P

7. AnnexAppendix 1. Respondent Asset PortfoliosAppendix Table 1. Asset portfolios of the respondents in the Herat Village

Hou

seho

ld c

ase

stud

ynu

mbe

r

Hou

seho

ld n

umbe

rs

Wor

king

hou

seho

ldm

embe

rs

Land

(je

ribs

- i

rrig

ated

)

Live

stoc

k

Agri

cult

ure/

Live

stoc

kbr

eedi

ng

Shop

keep

ing/

Tria

ning

/Bu

sine

ss

Dai

ly la

bour

Cotr

act

labo

ur

Cont

ract

labo

ur

Regu

lar

cont

ract

labo

ur

Han

dcra

fts

Oth

er

Wea

lth

grou

p

W=wealthy household; MR=middle-ranking household; P=poor household

53


CS33-K 10 3 0.4 1 X X x W

CS34-K 7 1 0.3 2 X X W

CS35-K 12 5 2 X X W

CS36-K 4 2 1 3 X X W

CS37-K 5 1 2.5 X X MR

CS38-K 4 2 1.5 X X MR

CS39-K 9 2 0.4 X X MR

CS40-K 12 2 3 X X MR

CS41-K 19 3 6 2 X X MR

CS42-K 6 2 X MR

CS43-K 11 2 0.2 4 X X MR

CS44-K 6 1 X MR

CS45-K 9 3 0.3 2 X X X MR

CS46-K 5 2 0.3 1 X X X MR

CS47-K 11 2 X MR

CS48-K 7 1 0.5 2 X X MR

CS49-K 11 2 1 X MR

CS50-K 8 1 0.2 X X MR

CS51-K 7 1 1 3 X X MR

CS52-K 6 3 0.8 X X MR

CS53-K 11 4 0.8 1 X X MR

CS54-K 9 2 0.2 2 X X X MR

CS55-K 11 3 1.2 1 X X MR

CS56-K 6 1 0.2 1 X X MR

CS57-K 6 1 0.2 X X MR

CS58-K 6 2 X X P

CS59-K 4 2 0.5 X X P

CS60-K 5 1 0.3 X P

CS61-K 3 2 0.2 1 X X P

CS62-K 6 2 0.5 1 X P

Appendix Table 2. Asset portfolios of the respondents in the Kapisa villageH

ouse

hold

cas

e st

udy

num

ber

Hou

seho

ld n

umbe

rs

Wor

king

hou

seho

ldm

embe

rs

Land

(je

ribs

- i

rrig

ated

)

Live

stoc

k

Agri

cult

ure/

Live

stoc

kbr

eedi

ng

Shop

keep

ing/

Tria

ning

/Bu

sine

ss

Dai

ly la

bour

Cotr

act

labo

ur

Cont

ract

labo

ur

Regu

lar

cont

ract

labo

ur

Han

dcra

fts

Oth

er

Wea

lth

grou

p

I=irrigated land; R=rain-fed land

W=wealthy household; MR=middle-ranking household; P=poor household

vi54


CS63-G 11 2 25 R 19 X X X WCS64-G 8 2 10 R 6 X X W O,21CS65-G 2 1 25 R 54 X WCS66-G 8 6 1,4 R 5 X X X MRCS67-G 2 1 2 X MRCS68-K 7 1 0,7 R 1 X X MRCS69-G 8 4 2 R 7 X X MRCS70-G 14 2 2,8 R 7 X X MRCS72-G 5 2 2,8 R 4 X X MRCS73-G 6 2 1,4 R X X MRCS74-G 5 1 1,4 R X X MRCS75-G 7 3 2 R 3 X X MRCS76-G 5 1 1,4 R 6 X X MR

0,7 ICS77-G 4 2 0,9 1 X X MRCS78-G 9 2 2,8 13 X X X MRCS79-G 10 5 0,9 R 7 X X X MRCS80-G 10 5 0,9 R 8 X X X X MRCS81-G 3 2 2 R 5 X X MRCS82-G 7 2 1,7 R X X X MRCS83-G 5 1 X X MRCS84-G 9 4 2 X X X MRCS85-G 5 3 4,3 R X X X MRCS86-G 10 1 3,5 R 10 X MRCS87-G 8 1 X X MRCS88-G 3 3 X X PCS89-G 7 2 X PCS80-G 9 1 X PCS81-G 9 3 1 X PCS82-G 11 2 1 X X PCS83-G 6 1 X X PCS84-G 5 1 X PCS71-G 11 3 3,5 R 6 X X MR

Appendix Table 3. Asset portfolios of the respondents in the Ghor villageH

ouse

hold

cas

e st

udy

num

ber

Hou

seho

ld n

umbe

rs

Wor

king

hou

seho

ldm

embe

rs

Land

(je

ribs

- i

rrig

ated

)

Live

stoc

k

Agri

cult

ure/

Live

stoc

kbr

eedi

ng

Shop

keep

ing/

Tria

ning

/Bu

sine

ss

Dai

ly la

bour

Cotr

act

labo

ur

Cont

ract

labo

ur

Regu

lar

cont

ract

labo

ur

Han

dcra

fts

Oth

er

Wea

lth

grou

p

I=irrigated land, R=rain-fed landW=wealthy household; MR=middle-ranking household; P=poor household

55


Delayed payment of goods and labour

The general practice is that when a good isbought on credit, the shopkeeper recordsthis, where upon depending on how long thedebt is outstanding, the borrowed good willhave a marked-up price. There is, however,no fixed rate for the amount of marked-upprice given and is highly dependent on theshopkeeper. However, in general, it dependson the length of time of the outstandingdebt, the relation the client has with theshopkeeper, and if the shopkeeper wants toassist the households taking credit. Goodsbought on credit are only recorded by theshopkeeper even if a client can read andwrite. Repayment is done either within a fewmonths, per season, or in longer stretchesof longer than one year. There were severalcases of delayed payment of wages in Ghorand Kapisa, this was mainly with builders. Itis unclear if this was agreed when they werehired and if their salary is higher tocompensate for the delay as is the case withbuying on credit with shopkeepers, thoughit is unlikely to be the case.

Advances on wage

Advances taken on future work was onlyfound in Ghor among the contract labourersbelonging to the poor wealth group. Wheat,and sometimes money, are provided by awealthy villager as an advance on work tobe provided for a certain period in thefuture.70 The creditor is often a big landownerwhom the debtor already has a relation withas contract labourer and which provides thecreditor with a source of cheap labour.71

Reciprocal cost-free, in-kind and cash loans

Most households both give and take cash andin-kind loans between close relatives andneighbours. It is a reciprocal exchange inthat one gives credit to the household oneexpects to take credit from in the future,and is repaid within a time span ranging fromone week to two to three months, in theexact amount as was borrowed. As what isrepaid is the same as what is given, thereare no costs involved, this credit type isconsidered qarz-i-hasana (cost-free loans).Larger cash loans were predominantlyprovided and taken by wealthy and middle-ranking households and used for weddings,(re)building houses, buying small plots ofland for houses (Herat), going on haj (Ghor),or major health costs (the highest amountreported was 80,000 Afs (US$ 1,600). Atimeframe is often set with the larger cashloans, even if reciprocal in nature, thoughrepayment often remains flexible when theborrower is not able to return the loan. Thecreditor always has the right to request hismoney back when the agreed repaymenttimeframe has lapsed.

In-kind loans with profit

This takes place when large quantities ofwheat, for example, are borrowed under theagreement of a specified timeframe ofrepayment (e.g. the following harvest). Theagreement is such that it is repaid in cashwith a pre-determined higher value. Forinstance, if 20 ser of wheat is borrowed (theequivalent of 140 kg) in late winter, thisneeds to be repaid in cash at harvest for the

70 This credit form is similar to salam found in poppy growing areas where households receive an advance on future crops atlower prices.

71 As wages of contract labourers in general are around 1/3 of a daily labour rate, it likely wages taken in advance to besimilar or less.

Appendix 2: Credit types found in the three villages studied: Herat,Kapisa and Ghor

vi56


value of 100 Afs per ser (7 kg), whereas themarket value is 70-80 Afs per ser. This credittype was only found in the Ghor village. Thoseproviding this credit were the more wealthyrelatives or villagers. When the debt couldnot be repaid at harvest time, the debtorwould work on the creditors land until thedebt is repaid.72

Mortgage

Mortgage is a cash credit provided with landas collateral where the usage right of theland passes to the creditor. Thus, a householdmortgaging their land even though still owningit loses the right to cultivate it. Often acontract is made for three years betweencreditor and debtor. If the debt is not repaidafter this term, either a new timeframe isagreed upon, or the creditor has the right todemand his money back and force sale of theland. However in practice this is rarely found.The amount of money provided (themortgage) is based on the value of the land,thus mortgages taken during the drought areoften of less value than mortgages takenafter the drought.

Business credit

Business credit was only found to be providedand taken in the Herat village by the middle- ranking and wealthy households. This is mostlikely due to the many businesses present inthe village. The only business credit foundwas mozarebat.73 This involves an investorproviding capital for a business in exchangefor a percentage of the profit (depending on

the amount invested and relative to theamount possible others have invested). Whenprofit is made it will be shared between theinvestor(s) and the business owner for as longas the business lasts, for a pre-agreed upontime span, or until the money is repaid bythe business owner. If business fails, forwhatever reason, no money needs to berepaid to the investor. The amount of businesscredit found was up to 80,000 Afs (US$ 1600).

Business loan with interest

A loan provided with a pre-determinedinterest rate was considered a taboo, oftenconducted in secret and not spoken of. Theonly village where respondents mentioned itwas practiced was in Herat. A school teacherreported how it was practiced only forbusiness and provided by wealthy villagers.He called it an alternative for mozarebat,which one would only engage in whenconfident the business succeeds. As describedearlier, mozarebat profit has to be sharedbetween the investor(s)/creditor(s). If abusinessman is confident he will be able torepay the debt soon, credit with interest isan option, as the profits made in the businessdo not have to be shared afterwards with thecreditor as is the case with mozarebat. Alsothe creditor would only provide credit withinterest to a debtor who is likely to repay it.As this practice is conducted secretly, thelikelihood of the debtor being able to regainit would involve making things public. Theinterest itself was said to be repaid in cashor in-kind.

72 Historical accounts on the central highlands of Afghanistan by Ferdinand (1959 And 1962) have reported this credit typeoften being provided by the Kuchi and taken by the Hazara of Ghor However, he describes how when the debt is not repaidafter harvest, the debt is transferred to the next harvest which entails the debt in cash is transferred back to wheat. Butas the agreed upon repayment was in cash and at a higher price, transferring the debt back from cash to wheat at a marketprice the quantity of wheat for the second cycle of the debt has increased. If the debt cannot be repaid in the followingharvest again the debt will be transferred back to wheat at an increased amount. Thus with years of default the debt willincrease to unsustainable levels. This study did not come across households engaging in this continuous cycle of ever-increasing debt amounts.

73 Called in the Herat village shariq.

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June 2007 To Return or to Remain: The Dilemma of Second-generation Afghans inPakistan, by Mamiko Saito and Pamela Hunte

April 2007 Afghanistan Research Newsletter 13

April 2007 Afghanistan’s Health System Since 2001: Condition Improved, PrognosisCautiously Optimistic, by Ron Waldman, Lesley Strong and Abdul Wali

April 2007 Aiding the State? International Assistance and the Statebuilding Paradoxin Afghanistan, by Hamish Nixon

February 2007 Water Management, Livestock and the Opium Economy: Options for LandRegistration, by Alec McEwen and Sharna Nolan

February 2007 Informal Credit Practices in Rural Afghanistan, Case Study 3: Ghor, byFloortje Klijn

January 2006 Afghanistan Research Newsletter 11-12

December 2006 Water Management, Livestock and the Opium Economy: Opium PoppyCultivation in Nangarhar and Ghor, by David Mansfield

December 2006 Informal Credit Practices in Rural Afghanistan: Case Study 2, Kapisa

November 2006 The A to Z Guide to Afghanistan Assistance, Fifth Edition

November 2006 Putting the Cart Before the Horse? Privatisation and Economic Reform inAfghanistan, by Anna Paterson

October 2006 Water Management, Livestock and the Opium Economy: Livestock Productionand Health, by Euan Thomson

September 2006 Moving Forward? Assessing Public Administration Reform in Afghanistan,by Sarah Lister

August 2006 Urban Livelihoods in Afghanistan, by Jo Beall and Stefan Shütte

August 2006 Afghan Transnational Networks: Looking Beyond Repatriation by AlessandroMonsutti

August 2006 Water Management, Livestock and the Opium Economy: AnnotatedBibliography

August 2006 Opium Poppy Eradication: How to raise risk when there is nothing to lose?by David Mansfield and Adam Pain

All AREU publications are available for downloaded at:Hard copies are available at AREU’s office in Kabul.

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