Background

Micro, small, and medium enterprises (MSMEs) are the backbone of Afghanistan’s economy, accounting for over 80% of total employment. They provide livelihoods, drive entrepreneurship, and foster resilience in one of the world’s most fragile contexts. However, the country faces significant macroeconomic challenges, including prolonged political instability, high inflation, currency volatility, limited fiscal space, and disrupted trade flows — all of which have weakened private sector growth and financial sector stability. Against this backdrop, access to finance remains severely constrained, with women-owned businesses facing the highest barriers to credit.

Financial institutions in Afghanistan perceive MSMEs as too risky and lack tailored products, particularly for women and informal enterprises. As a result, Afghan MSMEs are unable to access the capital they need to recover, grow, and contribute to inclusive economic transformation. Closing this financing gap is essential for stability, job creation, and resilience in Afghanistan.

Development Finance Solution

In partnership with the United Nations Development Programme (UNDP), UNCDF has introduced a Portfolio Guarantee Facility to de-risk lending and unlock private capital for MSMEs across the country. The facility is designed as a blended-finance instrument that shares risk with multiple financial institutions, re-guaranteed through the Afghanistan Credit Guarantee Fund (ACGF). It includes a dedicated tranche for women-owned and women-led MSMEs, ensuring that gender inclusion is embedded at the core of the mechanism.

By being fully integrated with UNDP’s broader recovery and resilience programming, the facility is complemented with technical assistance and business acceleration services, enabling both entrepreneurs and financial institutions to strengthen capacity, adopt Shariah-complaint products and expand digital loan disbursement and repayment channels. Partner institutions include OXUS a micro-finance initiative, First MicroFinance Bank-Afghanistan (FMFB), and Ghazanfar Bank, which together are catalysing a systemic shift in how MSMEs are financed in Afghanistan.

Outcome

The facility has already demonstrated catalytic results. To date, 7,444 MSMEs have been financed, of which 2,255 are women-owned enterprises. These loans have supported 14,212 jobs for men and 4,701 jobs for women, sustaining thousands of households and communities.

The blended finance solution designed and deployed by UNCDF has delivered 16 times guarantee leverage and 20 times portfolio leverage, meaning that each donor dollar has catalysed nearly 20 dollars in private-sector lending.

Beyond direct results, the initiative is altering market behavior: lenders are expanding MSME portfolios, adapting credit products to underserved entrepreneurs, facilitating the transition to Islamic finance, restoring trust in financial institutions and reducing structural gender barriers through the women’s tranche.

To expand the guarantee’s capacity to reach over 20,000 MSMEs, balance the leverage and double the women’s tranche, UNCDF is seeking funding from partners.

Key Terms