The Afghanistan Research And Evaluation Unit has a research area dedicated to livelihoods and vulnerability. It aims to gain greater understanding of poor people’s livelihood strategies across different areas of the country. Research has shown that Afghan’s livelihoods strategies and coping mechanisms are more diverse and resilient than is often realised, and indicates that projects should build on these often context-specific mechanisms. In this context the AREU has carried out a study on informal credit systems and the role that they play in family livelihood and survival strategies and safety nets.

The study aimed to provide deeper insight into current informal credit practices and to understand their role in rural livelihoods. Key questions guiding the study included:

1. How is credit used by households to pursue different livelihood strategies such as coping, stabilising and accumulating?

2. What place does credit occupy in inter-household relations, and how does this vary across livelihood strategies?

The field sites visited were villages in Heart, Balkh, Ghor and Kapisa provinces.

Livelihood strategies were differentiated to the following three classifications:

Accumulating livelihood strategies seek to increase income flows and assets. Households with accumulating livelihood strategies own assets with which they accumulate surplus in food, goods, or cash which they in turn use to accumulate more.
Stabilising livelihood strategies seek to secure existing asset portfolios through diversifying income, accessing more resources and strengthening social networks.
Coping livelihood strategies seek to provide for sufficient household requirements on a daily basis. Food security and daily survival are the main concerns.

It was found that credit plays different roles in different livelihood strategies. Almost all households in this study were involved in credit exchange – both providing and receiving credit. However the role credit plays within these strategies varies by wealth group.

The author highlights that pivotal to understanding the role credit plays in rural livelihoods is to understand the role social relations play in livelihood strategies. Social relations are important in accessing credit;  and also credit is important in maintaining or reinforcing social relations. Each household – poor or wealthy – relies on a network of relations that mutually assists families in their day-to-day requirements, as well as during lean periods, or to stabilise or improve one’s livelihoods. The use of credit follows the same pattern: for consumption smoothing, to assist with crisis situations and to invest in one’s household economy or social network. However, credit is also instrumental in connecting households; it is a lubricant for social support networks.

However, often these credit practices do not provide the level or type of support necessary either to move poor households out of poverty or to protect middle-income households in the face of decline. This is due to the limited level of cash available through these networks, and the risk for some that such informal relations may shift from assistance to accumulation, leaving the debtor in long-term relations of dependence. While the importance of informal credit relations to rural livelihoods cannot be discounted, more attention must be provided to alternative ways of intervening to provide more opportunities for autonomous growth to the rural poor.

The AREU will also be starting a study on the role of microcredit in rural livelihoods, which will seek to address questions of who has access to microcredit, what this means to their livelihood security, to gender relations and to existing informal credit systems.