Qudratullah Rahmat

Abstract

This study is intended to ascertain the impacts of the financial inclusion through nonbanking financial institutions on the reduction of poverty in Balkh Province of Afghanistan. A sample of 365 people was selected using simple random sampling from the population of borrowers of three major lending and financial service institutions in this province. From the selected sample, 325 respondents could be interviewed, and 43 others were unreachable or declined to participate in the study. Using the households’ mean monthly consumption as a measure of poverty, it was observed that while enforcement of financial contracts leads to forced sales of collaterals, it was not statistically significant at a level of 5%. Thus, the defaults on loans have not directly caused a decreased level of consumption among the borrowing households of this sample. Nevertheless, explanatory factors, such as lending rate and the ratio of collateral values to loan amount have negative impact on households’ consumption. This implies that a higher funding rate and repossession of collaterals with higher values lead to lower level of consumption in borrowing households. Likewise, loan terms, the level of borrowers’ education, and the use of borrowed funds for business purposes have positive impact on consumption. It was also revealed that the majority of the people have borrowed money for funding nonbusiness needs.

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