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The Role of Opium as a Source of Informal Credit

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STRATEGIC STUDY #3

Preliminary Report January 1999

This Study seeks to explore the role of opium as a source of informal credit in UNDCP?s target districts.

2. Introduction

Currently, Afghanistan has no formal credit institutions. However, there are a number of informal sources of credit, providing both cash and ?in-kind? loans to those households that have insufficient savings or income to meet their short, medium, or long term expenditures. These sources of credit may be family, friends, or traders in agricultural or non-agricultural goods. Loans are provided on the basis of personal knowledge of the borrowers ?trustworthiness?, including income, assets and status within the community.

This Study explores the informal sources of credit in the districts of Ghorak, Maiwand, Khakrez and Shinwar in Afghanistan. It seeks to establish the role that opium plays within these informal credit systems and how this impacts on household cropping patterns amongst the different socio-economic groups in the target districts. The issues addressed in this Study include the types of credit available, current levels of household debt, the impact of debt on various socio-economic groups, and strategies for repayment. This Study is undertaken in close consultation with Strategic Study 2: ?The Dynamics of Farmgate Opium Trade and the Coping Strategies of Opium Traders?.

3. A preliminary report

This is a preliminary report focusing on the four target districts of the Poppy Crop Reduction Project (AFG/C28), Ghorak, Khakrez and Maiwand in Qandahar and Shinwar in Nangarhar Province. To explore the nature and scale of household debt, initial fieldwork was timed so as to coincide with the period when households were repaying the loans they had obtained during the winter cropping season. It is intended that this work will be consolidated with further fieldwork (see Annex A: Terms of Reference).

Due to the perceived sensitivities associated with both credit and opium poppy cultivation, emphasis was given to conducting a number of in-depth semi-structured interviews within the four target districts. To verify findings and distinguish between generic patterns and localised issues, in-depth interviews were conducted over a wide geographical area within each district. Consequently, three villages were selected from each district on the basis of location and, in the case of the districts of Shinwar and Maiwand, the source of irrigation.

To explore the role of credit for the different socio-economic groups within the target districts, nine households were selected in each village. Since wealth and land-ownership seem to be inextricably linked in rural Afghanistan, respondents were selected on the basis of whether they were landless, owner-cultivators or landlords. For the purpose of this Study, owner-cultivators were defined as those who worked their own land and offered neither their labour, nor, hired tenants or sharecroppers on a permanent basis. Landlords were defined as those households that hired tenants or sharecroppers to work on their land on a permanent basis. Within each village interviews were conducted with three households from each of these three socio-economic groups.

In total 108 interviews were conducted, of which: 37 were with households who did not own land; 35 with owner-cultivators; and 36 with landowners who employed sharecroppers or tenant farmers. In total eighty-one respondents were interviewed in Qandahar between 14 and 28 June 1998 and 27 were interviewed in Shinwar between 2 and 5 July 1998.

So as to verify findings and to provide more quantitive data to support to the qualitative information collected, efforts were made to interview households who were respondents for the Baseline Survey undertaken in February and March 1998. Consequently, of the 108 interviews conducted, approximately 60% were with households interviewed during the Baseline Survey.

4. Future analysis

In order to strengthen the recall of respondents, this initial fieldwork was conducted during the period in which most households were repaying the credit they had obtained for the winter cropping season. To consolidate these preliminary findings, UNDCP envisages that further fieldwork will be undertaken during the winter cropping season 1998/99, when many households are expected to obtain loans both for the approaching agricultural season and for periods of food scarcity. This further fieldwork will be particularly important for exploring the coping strategies respondents adopted in order to repay the debts they incurred in the 1997/98 growing season.

5. The importance of credit

Fieldwork reveals that loans, or poor, in Pashto, are an integral part of household livelihood strategies in the four target districts of Ghorak, Khakrez, Maiwand and Shinwar. Indeed, 95% of respondents interviewed for this Study claimed that they had obtained loans during the previous twelve months. Only five respondents suggested that they had not taken loans in the last year, three of which claimed to never having taken any loans.

The Baseline Survey supports this finding, suggesting that 85% of the 600 households surveyed had obtained loans during the previous twelve months. The prevailing need for credit within the target districts is highlighted by the fact that the proportion of households who obtained credit varied little between districts, ranging from 82% in Ghorak to 95% in Maiwand.

Moreover, respondents for the Baseline Survey revealed that credit is often seasonal, with 72% of respondents obtaining loans between mid September and mid March (see Figure 1). Indeed, 30% of respondents reported that they obtained their initial loan between mid September and mid November, the months of Maizan and Aqrab, when the cultivation of winter crops begin.3/ During these two months households reported that they required loans for the purchase of agricultural inputs, such as seed and farm power. Traditionally, Maizan and Aqrab are also the months in which many marriage ceremonies take place.

Forty-two percent of respondents for the Baseline Survey reported that they obtained their initial loans during the months of Jadee, Dalwa and Hood, representing the period from 20 November until 19 February. During this period some households reported that they experienced food shortage and obtained loans to purchase wheat for consumption. Several farmers also claimed that they required money for the purchase of fertiliser and agricultural labour for opium poppy cultivation.

An analysis of the distribution of loans over the calendar year, suggests that there is little variation in the seasonal demands for credit between the different socio-economic groups. Of those interviewed for the Baseline Survey, 28% of those without land, 33% of owner-cultivators and 31% of landlords obtained their initial loans in Maizan and Aqrab. Whilst during Jadee, Dalwa and Hood, 47% of the landless, 37% of owner-cultivators and 44% of landlords obtained their initial loans.

3/ Maizan is the Afghan month that begins mid September and finishes mid October, whilst Aqrab begins mid October and finishes mid November. See Annex B for a breakdown of the months within the Afghan calendar year.