Evaluating the impact of microfinance on household income and business sustainability: evidence from Afghanistan

Microfinance grew rapidly in emerging countries and got international recognition for its role in economic development and poverty alleviation. Afghanistan is also one of those countries where microfinance services for economic empowerment and entrepreneurship is increasingly observed in the rural and underserved sectors. In Afghanistan, where inadequate access to formal financial services hampers small business creation, microfinance is a potential solution for financial inclusion. Multiple studies have examined the effects of microfinance in Afghanistan's rural economy, especially in the face of a very low socio-economic and political landscape. This research addresses how microfinance helps small business entrepreneurs in rural Afghanistan to improve their entrepreneurial performance and household stability. The paper fills a significant literature gap using a quantitative cross-sectional data and OLS regression models. Using the data of 211 microfinance recipients, the models estimate how loan sizes, duration of loan, age, and education level affect business sustainability and household income of those people who received microfinance loan. The findings suggest that access to microfinance increases the duration of businesses and boosting household income by receiving microfinance loan. The more entrepreneurs who were provided with financial and non-financial services, the more businesses were able to sustain and expand. This research calls for specialised microfinance programmes that support the sector specific needs and for the incorporation of digital financial services to enhance access. These results offer concrete guidance for policymakers, development agencies and microfinance institutions, highlighting the need for new approaches to tackle current inequalities and increase economic resilience.