Afghanistan hails its own bright banking future

Despite making headlines for all the wrong reasons for decades, Afghanistan is now trying to persuade the international banking community that there is a brighter future ahead for the country, writes Kurt Parry.

It is the first time that the Afghanistan Banks Association (ABA) has exhibited at Sibos, and its director, Ahmad Javed Wafa, says it is time to seize the day.

“The timing for us is absolutely perfect,” he says. “Banks in Afghanistan are now progressive, transparent and ready for business. We are here to meet new banks and build new relationships, and toshow western and GCC financial institutions that there are enormous opportunities.”

There are plenty of misconceptions about the banking industry in Afghanistan and the ABA aims to put that right. “The meetings we’ve had have been extremely constructive and many of the curious visitors that come in are potential investors when they go out,” he says.

“Afghanistan has huge investment potential, with construction, housing and industry playing major roles. It has one of the region’s lowest corporate tax rates and, thanks to external investment, it now has a responsible, trustworthy banking industry.”

However, Wafa concedes that while there may have been improvements, foreign scepticism is still one of the biggest barriers to greater investment.

“We’re not pretending it’s perfect, what we are saying is ‘come and look how far we’ve come’. It’s understandable that there is a sense of uncertainty about investing in Afghanistan banking if you don’t know what has changed. The rate of change and the scale of change are phenomenal.”

Again, while the industry itself may have made great strides, many external factors still pose a significant risk to investment sentiment.

“The politics in Afghanistan are obviously critical to our success. It’s the same with all businesses, but with banking investments, the stakes can be higher and in the past they have often been among the first economic casualties when things go wrong. The recent history of Afghanistan, the lack of understanding and the perceived political instability make it extremely difficult sometimes to convert the interest into commitment. That is one of the reasons we are here – to help investors understand the reality.”

Those factors which are within Afghanistan’s banks’ control have progressed tremendously. The transparency is unprecedented and it isn’t just the fact that it has improved, it is the banks’ desire for it to improve. “All our banks have the most sophisticated anti-fraud security software, they all belong to the ABA and are all subject to independent annual audit reports. We have had enormous help in terms of expertise and business models from the International Monetary Fund and some of the major US banks.” As Wafa is keen to emphasise: “We are a very capitalist country.”

Another problem for Afghanistan’s banking sector is a lack of confidence – not from its foreign investors, but from its domestic customers. “The banking hierarchy has a very conservative outlook with regards to loans and extending credit. There are some extremely strict criteria to meet and tough conditions to satisfy. Personal account holders don’t want to keep their money in a bank for long periods, they simply deposit and then withdraw.

“What we need to do is to persuade these customers that they can trust their banks and we are trying to offer incentives including excellent interest rates to make longer term savings more attractive. The more confidence banks can instil in their customers, the more confidence foreign banks and foreign investors will have. We have the right infrastructure, we have the legislation and we are building the rightrelationships.”

The unbridled enthusiasm of the ABA is obvious and many of the delegates at Sibos may well be stirred into action by Wafa’s insistence that Afghanistan banks have become much more of an opportunity than a risk.