While it has been more than three decades since the practice of Islamic banking began around the world, this system is only at its initial stage in Afghanistan and is considered a new concept. In a country with a more than 99% Muslim population, Islamic banking is practiced in the daily lives of the people, but it’s not systematic. For instance, when people deal with each other they are concerned about the involvement of Riba and thus they mostly lend money based on Qard Hasan and they also practice Mudarabah and Murabahah but their practices are not as per the banking system.
A point to note is that around 20% of the Afghan population is banked while the remainder avoid this facility due to the involvement of Riba. Islamic banking was introduced in Afghanistan between 2008 and 2009 and the first draft banking law was prepared by Da Afghanistan Bank which is the central bank of Afghanistan. Da Afghanistan Bank established the Islamic banking section that operates under the technical support of the Shariah Council consisting of famous religious scholars from Afghanistan as well from some other countries. Banking is one of the main sectors in Afghanistan and a healthy banking system is considered as the heart of the economic system of a nation. Due to the lack of an advanced banking system, a great portion of capital remains idle in the country.
Review of 2016
During 2016, Afghanistan’s economic situation remained difficult. Security instability held back growth and employment. Despite the central bank’s efforts to address the vulnerabilities, the banking sector had to face many challenges during the year. As per available data from the World Bank, during the first half of 2016, the investment level was low.
The absence of Islamic banking regulations has been one of the biggest challenges for the banking sector and was resolved during in 2016. The central bank extended great support toward the further improvement of the Islamic banking system and the recent regulatory progress can be considered as an enormous achievement for the banking sector. In the new Banking Law of Afghanistan, there is a dedicated section for Islamic banking.
Moreover, 46 manuals of regulations and guidelines have been developed by the central bank which will have a positive impact on attracting more deposits into the banking sector, ease the further implementation of Islamic banking and assure that the system is consistent with Shariah rules and regulations.
Currently, only seven out of 17 banks are offering Islamic banking services via the window system and the services and products offered by these banks are limited to Mudarabah, Murabahah, Musharakah and Ijarah. Bakhtar Bank, one of the private banks in the country, is in the conversion process from a window system to a fully-fledged Islamic banking system and will be the first bank with fully- fledged Islamic facilities.
During 2016, most of the Islamic windows faced high liquidity, with the main reason being the shortage of investment opportunities. Due to the involvement of Riba, Islamic financial institutions are restricted from investment/placement opportunities such as capital notes and overnight placement offered by the central bank.
Preview of 2017
As per the World Bank report, economic growth is expected to increase over the coming years from 1.8% in 2017 to 3.6% in 2019 in view of the improvements in security, political stability, continued aid and the progress of reforms. The banking industry seems to be positive of 2017 and most banks plan to introduce new facilities such as long-term home financing, Sukuk and non-funded facilities. Furthermore, the problem of excess liquidity might be resolved to some extent during 2017, in view of the aforementioned economic growth, where ultimately investment opportunities will rise.
Conclusion
In view of international aid and positive thoughts for 2017, it is hoped that there will be a peaceful and productive year ahead.
Manezha Sukhanyar is the head of Islamic banking at Maiwand Bank. She can be contacted at [email protected].