Afghanistan has recently been home to a pattern of banking and lending, more commonly referred to as Islamic finance forbidding the charge of interest and requiring the share of risks and profits between investers and debtors. In Afghanistan, the population’s difficulty with commercial finance, which is normally sensed as being un-Islamic, and concerns regarding degeneracy have especially encouraged Islamic finance. While the so-called „Kabul Bank crisis‟ which began in September 2010, badly affected the country’s finance and banking sector, experts cited in the Financial Times hoped for that an increasing number of Afghans would see Islamic finance as a more trusted and stable alternative to private banks.
In Afghanistan, Islamic finance predates the present international interference but has seen growth since the post-2001 formalisation of financial foundations, based on reports from the MicroCapital Monitor. In 2006, the Foundation for International Community Assistance (FINCA), a micro-credit supplier, became the first micro-finance institution (MFI) to provide non-interest bearing Murabaha Islamic loans. These loans require that “sellers” or loan suppliers state the fee (not interest) which they will foresee in return for the loan, a procedure which is called as “cost-plus financing”. In short, after offering Murabaha loans, FINCA made all of its products Sharia-compliant and only permitted lending to business enterprises rather than individuals.
A number of non-governmental organisations (NGOs), including Islamic Relief, and MFIs followed afterward FINCA’s lead after experiencing that a powerful market existed for Islamic financial products. Indeed, Sharia-compliant loans are greatly approved by Afghans according to a current report from the Center for International Private Enterprise (CIPE); CIPE’s survey of 738 business owners found that 26% showed they had not taken out loans given their understanding that ”borrowing is banned in Islam”.
Greater banks immediately spread out into the area of Islamic finance in Afghanistan, with Bloomberg noting in early 2011 that seven of the country’s 17 financial foundations introduce some form of Islamic banking. Moreover, as a Business Week article recently published, the Afghan government is authorising the country‟s first Sharia-based banks. These three institutions – Afghan United Bank, Ghazanfar Bank and Maiwand Bank – are declarative of a broader move towards Islamic financial workings. This move is motivated in part by the understanding that Islamic banking may draw extra deposits from individuals who understand commercial banking as un-Islamic while also earning a substantial return. Ghazanfar Bank showed in 2009 that profits from some of its Islamic products which it had begun introducing before Afghan government certification were thought to rise by 36.7% within a year. This bank further estimated that the amount of money deposited in Sharia-compliant accounts, given their popularity among Afghans, would increase by 35.0% between the years 2009 and 2010.
In spite of the challenges for Islamic finance, it is considerably favoured by Afghans, according to the above-mentioned CIPE surveys, and is thought likely to expand greatly within Afghanistan in the future . With merely 3% to 10% of Afghans presently holding accounts in the country’s commercial banking sector, Islamic finance may attract individual savings away from hawala traders and out from under pillows and individual safes across the country and supply a much-needed shot of deposits into banks and trades. As the chairman of financial services as DAB currently declared, Islamic banks will not only gain the trust of plain Afghans but will also let banks to more freely supply loans to wishful enterprisers and improve the country’s economy.