Growth and Future of Islamic banking in Afghanistan.pdf (original) (raw)

2013, Islamic Banking in Afghanistan

The Afghan banking industry has witnessed growth in recent decade after fall of Taliban Regime in 2001; it was a beginning of new era which was much concentrated to introduction of modern commercial banking and offering a wide range of banking services to individuals and business which weren’t offered in the past. Since 2003 the central bank of the country (DAB) passed new banking law according to global best banking practices and dissolved its special purpose banks and chartered 17 banks which include state, private and foreign owned banks. The commercial banks started offering a variety of banking services such as opening different type of bank accounts, issuance of loans, transferring cash, ATM services, Master cards, letter of credit and bank guarantees to businesses and so on. These products and services opened new avenues for investing and doing business in Afghanistan and carried on its journey of development until 2010 when Kabul banks crises scandal was revealed disclosing weakness of commercial banks in Afghanistan, which resulted in distrust of public on commercial banks operation and government intervention and eventually incentivised the Islamic banks. The new banking practice i.e. Islamic banking emerged, which was used by regional countries banking sector and was based on Islamic Sharia law. It brought about new hopes for people and is still viewed as panacea to all problems banking system. In the study Islamic banking has been investigated in Afghanistan, the research has been primarily undertaken due the fact that few researches with similar nature have been conducted in Afghanistan so far. This issue was realized by the researcher when he searched for secondary data around the subject. The research was conducted by survey of participants through questionnaire disseminated to them , which aimed at both quantitative and qualitative data with two third response rates. The secondary data sources about the practice are also used. The findings of the study reveals some interesting facts around the study variables i.e. Islamic banking perception, products and services offered, being alternative practice to conventional banking, challenges faced and opportunities available to them. The result of the study suggests number of interesting facts regarding the practice namely Islamic banking as an alternative practice to current conventional banking because of greater interest and optimism to the practice and distrust over commercial banks, avoidance of banking due involvement in interest based practices which are against their religious belief resulting in financial exclusion of greater portion of population. Besides Islamic banking has very promising future in the country looking at current tendency of people toward the practice. The common products offered under Islamic Banking Window (IBW) initiative of central bank presented by commercial banks are Musharaka, Mudaraba, Murabaha andIjara. Currently nine banks offer IBW services, out of 9 banks 3 are state owned, 5 are privately owned and one is foreign owned bank branch. Considering current trends in banking sector Islamic banking is going to expand will grow as an industry when fully fledged Islamic banks arrive into scene, enterprises start issuing Sukuk bonds and insurance service of Takaful. Further research can be carried out to compare the growth and profitability, risk management, viability of Islamic and conventional banks in the country, with relatively large samples size to get more comprehensive picture and applying complex statistical tools to find out relationship between different variables. Finally the researcher suggested a number of recommendations to address the issue in light of the data collected and to cope with the challenges identified. These recommendation are increasing awareness level of public about the practice, central banks role in promoting Islamic banking to reduce financial exclusion, outsourcing the technology and framework needed for Islamic banks to operate steadily, issuance of Islamic bonds(Sukuks) and launching Islamic insurance products(Takaful) and attracting Foreign Direct Investment (FDI) from abroad to develop and expand the sector.