Afghanistan Islamic Bank See Future Potential Growth
In an interview with Islamic Banker (IB) , Dr Alam Khan Hamdard (DAK) shares his views about the Islamic banking and finance in Afghanistan.
IslamicBanker (IB ): As a Muslim-majority nation that has often rejected interest-based financing, in your view, why do you think it has taken so long for Islamic finance to gain a footing in Afghanistan?
Dr Alam Khan (DAK) : It is because of poor actions of Central Bank of Afghanistan due to lack of law and regulations, lack of human capacity, lack of public awareness, lack of investment and the current political and insecurity situation in Afghanistan.
IB : The Afghanistan central bank, Da Afghanistan Bank (DAB), is finalising a new regulatory framework for Islamic banking and hopes to implement it by June 2015. Seeing that there already are banks with Islamic windows such as Afghan United Bank, Ghazanfar Bank and New Kabul Bank, why weren’t these frameworks put in place long before?
DAK : This was because of the lack of working capacity of Da Afghanistan Bank and the absence of a Shariah-council at Da Afghanistan Bank.
IB : Upon implementing the framework, are you expecting a rapid rise in new full-fledged Islamic banks in Afghanistan or do you see more existing banks converting themselves into full-fledged Islamic banks?
DAK : Yes, I think many investors will come forward to build more full-fledged Islamic banks, and some banks will go for partial and full conversion into Islamic banks. Also, the new full-fledged Islamic banks will get a lot of deposits. According to the figures given by the World Bank and the country President, His Excellency President Ashraf Ghani Ahmadzai, more than US$35 billion is in circulation but only US$4.1 billion is deposited in the whole banking industry. As per the survey conducted by USAID and the Afghan Chamber of Commerce, most people do not want to do banking because of the presence of interest in the banking sector. Most recently, Bakhtar Bank and AUB are working to convert themselves into Islamic banks.
IB :Previously, the general public’s confidence in Islamic windows declined due to lack of regulations. Upon the implementation of the new framework, what awareness and educational measures would you recommend to help regain the confidence of the people?
DAK : A nationwide public awareness campaign must be conducted through electronic and print, social media, public speeches by Ulema or religious scholars as well as public gatherings. AIFC/Almaali already signed an agreement to launch a nationwide Public Awareness promotion campaign of at least three years, along with cooperating with banks offering Islamic banking services and products.
IB : Besides this, are there any other notable measures and implementations made by DAB or the Afghanistan government?
DAK : Da Afghanistan Bank has established an Islamic banking board of experts who work closely with the central bank in bringing in proper regulations. Also, DAB does conduct training workshops for bank staff. Mr Khan Afzal Hadawal, the acting governor and First Deputy Governor, is taking good steps and has been very cooperative.
IB : Back in May 2014, DAB and Harakat launched the Shariah Compliant Project and one of the key aspects of this initiative is the introduction of Shariah-compliant SME loans. How far has the SME market in Afghanistan progressed since?
DAK : There is no significance progress made yet because the Central Bank of Afghanistan does not take bold steps towards approving the Islamic banking products of banks in the country. Also, there is a lack of human capacity. Banks offering Islamic banking products are in lack of qualified Islamic banking professionals.
IB : What do you think are the key factors that will help attract investors to Afghanistan and what type of businesses would be best to invest in?
DAK : I think that considering the following factors will help attract investors to Afghanistan.
• Business-friendly laws and legislation of the new government and its support for investors
• Having the highest profit margins in the region
• Numerous business and investment opportunities
• The presence of international donors, who have an interest in financing infrastructure projects
• The presence of donors who support projects in Afghanistan
• The emerging economy of Afghanistan
• The following are the main sectors which are the best for investment:
• Islamic banking and finance, particularly Islamic insurance, Takaful, Islamic finance sectors or Shariah-compliant lending and financing
• Housing sector
• Energy sector
• Agriculture processing, livestock and irrigation
• Mining and petroleum projects
• Railway and transportation
Recently, Sayed Jawed Andish, a young businessman who is the founder of Karwan University, bought Afghanistan Commercial Bank and applied for an Islamic banking license. Also, well-known businessman Mr Haji Ali Akbar Zhwandai, who just bought large shares of Afghan United Bank, is also very keen on promoting the Islamic banking portion of his Bank (Afghan United Bank).
IB : Do you think Islamic finance is the answer to Afghanistan’s growing fiscal crisis which is further intensified by the drop in foreign financial aid?
DAK : Yes, I think Islamic finance is the best way to curb the current fiscal crisis. Also, Islamic banking fixed deposits, investment deposit accounts and the introduction of an Islamic capital market will be the immediate remedy. Land reform and the legalisation of houses constructed illegally will bring billions of US$ to the government. I have strong proposals and plans for the Islamic capital market as well as land reform and the legalisation of illegal housing.
IB : What are the key business-driven, Shariah-compliant products currently available in the market?
DAK : The Islamic banking and finance sector is not boosted yet, and the Shariah-compliant products are very poor. However, some banks offer short term Murabahah-based trade finance products. Bank Millie Afghan appears very strong in the market with various Shariah-compliant products. The CEO of Bank Millie Afghan, Mr Ahmad Khesraw Zia Gadakhel, and his team are taking bold steps by offering long-term conventional as well as Shariah compliant financing.
IT WAS THE WISE DECISION OF THE PRESIDENT HAMID KARZAI, OTHERWISE MORE THAN A MILLION ANGRY DEPOSITORS OF KABUL BANK WERE ABLE TO OVER THROUGH THE GOVERNMENT AT THAT TIME. BUT WHEN THEY RECEIVED THEIR DEPOSITED MONEY AND THEN THEY REMAINED CALM AND SATISFIED.
IB : How severe was the impact of the government’s bailout of Kabul Bank in late 2010 on Afghanistan’s overall financial landscape?
DAK : It was very good and positive, as it saved the whole banking industry plus the government at that time. It was a wise decision on President Hamid Karzai’s part. Otherwise, more than a million angry depositors of Kabul Bank would be able to overthrow the government at that time. Since they received their deposited money, they remained calm and satisfied.
IB : Will the ongoing political and security issues hinder not just the development of Islamic finance, but the country’s financial industry as a whole?
DAK : I think the development of Islamic finance will be hindered up to a certain level, but not (the financial industry) as a whole. This is because the Taliban fighting has been ongoing for the last 13 years, and the business and economy has adapted to the current situation of Afghanistan. But, the government is interested in taking strong measures to reduce the level of insecurity and I think the situation will turn positive
IB : Can you give us an overview of the role played by the Afghanistan Islamic Banking and Finance Co. in the growth and development of Islamic finance?
DAK : I strongly believe that the Afghanistan Islamic Banking and Finance Company played a significant role in the introduction, promotion and strengthening of the Islamic banking and finance industry in the country. Here are just some examples of what it has done in the past and what it is going to do in the future.
• It is the founder of Islamic banking in Afghanistan, introducing Islamic banking to people in Afghanistan under my leadership.
• It played a significant role in providing leadership and managerial roles for the establishment of Islamic banking divisions in banks including Maiwand Bank, Bank Millie Afghan, New Kabul Bank, Afghan Untied Bank, AIB and ACB.
• It provides capacity building for banks
• It provides consultancy services for the introduction and development of Shariah-compliant products into banks and finance companies, such as Mutahid Finance Co.
• It conducts world-class events such as annual International Islamic banking conferences, Ulema forums, TV and media interviews
• It initiated the process of establishing an Islamic capital market in Afghanistan
• It is launching a public awareness campaign along with the Afghanistan Chamber of Commerce and Industries
• It provides training services to the banking industry through its first Islamic banking and finance training centre in Kabul.
• It attracts and brings in global Islamic banking and finance companies such as AL-Maali www.almaaligroup.com and Bahrain-based CIBAFI www.cibafi.org.
• It provides curriculum development and teaching capacities to universities in Afghanistan including the Kardan and Gharjistan universities in Kabul.
• It encourages local and international investors to invest in the Islamic banking sector.
• …and many more.
IB : In the next five years, what kind of capacity building initiatives can be expected to strengthen the Islamic banking sector in Afghanistan?
DAK : It is difficult to predict now. For this, we have to work with the Afghan Banks Association (ABA) and the Afghanistan Microfinance Association AMA. Mr Ahmad Syier, the chairman, and particularly, Mr Najibullah Amiri, the Secretary General of ABA, have been very cooperative and have done a lot for Islamic banking. USAID-funded Financial Access for Investing in the Development of Afghanistan (FAIDA) programme and the World Bank/ GIZ New Market’s Development Programme (NMDP) is playing a positive role in raising the capacity of
Islamic banking and finance in Afghanistan. All these stakeholders have to come and work together to develop a national Islamic banking and finance capacity building strategy. Also, donors and the government of Afghanistan must support this:
• The launching of short and medium term courses on Islamic banking and finance to satisfy the acute needs of banks and financial institutions offering Shariah compliant products.
• The launching of diploma level Islamic banking courses
• The launching of Islamic banking degree courses by universities. Kardan University in Kabul has already initiated this course, which has to be appreciated.