Bloomberg: Afghanistan Opening First Shariah-Based Banks

By Khalid Qayum and Eltaf Najafizada

Aug. 19 (Bloomberg) -- Afghanistan plans to issue licenses for three Islamic banks, the first to offer a range of services that comply with religious law in a country where 99 percent of the population is Muslim.

Afghan United Bank, Ghazanfar Bank and Maiwand Bank are seeking permission to provide products that meet Shariah principles, said Aimal Hashoor, a central bank spokesman in Kabul. Now, seven local banks can offer Islamic services through dedicated tellers at branches, he said. The products are limited to Islamic loans, said Sayed Mahmood-ul-Hassan, chief executive officer of Afghan United Bank.

The government wants to expand Islamic finance to draw more assets into the financial system and help reduce the nation’s reliance on overseas aid for reconstruction following 30 years of war and insurgency, according to Hashoor. The country has received more than $32 billion in international aid since U.S.- led forces toppled the Taliban in 2001, he said.

“Afghanistan is a Muslim society and many people don’t want to use conventional banking,” Hashoor said in an interview on Aug. 15. “We want to bring all of the money that we have in businesses and with individuals into the economic cycle.”

The $23 billion economy has expanded an average 11.3 percent annually since 2004, according to the U.S. Department of State. Islamic finance would be popular with Afghans, who are “very religious” and often prefer cash transactions to interest-based banking, holding back the development of local businesses, according to Al Baraka Islamic Bank.

“Islamic banks can fill the vacuum as conventional banking is not fully developed in Afghanistan,” Kaleem Iqbal, a senior executive vice president at Al Baraka Islamic, a unit of Bahrain-based Al-Baraka Banking Group, said in an interview yesterday in Islamabad. “The government would be looking forward to participation by banks in its plans to sell sukuk.”