First fully-fledged Islamic bank to open in Afghanistan
First fully-fledged Islamic bank to open in Afghanistan
The move is hoped to encourage more Afghans to obtain formal banking products, as only five per cent of the country are believed to have a bank account.
2 min read
Bank teller handling money at Afghanistan's central bank [Getty]
Afghanistan's central bank granted the Islamic Bank of Afghanistan (IBA) a licence, the first Afghan bank to fully comply with Islamic banking laws, an official told Reuters on Monday.
The IBA, previously known as Bakhtar Bank, will apply interest-free principles to all of its business activities. IBA had operated under a conventional banking licence since 2009.
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The central bank, Da Afghanistan Bank, approved the licence on 9 April after IBA converted its assets and deposits to conform to Islamic banking practices. This includes no-interest loans and bans on gambling and alcohol.
As of December, IBA held $187 million in deposits and offered services across a network of 59 branches in the country. While Afghanistan's banking sector is underdeveloped, observers say Islamic finance could bring more people into the financial system.
Only 5.7 per cent of Afghans are believed to hold a bank account, according to estimates by IBA.
IBA has the third largest branch network in the country and the firm is seeking to rapidly grow its business over the next two years, said Faizan Ahmed, chief financial officer.
Most Afghans shun interest-based finance for religious reasons.
Da Afghanistan Bank released a regulatory framework in 2015 based on the Accounting and Auditing Organisation for Islamic Financial Institutions to encourage citizens to seek formal financial services.
Up until now, only a few select firms offered Islamic banking through so-called Islamic windows. Lenders with Islamic windows include Afghan United Bank, Ghazanfar Bank and Afghanistan International Bank.
Fully-fledged Islamic banks are common in Muslim-majority countries.
Instability in war-torn Afghanistan is also believed to be a factor for the low number of citizens holding bank accounts. Violence is expected to increase this year as Afghans have begun registering voters in the lead up to October polls.
On Sunday, an IS suicide bomber killed at least 57 people outside a voter registration centre in Kabul. More than 100 were also wounded in the blast.
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