BizCLIR

Money is exchanged and transferred in several different ways in Afghanistan. First, cash transfers amongst individuals are commonplace and very fluid for payments of all kinds, for trading, and for merchandise purchases. Second, during the period of conflict, and continuing up to the present, the hawala system predominates for money transfers. Hawaladars are unregistered money traders who have the ability to transfer money all over Afghanistan, even to the most remote areas, and who can also transfer money into neighboring countries, as well as Dubai, Europe and even the U.S. These transfers can be done almost on a moment’s notice. The salaam money lenders, who give money advances that are repaid with harvested crops, usually are connected to the hawala system.

Since the fall of the Taliban regime, banks have re-emerged quite rapidly. The six original state banks are in a process of privatization and consolidation, and up to 13 new banks have been established. Some are locally chartered banks and others are branches of international banks. Within the banking system, loans, trade financing, deposits and other kinds of transactions are carried out, some in Sharī’ah compliance and others that are not.

In addition to the formal banking system, there are the numerous microfinance institutions, which act like banks but are not registered as such. These provide financing and credit to individuals and groups for the most part through group lending, but lending on individual account is becoming more frequent. Lastly, there are leasing firms that are emerging, and equity capital funds are also being introduced.

All in all, access to money is unconstrained, and transferring money in and out of the country is relatively easy and uncontrolled. That is not to say that money is cheap – each system has its costs that are relative to the risks involved, the method of financing, and the security of the transaction (degree of collateral, contractual law coverage, potential for legal restitution in case of default, etc.). In light of the amounts of money being transferred into an economy fueled by donor institutions, however, military spending, and shadowed by the opium economy, money flows are not constrained.

In a recent World Bank analysis, Afghanistan was ranked 16 out of 145 countries for ease of opening a business, as opposed to 122 out of 155 in terms of transaction costs. In terms of transparency, Afghanistan ranked 17th, yet better than Tajikistan, Uzbekistan, Pakistan, Kyrgyzstan and Turkmenistan. Projected growth is 11% for 2007. However, in a World Bank survey on investment climate, major obstacles to investment and growth were cited as lack of electricity – 64%, lack of access to land – 60%, corruption – 53% and lack of financing 51%.