How To Run A Bank In Afghanistan

Via The Economist, an interesting look at banking in Afghanistan:

PEOPLE want to keep their money safe. Rather than stash it under the mattress, they turn to banks, often in return for interest on their cash. But the financial system can really only function if people can trust that strangers will not run off with their money. In Afghanistan, earning that trust is not easy.

In the past unscrupulous bankers there have got away with theft of spectacular proportions. In 2010 Kabul Bank collapsed after a spree of insider loans to shareholders, including a brother of the then president, and a run on the bank.  Nearly $1bn was stolen, mostly money that had been deposited there by foreign donors. (As a comparison, the entire economy produced only around $19bn in 2016.) Much of the loot has yet to be recovered. Only a tenth of Afghans have bank accounts, and the theft at Kabul Bank convinced many that they are better off looking after their own cash. Around 24,000 safes were reportedly sold during the run on the bank.

But being a credibly virtuous bank can pay off. As the only private institution that has a dollar-clearing facility with big international banks, Afghanistan International Bank (AIB) is the main banker for Afghanistan’s commodity importers.  Other customers include charities, embassies and the American army. But in order to keep their business AIB must maintain its clearing relationships with two foreign banks, Standard Chartered and Commerzbank. It does this by adhering strictly to international anti-fraud and antimoney-laundering rules. In a country with a thriving opium trade, that means laborious inspections of invoices and spot-checks of premises.

Founded in 2004, AIB is now the largest private bank in Afghanistan, holding one fifth of the country’s deposit base. And it is also the most profitable. It is so trusted that it does not even pay interest on its deposits. Like other Afghan banks, it lends little, because borrowers very rarely have formal financial records or credit histories. Instead, half of its revenues come from fees earned on cash withdrawals, cash transfers, foreign-currency transactions and service charges on current accounts. The secret to running a successful bank in Afghanistan seems to involve winning depositors’ trust, but keeping borrowers at arm’s length.

This entry was posted on Friday, January 12th, 2018 at 9:14 am and is filed under Afghanistan.  You can follow any responses to this entry through the RSS 2.0 feed.  You can leave a response, or trackback from your own site. 

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Wildcats & Black Sheep is a personal interest blog dedicated to the identification and evaluation of maverick investment opportunities arising in frontier - and, what some may consider to be, “rogue” or “black sheep” - markets around the world.

Focusing primarily on The New Seven Sisters - the largely state owned petroleum companies from the emerging world that have become key players in the oil & gas industry as identified by Carola Hoyos, Chief Energy Correspondent for The Financial Times - but spanning other nascent opportunities around the globe that may hold potential in the years ahead, Wildcats & Black Sheep is a place for the adventurous to contemplate & evaluate the emerging markets of tomorrow.