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Government
strategy
Program
6: Financial Services and Markets
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Internationally
accepted prudential regulations will be
developed for all core sectors of banking
and non-bank financial institutions by Jaddi
1386 (end-2007). The banking supervision
function of Da Afghanistan Bank will be
further strengthened by Jaddi 1386
(end-2007). Re-structuring of state-owned
commercial banks will be complete by Jaddi
1386 (end-2007). State-owned banks that have
not been re-licensed are liquidated by Jaddi
1385 (end-2006). |
Access
to finance is a prerequisite for private sector
development and economic growth. The goal is to
develop a competitive, efficient, market-oriented,
and privately-owned financial sector that provides
innovative financial products and services to
households, enterprises, and government entities and
to increase the levels of formal financial
intermediation in Afghanistan’s economy in order to
support and sustain overall economic development and
poverty reduction. Government will continue to
improve the legal and regulatory and policy
framework for the financial sector while
strengthening the human capacity and institutions
for implementation. Government is also committed to
privatizing the state-owned commercial and
development banks. Access to financial services,
particularly in rural areas, will be enhanced, and
the expansion of microfinance, ensuring access for
the poor and women in particular, will be
encouraged. Access to services, however, is not
enough. As long as potential borrowers lack clear
title to their land—the primary item of collateral
for most Afghans—modern commercial lending will be
slow to take off. Land titling will be key to
stimulating financial services, therefore.
Government will also continue to develop the
infrastructure for the financial sector, including
the domestic and international payment systems. The
enabling environment for the establishment and
growth of non-bank financial institutions and
markets, such as in the area of insurance, leasing
and mortgage financing, will be created. Financial
supervision will continue to be strengthened for
both the formal financial institutions as well as
the informal financial sectors.
Following the passage of the Central Bank Law and
Banking Law, there has been considerable progress in
strengthening Central Bank functions and in
establishing a viable commercial banking sector. In
spite of this progress however, particularly with
the development of financial institutions (including
MFIs), considerable challenges remain, including
enhancing institutional capacities, maximizing
outreach and access to services, and improving the
effectiveness of Central Bank provincial offices.
While the legal infrastructure is in place, the
physical infrastructure and human capital needed to
support DAB’s operations, especially outside Kabul,
remains weak and requires greater investment with a
strong focus on both reconstruction and staff
development. Progress on banking sector reform will
be evidenced through: (i) adoption and
implementation by the MoF of a plan for the
resolution of the re-licensed state-owned commercial
banks (to include dates for the appointment of
management teams and re-capitalization and
incorporation plans); (ii) adoption of a specific
asset management strategy (including liquidation
procedures, asset disposal, and resource
utilization) for the unlicensed banks; and (iii)
issuance of regulations for the
registration/licensing and supervision of insurance
and other non-banking financial institutions;
The Government will appoint officials to take charge
of the liquidation of the former state-owned banks,
and to complete the transfer/reimbursement of
Agricultural Development Bank deposits. In addition,
the authorities will replace the management boards
of Bank Millie and Bank Pashtani, with assistance to
be requested to help management restructure these
banks and develop their operations.
The new management teams, in coordination with the
MoF, will adopt long-term restructuring plans and
Government will work to assure the emergence of a
resilient banking system. Government will address
the administrative and legal impediments facing the
banking sector, including issues such as poor
judicial enforcement that contribute to the limited
size of the banking sector lending portfolio.
Additional core enabling laws will be enacted,
possibly to include laws on secure transactions,
business organization, and negotiable instrument
laws, as well as clarification of land ownership
rights.
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