Editor in Chief: Moh. Reza Huwaida Friday, March 29th, 2024

Central Bank Grants IBA an Islamic Banking System License

Central Bank Grants IBA an  Islamic Banking System License

KABUL - Afghanistan’s Central Bank has granted a license to the Islamic Bank of Afghanistan (IBA), the first lender in the country to apply the interest-free principles of Islamic finance in all its operations, a senior bank official told Reuters.
The IBA was previously known as Bakhtar Bank and operated under a conventional banking license since it was acquired by Azizi Bank in 2009.
The central bank, Da Afghanistan Bank, granted the license on April 9 after the IBA completed the conversion of its balance sheet, said Faizan Ahmed, chief financial officer and member of the IBA management board.
The bank began converting its assets and deposits in January to adhere to religious principles that include bans on gambling, alcohol and interest-bearing debt.
The IBA had paid-up capital of $25 million USD and held $187 million USD of deposits as of December, offering its services across a network of 59 branches, Reuters reported.
Afghanistan’s banking sector is small, but Islamic finance is seen as an important feature that could help attract more people into the financial system. IBA estimates that only 5.7 percent of the population has dealings with the banking sector.
The bank hopes to capitalize on its branch network - the third largest in the country - to double its balance sheet over the next two years, Ahmed said.
The central bank issued a regulatory framework for Islamic banking in 2015 to address this, with rules based on standards issued by the Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions.
IBA’s current products include a mudaraba savings account, a form of investment management partnership, as well as financing products based on ijara, an installment-based leasing contract.
It plans to introduce wealth management products and launch new digital banking services in coming months, Ahmed added.
Islamic banking has been offered in Afghanistan by a handful of firms through so-called Islamic windows, but there have been no full-fledged Islamic banks which are common in countries such as Malaysia, Pakistan and Bahrain.
Lenders with Islamic windows include Afghan United Bank, Ghazanfar Bank and Afghanistan International Bank.
This comes after officials from the Afghan Banking Union told TOLOnews a few months ago that the Islamic banking system was one of the best strategies to leverage the economy and attract investment in the country.
They said the Islamic banking system is a trusted system and it ensures safe banking .
According to the union, currently up to 11 percent of the population in Afghanistan keeps their money in banks, adding that if the Islamic banking system is expanded in Afghanistan, more money will start circulating and Afghanistan’s financial system will benefit.
The Ministry of Commerce and Industries (MoCI) said at the time Islamic banking can also help boost small and medium-sized businesses in the country.
Despite a growth in the banking sector in the country over the past sixteen years, private and state-run banks in Afghanistan have managed to attract only 11 percent of the population’s money.
According to experts, the lack of up to date Islamic banking services in the country has been a key reason for Afghans not using banks.
Experts say that billions of AFs are held in cash by 89 percent of the population. (Tolo news)