World Bank Provides Support to Improve Afghanistan’s Financial Sector‏

The World Bank approved a US$8 million grant to help improve access to formal banking services in Afghanistan as well as strengthen Da Afghanistan Bank’s core function of banking supervision and regulation on April 30, 2009.

In 2002 after the fall of the Taliban regime, the formal financial sector in Afghanistan was almost inoperative and the legal framework was virtually non-existent. Since then, Afghanistan’s financial sector has gone through two phases of development. During the first phase (2002-04), a basic legal and institutional framework for a modern financial sector was introduced, which laid the foundation for the re-establishment of Da Afghanistan Bank (DAB) as the central bank with autonomous regulatory authority to implement monetary policy and banking regulation and supervision.

In the second phase (2005-present), formal financial services emerged and a number of private commercial banks were established. Currently, there are 17 commercial banks operating in Afghanistan, which include 2 state-owned commercial banks, 10 private commercial banks, and 5 branches of foreign commercial banks. Despite these achievements, a weak financial sector still remains one of the major binding constraints to private sector development in Afghanistan.
The Financial Sector Strengthening Project supports Afghanistan National Development Strategy’s vision to establish a modern and competitive financial sector. The project will specifically strengthen the capacity of Da Afghanistan Bank (DAB) in the areas of banking supervision, accounting, internal audit, and human resource management. It will also develop necessary financial infrastructure such as public credit registry, collateral registry and Afghanistan Institution of Banking.


"The legal and regulatory framework of Afghanistan’s financial sector has improved significantly. But many challenges remain, notably increasing access to financial services as well as ensuring sustainability of the sector,” said Md. Reazul Islam, World Bank Senior Private Sector Development Specialist and Project Team Leader. “To overcome these challenges, the government needs to enforce implementation of rules and regulation. The World Bank remains committed to provide technical as well as financial resources necessary to build a sustainable and accountable financial sector in Afghanistan.”

The project also supports some of the key areas that have been agreed by the Government of Afghanistan and its development partners at the Enabling Environment Conference Road Map in 2007.

The total cost of the project is estimated around US$9.46 million. In addition to IDA’s US$8 million grant, International Financial Corporation, the private sector arm of the World Bank Group, has provided US$0.59 million in technical support. Some US$0.87 million have been contributed through counter funding by Da Afghanistan Bank, Afghanistan Bank’s Association and Microfinance Investment Support Facility for Afghanistan (MISFA).

For more information on the Bank’s work in Afghanistan, please visit: http://www.worldbank.org.af