Financial Crime World

Afghanistan’s Banking Sector Vulnerable to Financial Crime, Say Businesses

The World Bank’s latest Private Sector Rapid Survey (PSRS) has revealed a growing sense of apprehension among Afghanistan’s businesses as they struggle to operate in a severely constrained banking and financial sector. The survey highlights several challenges that Afghan firms are facing, including a lack of consumer demand, uncertainty about the future, and restrictions on women’s economic activities.

Private Sector Potential

The private sector is seen as having significant potential to contribute to economic revitalization and job creation, particularly for women. However, many firms are still operating below capacity, with over one-third of respondents reporting reduced operations. Eight percent of women-owned businesses are either temporarily or permanently closed, indicating their heightened vulnerability to economic shocks.

Key Findings

  • 50% of firms without any women employees
  • 10% of firms without any men employees
  • Female employment has declined significantly
  • Women now work mainly for other women-owned businesses

Banking Sector Challenges

Challenges in the banking sector are affecting both domestic and international transactions. Correspondent banks have limited transactions with Afghan banks, resulting in higher transaction costs and a reliance on informal payment systems such as Hawala.

Banking Sector Vulnerabilities

  • Higher transaction costs
  • Reliance on informal payment systems (Hawala)
  • Limited access to financial services for women-owned businesses

Unofficial Payments and Bribes

While 92% of respondents stated that they did not have to make unofficial payments or bribes in the past six months, firms are still experiencing difficulties engaging with the interim Taliban administration (ITA). Over 60% of respondents reported unresolved business issues.

ITA Engagement Challenges

  • Women-owned and small businesses struggle to engage with the ITA
  • Fewer issues being resolved compared to men-owned and larger businesses
  • Uncertainty among businesses about their future operations

Conclusion

The PSRS survey highlights the need for urgent action to address the vulnerabilities in the banking sector and improve the business environment for all firms, particularly women-owned and small businesses. The survey provides an updated snapshot of the business environment in Afghanistan and emphasizes the importance of addressing these challenges to promote economic revitalization and job creation.

Call to Action

  • Address the vulnerabilities in the banking sector
  • Improve access to financial services for women-owned businesses
  • Enhance engagement with the ITA to resolve business issues
  • Promote economic revitalization and job creation through private sector growth