Afghanistan’s Financial Inclusion Crisis Deepens Amidst Isolation from International Markets
KABUL, AFGHANISTAN - August 2021
Afghanistan is facing a severe financial inclusion crisis, with a staggering 90% of adults lacking access to reliable and transparent financial services. The country’s banking sector is crippled by structural vulnerabilities, limited international connectivity, and de-risking by international banks.
The Taliban’s Takeover Exacerbates the Situation
The Taliban’s takeover in August 2021 led to a brain drain at the Afghan central bank and further eroded confidence in the financial system. As a result, Afghans are increasingly reliant on physical cash shipments, with over $2 billion sent into the country since the Taliban took power.
Lightly Regulated Financial Services Fill the Void
Lightly regulated financial services, such as money service providers and hawala, have filled the void to provide everyday financial services for many Afghans. However, this has also led to concerns about anti-money laundering and terrorist financing risks, resulting in increased isolation from international markets.
International Community Responds
The international community and Afghan stakeholders have mobilized to develop pragmatic policy and economic responses to avert an unprecedented humanitarian crisis. The implementation of humanitarian exceptions to sanctions has removed legal impediments for the provision of aid, but Afghanistan remains perceived as a high-risk jurisdiction by international banks.
World Bank Convenes Afghanistan Payments Conference
To address these challenges, the World Bank convened an inaugural Afghanistan Payments Conference in Dubai earlier this year, bringing together over 100 stakeholders from domestic and international banks, digital service providers, and money service providers. The event aimed to map out the modalities, risks, and opportunities emerging in Afghanistan’s payment ecosystem, particularly in the distribution of aid.
Key Takeaways
- Issues and risks faced by development partners were highlighted
- Opportunities for innovation in financial services were identified
- A new crop of digital financial service providers is leveraging mobile phone adoption to offer financial inclusion solutions, despite the country’s reliance on physical cash
Next Steps
The World Bank and Afghanistan Coordination Group plan to convene stakeholders as part of a series of technical events to develop alternative modalities, especially for development projects currently in design phase or under implementation. The goal is to solicit ideas for pilots and innovations in payments that can be replicated and scaled up both for aid efforts and to facilitate the private sector.
Strengthening Payments System Key to Reviving Economy
Strengthening the payments system and bolstering the private sector are key to reviving Afghanistan’s economy and improving the lives of its people.