Afghanistan’s Payment Systems in Need of Overhaul

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Afghanistan’s payment systems are plagued by inefficiencies, limited infrastructure, and a lack of trust among citizens, according to a recent report. While the country has made significant progress since introducing electronic payment systems, there is still much work to be done.

Challenges Facing Afghanistan’s Payment Systems

• Limited infrastructure: The country lacks reliable broadband and mobile connectivity, impacting the National Payments System (NPS) and the financial sector at large.
• Inefficiencies: The absence of a separate National Payments System Law means that the country relies on the DAB Act to regulate payment systems, which is not sufficient.
• Lack of trust: Few innovative payment products are geared towards women, and Islamic financial institutions have not been active on this market. Additionally, branches, ATMs, and POS terminals are concentrated in Kabul and other larger cities, making it difficult for people living in rural areas to access financial services.

Recommendations for Improvement

• Streamline information collection: Encourage financial institutions to improve digital infrastructure and automate decision-making processes.
• Improve digital infrastructure: Enhance the quality of lending operations by reducing processing time and improving risk management.
• Implement the National Financial Inclusion Strategy (NFIS): A well-defined coordination structure is necessary to ensure successful implementation, which includes all relevant public and private stakeholders charged with implementing the NFIS.

The National Payments Council (NPC)

The NPC could act as a forum for coordination between different actors from the public and private sectors. However, it is not currently active, which has limited the country’s ability to address payment system challenges.

The Government’s Role

The government has played a key role in supporting electronic payments through its policy of leveraging large-volume recurrent payment streams. However, challenges persist, with electronic payments of salaries and benefits rare outside of cities.

Conclusion

Implementing the NFIS requires a coordinated effort from all stakeholders to address the challenges facing Afghanistan’s payment systems. By working together, the country can achieve financial inclusion, improve economic stability, and enhance efficiency in its financial sector.