Afghanistan Bank Faces Shariah Compliance Challenges

Kabul, Afghanistan

In a shocking revelation, the Central Bank of Afghanistan (Da Afghanistan Bank) has disclosed that it has faced numerous Shariah compliance incidents, threatening its reputation and business operations.

Shariah Non-Compliance Issues

According to an internal report, the bank’s Shariah compliance manual highlights several non-compliance incidents, including:

• Breach of Shariah rulings on contract execution
• Use of conventional terms and conditions in Islamic banking products
• Misinterpretation of Shariah statements

These incidents have led to contravention of the Afghan Banking Law and regulations, as well as those of the State Supreme Bank (SSB). The bank’s Shariah Board has also been affected, with some resolutions being implemented without proper validation.

Implications of Shariah Non-Compliance

Experts say that Shariah non-compliance can have severe implications for the bank, including:

• Exposure to reputational and business risks
• Invalidation of contracts from a Shariah perspective
• Non-recognition of income
• Imposition of higher capital charges by regulators

Importance of Reporting Shariah Non-Compliance

The manual emphasizes the importance of reporting Shariah non-compliance incidents, with the Incident Owner responsible for documenting all instances. The report also highlights the need for a robust Shariah compliance framework to ensure that the bank’s operations are in line with Islamic principles.

Regulatory Scrutiny and Accountability

This development comes at a time when the banking sector is facing increasing scrutiny over its adherence to Islamic finance principles. Regulators and stakeholders are calling for greater transparency and accountability from banks operating in Afghanistan.

Bank Response

When contacted, Da Afghanistan Bank officials declined to comment on the matter, citing ongoing investigations. However, sources close to the bank confirmed that an internal investigation has been launched to address the compliance issues.

Conclusion and Recommendation

The incident highlights the need for robust Shariah governance structures within Afghan banks to ensure that they operate in accordance with Islamic principles and regulations. The Central Bank of Afghanistan and the SSB are urged to take immediate action to address these compliance concerns and prevent future incidents.