Afghanistan’s central bank has granted a license to the Islamic Bank of Afghanistan (IBA).
The IBA is the first lender in the country to apply the interest-free principles of Islamic finance in all its operations, a senior bank official told Reuters.
The bank started the process of converting its assets in January to comply with Shari’ah principles that include bans on gambling, alcohol and interest-bearing debt. As of December 2017, The IBA had paid-up capital of $25 million and held $187 million of deposits and offered its services across a network of 59 branches.
The central bank, Da Afghanistan Bank, granted the license on 9 April after the IBA completed the conversion of its balance sheet, said Faizan Ahmed, Chief Financial Officer and member of the IBA management board, Reuters reported. It plans to introduce wealth management products and launch new digital banking services in coming months, Ahmed added.
Afghanistan’s banking sector is small, but Islamic finance is seen as an important feature that could help attract more people into the financial system. IBA estimates that only 5.7 percent of the population has dealings with the banking sector, and the majority of country of 30 million shun interest-based finance, partly for religious reasons.
The central bank issued a regulatory framework for Islamic banking in 2015 to address this, with rules based on standards issued by the Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions.
Islamic banking has been offered in Afghanistan by a handful of firms through so-called Islamic windows, but there have been no full-fledged Islamic banks which are common in countries such as Malaysia, Pakistan and Bahrain.
Lenders with Islamic windows include Afghan United Bank, Ghazanfar Bank and Afghanistan International Bank.