Need to Rebuild the Financial Sector
Many steps must be taken before a satisfactory financial infrastructure
emerges and private sector led growth becomes sustainable. DAB’s role
must be properly redefined and its regulatory function strengthened. None of
the existing banks has been operational. At least prior to the influx of new
aid money beginning in 2002, much of the economy still depended on the
traditional hawala system for money transfer, and the informal credit market
met the demand for liquidity, The capital market is undeveloped and modern
savings and investment instruments are almost nonexistent.
The new Central Bank Act ratified in September 2003 includes
provisions that give DAB full autonomy in monetary and foreign exchange
policy. The new Banking Law, also ratified in September 2003, includes the
standard rules of a modern banking system. For the first time in the
country’s history, DAB is being disengaged from commercial banking and
focusing on its central banking role. Reorganization of DAB will be important milestone for modernizing the financial sector. In addition, the
government is committed to enact anti-money laundering legislation in 2004
with assistance from the IMF.17
accelerated in line with international practices for two-tier banking systems,
including its own capacity building of supervising commercial banks. Five
new commercial banks16 have received operating licenses from DAB, among
which the Afghanistan International Bank, a consortium of investors
including ADB with technical assistance from ING Group, established its
head office in Kabul in April 2004 and plans to open 7 branch offices in due
time. Among the six state-owned banks, those that did not re-apply for a
license by 15 March 2004 would cease operations and their resolution
initiated. For those that reapplied for licenses, DAB would assess their
applications and make a decision about approval. These developments set an
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The views expressed in this paper are the views of the authors and do not necessarily reflect the views or policies of the Asian Development Bank Institute (ADBI), the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.
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