Investing in Banking & Insurance
The banking sector in Afghanistan has grown considerably. There are 16 active commercial banks, which conduct standard banking operations. However, there is huge potential for investment in international banks conducting financial transactions and providing access to finance, which has a huge demand.
Private commercial banks operate with their general banking functions, but there is lack of specialized banks such as investment and agricultural banks. Existing commercial banks in Afghanistan also provide Islamic banking services to their customers such as Murabiha, Musharika, and Mudariba.
The existing banking sector includes nine private banks, three state owned banks and branches of three foreign banks. In all there are 409 bank branches with 138 government and 271 belonging to private banks. The number of depositors in 2014 was 3,134,754 and borrowers were 54,217. The deposits were USD 3.76 billion and USD 742 million of loans were provided in the same year, while the loans to deposit ratio was at 20%. The total assets of the existing banking sector are USD 4.42 billion and net foreign assets are USD 8.3 billion.
The potential for expansion in the banking sector is high but the majority of rural and provincial businesses lack awareness about accessing banks and have used traditional money exchanging dealers (Saraf).The use of “Saraf System” has decreased over past decade as many new commercial banks started operations in the country. Commercial banks can benefit from investing in Afghanistan by making their banking systems as simple as Saraf system which provide loans on less conditions, guaranties, and deposit history of customer.
Afghanistan has not progressed in the insurance sector as much as it has in its banking sector. With the inclination of international companies to invest in Afghanistan and great demand for insurance by domestic investors, investment potential in the insurance sector is huge.
Moreover, there’s huge investment opportunity for financial instituitions providing affordable logn-term loans.