A Different Type of Start Up: Payments in Afghanistan
Imagine a country where less than 10% of the adult population has a bank account and only about half of those account holders have a debit card. Credit cards are virtually non-existent. There are only a couple dozen banks in the whole country. Cash truly is king. Now imagine decades-long political and sectarian conflict that continues to wreak havoc throughout a vast geographic territory. This is Afghanistan.
By any stretch, I’m not an Afghanistan payments guru but I am always fascinated by societal transformation and that’s exactly what’s underway. Let me share my conversation at Sibos 2014 with representatives from the Afghanistan Banks Association. Against this turbulent background, Sibos might seem like an alien planet but for these bankers, it’s a chance to show the world that Afghanistan is open for business and see evolving international standards first hand.
Most personal and business payments in Afghanistan are still made in cash – checks have not taken hold. There’s no working ACH (it’s in development) but there is a same day electronic transfer system that processes from a location outside the national boundaries. Correspondent relationships are still a challenge for many Afghanistan banks – even as the country’s institutional capacity is being strengthened and a new banking regulation is now in place with AML and counter terrorist financing measure.
A few years ago, the country’s banking infrastructure consisted of only a handful of state-owned banks. Now there are 16 banks, including nine private, commercial banks. Telecom investment has improved the mobile phone network and banks are beginning to focus on branchless and mobile banking as well as the broad issue of financial inclusion. There’s a lot of work to do; some estimates are that 97% of Afghanis do not have access to banking services.
There are positive signs that the payments sector could evolve quickly. Even as hawala remains a trusted and prominent transfer method in Afghanistan, there are numerous initiatives underway. The World Bank is sponsoring payments system development programs alongside capacity building initiatives from other donors. M-Pesa has started operations there, and there is one payments processor operating in the country.
I was curious to know what are the questions that the global bankers at Sibos ask their Afghani counterparts? The first question is always the status of the political security situation. But then it’s on to the business of establishing correspondent relationships. Now that the new regulations are in place, global banks are interested in helping facilitate the large capital inflows and outflows. Answering my personal question, yes, there are women working in some banks today.
Another major theme is the rollout of card transaction infrastructure. According to the International Finance Corporation, there were only 183 ATMs and 272 POS terminals in the entire country in 2013. At that time there were only around 71,500 debit or credit cards issued. There are efforts underway to rapidly grow this footprint, most especially by Azizi bank.
This is an inspiring story of bankers striving towards greater financial inclusion for their country’s citizens while building the base for electronic payments. The pay off here will almost certainly require years to be realized. The political and security uncertainties in Afghanistan are enough to make cautious optimism a “best case” approach to today’s difficult reality. Nevertheless, the journey is now underway.
Representatives of the Afghanistan Banks Association in their booth at Sibos 2014 in Boston