ESSAYS ON AFGHANISTAN’S FINANCIAL SECTOR

Abstract

Afghanistan has endured nearly four decades of turmoil, marked by the Soviet invasion, protracted civil conflict, and the subsequent U.S. intervention. Consequently, the nation's infrastructure lay in ruins, requiring extensive rehabilitation and reconstruction efforts including establishing a robust banking and financial system that could respond to the needs of time. International institutions, including the International Monetary Fund (IMF), played a pivotal role in redesigning banking regulations and restructuring the country's central bank. Concurrently, the private sector gained the opportunity to obtain banking licenses, and microfinance institutions embarked on their inaugural operations. However, the journey of establishing a modern banking system in the last twenty years has been marred by controversies and failure. The first private bank of Afghanistan, the Kabul Bank, collapsed undermining the trust in banking system overall and exposing capacity of the Da Afghanistan Bank to regulate the banking sector. Fact of the matter is that banking in Afghanistan is still in its infancy and banks are offering very limited services in comparison to the services offered in the neighbouring countries. Online banking in Afghanistan is the title given to the mobile SMS that customers receive upon credit or debit of an amount. The dissertation's endeavour is a pioneering effort, as the Afghanistan banking and financial market remain largely unexplored. This research aims to enrich understanding of Afghanistan's financial sector, shedding light on its challenges, opportunities, and the evolving dynamics that are shaping its trajectory. In an era marked by transformation and adaptation, this dissertation contributes to the global discourse on financial institutions operating in complex and transitioning environments. To understand the issue and propose policy recommendations, this dissertation adopts quantitative methods, surveys and focus group discussions (FGD) to find out the challenges in launch and growth of modern banking services in Afghanistan. It focuses on unveiling the multifaceted performance of banking and microfinance institutions in Afghanistan, with a focus on gender dynamics, the dichotomy between Islamic and conventional banking practices, green human resource management within the banking sector, and the challenges presented by the government's transition to Islamic banking. The dissertation commences with an exploration of Afghanistan's financial market and historical evolution of the banking industry. It charts a historical trajectory that contextualizes the contemporary challenges and opportunities faced by the sector. Of particular significance are the challenges posed by the government's conversion strategy to Islamic banking, which encompasses legal framework, service gaps, adherence to Islamic principles, regulatory limits, limited financial products, jurisprudential diversity and, prima facie, lack of expertise of the Regulator to manage two distinct banking systems simultaneously. These challenges are central to understanding the complex landscape in which Afghanistan's financial institutions operate. Within this framework, and appreciating the role of human resources in promoting banking services and increasing public trust in the sector, the dissertation delves into the emerging field of green human resource management (GHRM) practices within the banking sector. It reveals that green commitment serves as a critical mediating factor between GHRM practices and employees' engagement in both in-role and extra-role green service behavior. This study underscores the pivotal role of green commitment as a mechanism through which GHRM practices influence employee commitment, sending a clear signal to the banking industry to incorporate green human resource practices as part of their strategic vision. Moreover, this dissertation examines the performance of gender within the banking and microfinance institutions of Afghanistan. It uncovers that the default rate among female borrowers surpasses that of their male counterparts, yet a noteworthy mitigation emerges when female officers are involved in the screening process. Additionally, the default rate is found to be lower in conflict zones compared to areas under control of the central government, revealing intriguing dynamics within the financial landscape. Further analysis differentiates between the performance of Islamic and conventional loans in both conflict and non-conflict zones. Notably, the study discerns that the default rate on conventional loans is lower in regions under Taliban influence, offering valuable insights into the nuances of banking practices in varying geopolitical contexts.

Date of Award	2023
Original language	American English
Awarding Institution	HBKU College of Islamic Studies