Afghanistan’s central bank granted a license to first full-fledged Islamic bank

Vastavam web: Afghanistan’s central bank has granted a license to the Islamic Bank of Afghanistan (IBA), the first lender in the country to apply the interest-free principles of Islamic finance in all its operations, a senior bank official told.The IBA was previously known as Bakhtar Bank and operated under a conventional banking license since it was acquired by Azizi Bank in 2009.The bank began converting its assets and deposits in January to adhere to religious principles that include bans on gambling, alcohol and interest-bearing debt.

The IBA had paid-up capital of $25 million and held $187 million of deposits as of December, offering its services across a network of 59 branches.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.A majority of households in the 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.IBA’s current products include a mudaraba savings account, a form of investment management partnership, as well as financing products based on ijara, an installment-based leasing contract.It plans to introduce wealth management products and launch new digital banking services in coming months, Ahmed added.