IFC to offer Afghans $15-25 mln in financing-C.bank
By Daniel Bases
WASHINGTON, April 14 (Reuters) – The private sector lending arm of the World Bank has promised Afghanistan up to $25 million in loans to bolster its banking system, Central Bank Governor Abdul Qadeer Fitrat said late on Sunday.
Fitrat, who took over the country’s top banking job in November 2007, said the talks with the International Finance Corporation were still at and early stage therefore the type of loans was not yet finalized.
“We had very useful discussions with the IFC. We got some promise of between $15-$25 million in medium to long-term lending for SME (small and medium-sized enterprises) and mortgages,” he told Reuters on the sidelines of the annual spring meetings of the International Monetary Fund and the World Bank.
The Afghan banking system has just $1.56 billion worth of deposits and shareholder capital, spread among 16 banks.
“Three months ago it was $1.4 billion,” Fitrat said.
In contrast, the value of opium produced in Afghanistan to be made into heroin was estimated at $4 billion in 2007, compared with $2.7 billion in 2005, according to the United Nations.
Fitrat said the IFC promised to issue $5 million worth of loans to Brac Bank, $10 million to First MicroFinanceBank of Afghanistan which is run by the Agha Khan Foundation, and between $5-10 million to Kabul-based Azizi Bank.
He added that similar discussions were under way with the U.S. Overseas Private Investment Corporation.
Developing medium and long-term financing options is a top priority for the government in Kabul and part of its plan to increase the size of the formal economy.
“It is just my estimate, that 2/3 of the financial assets of the economy are still in the informal markets. In terms of the economy, probably ¾ of the economy is still informal,” he said.
The central bank reserves are roughly $3 billion, he said.
With such a large portion of the economy still unreported, estimating economic growth and inflation are tough.
Economic growth is expected to rebound to 13.5 percent in the year started March 21 from 6.1 percent in 2006/2007 when the economy was hit by a drought, Fitrat said.
He said Afghanistan, like the rest of the world, was experiencing high inflation driven by food and fuel prices, but he was optimistic it would start to decline.
Inflation was dipping below the 20 percent level by the end of the fiscal year in March.
“We are hopeful it will come down to around 10 percent by early to mid-summer,” Fitrat said, adding that harvests should help ease food price inflation.
He said he hoped a rise in lending and business development would boost such sectors as telecommunications, media and banking, reducing agriculture’s prominent role in overall economic activity. Right now, farming accounts for roughly 35 percent of the Afghan economy, he said.
Since the overthrow of the hard-line Islamist Taliban by U.S. led and Afghan forces in 2001, illegal activities associated with the growing of poppies for opium production and terror financing rank near the top of the bank’s surveillance agenda.
Asked if the reappearance of the Taliban was a drain on the economy, Fitrat said: It has had some impact on the economy, in terms of tax collections, customs collections, reconstruction work in those Taliban infested areas. The impact, I can say, is quite significant.”
Despite the presence of more than 50,000 foreign troops led by NATO and the U.S. military, as well as some 140,000 Afghan troops, militants have made a comeback in the past two years, and more than 11,000 people have been killed in violence.
In an effort to make its surveillance more effective, the bank was opening up six regional offices and getting members of its financial intelligence section liaise with border agents to help track large physical transfers of cash, Fitrat said.
Part of that process includes the licensing of informal hawala brokers. Hawala is an informal system used widely in the region that allows money to be exchanged between traders through a handshake, a piece of paper or on trust.
Hawala is thought to be one route for financing terrorism.
“But we don’t want to crack down on hawala dealers. We want to regulate them. We want them to report every large currency transaction,” he said. (Editing by Tomasz Janowski)