Afghanistan’s banking laws lack teeth

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Afghanistan’s banking laws are investor-friendly as long as contracts are followed, but there are scant provisions for enforcement in case of any default. Afghanistan lacks special courts for banking matters, and there is no recognition of foreign judgments. That was the main message at a presentation here Monday from attorney Mehmood Mandviwalla, whose Pakistani law firm has an office in Kabul.

The banking sector remains primitive. There is virtually no lending taking place locally, and banking is primarily limited to deposit-taking. US dollars remain the primary currency in Afghanistan’s cash-only economy.

What is intended as a safeguard against expropriation of business assets may actually come back to haunt the law’s framers. The Investment Law, Telecommunications Law, etc., state that assets will not be expropriated, but in the event that they are, “fair market value” will be paid. Mandviwalla advocates a complete ban on expropriation or nationalization, as these “fair market value” provisions have caused problems in South Asia.

The good news? The Afghanistan Investment Support Agency (AISA) and Da Afghanistan Bank are both high-quality regulators that have proven easy to work with.

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