Description

After 22 years of civil war and the fall of the Taliban rule in 2001, Afghanistan was left a war-torn country that needed to be rebuilt. Its finance sector was hardly recognizable and the population did not trust what remained of the banking system. Instead, local people relied on the traditional hawala system for their financial transactions. It was estimated that about 80% to 90% of all financial transactions in Afghanistan were made through hawalas in the period immediately after the war. From 2001, the Government of Afghanistan began to slowly rebuild the country’s various sectors, with most of the funding coming from international donors.

In 2003, the Asian Development Bank (ADB) joined the international organizations in the reconstruction efforts of Afghanistan’s finance sector. This prompted ADB into discussions with various multilateral financial institutions to establish the Afghanistan Trade and Development Bank. However, ADB wanted it to be a bona fide commercial bank and provide small and medium-sized enterprise services. Consequently, ADB withdrew from this proposal and began discussions with three private investor groups—Afghan Investment Partners Corporation, Horizon Associates (formerly known as Crest Enterprises), and Wilton Holdings—that were well established and had significant investments and good local and international track records. This partnership led to the establishment of Afghanistan International Bank (AIB).

On 13 May 2004, ADB’s Board of Directors approved a $2.602 million equity investment (equivalent to a 25% ownership stake) in AIB. In June 2004, ADB and the other three private investors signed a subscription agreement and shareholders' agreement for ADB’s equity investment in AIB.

This report validates the extended annual review report’s assessment of the project which aims to increase competition in the banking sector, have a catalytic and demonstrational effect, boost access to trade finance and promote best practices in corporate governance and commercial banking in Afghanistan. The Independent Evaluation Department agrees with the project’s overall assessment rating as highly successful.

Contents

• Project Description
• Project Evaluation
• Issues, Lessons, and Recommendations