Afghanistan and ADB

ADB placed its regular assistance to Afghanistan on hold effective 15 August 2021, but since 2022 has supported the Afghan people through a special arrangement with the United Nations to address basic human needs, including critical food support, and health and education services.

Economic forecasts for Afghanistan


 

Comparative economic forecasts

The latest available economic data for Afghanistan compared to countries in South Asia.


 

Policy Challenge—Improving Access to Financial Services

Access to finance services is essential to support inclusive and sustainable growth. A well-functioning formal financial system provides intermediation that boosts access to financing and investment. It also helps firms and households manage risk, financial volatility, and economic vulnerability. Financial inclusion enables households to invest in education and health and obtain access to savings, credit, and insurance, and firms to access capital for investment and growth. Despite 2 decades of significant advances in the country’s formal financial system from calendar years 2002 to 2021, around 90% of adult Afghans lack access to financial services, with a large and expanding gender gap in account ownership. From 2017 to 2021, women’s already small share of financial account ownership fell by a third, from 7% to 5%, far below peer and regional economies. Furthermore, the share of financing for micro-, small, and medium-sized enterprises (MSMEs) and agriculture lags that in other conflict-affected low-income countries. Loans for MSMEs equaled only 0.17% of GDP in 2018, while lending for agriculture including livestock was only 4.2% of GDP, despite agriculture then providing 22% of GDP.

Both demand- and supply-side barriers limit the access of individuals and firms to financial services. Demand-side obstacles include low financial literacy, limited and asymmetric information, high interest rates, heavy documentation requirements, and lack of trust. In addition, most households lack the funds needed to open a bank account. On the supply side, commercial and state-owned banks do not understand the needs and business models of MSMEs. Weak property rights severely limit collateralization and opportunities for contracting, while high trade and transport margins shorten the horizon of profitable market access and increase risk. Other issues include the lack of a transparent and credible legal and regulatory framework, poor infrastructure, substandard accounting and auditing standards, weak formal credit services, and high costs attributable to locally monopolistic money lending, high security expenses, and corruption. These barriers disproportionally affect the poor, youth, women, and the internally displaced.

Innovative business models and financial services could alleviate these constraints. This would require tailoring them to the needs of MSMEs, particularly those owned by women. Accompanying these changes should be legal and regulatory reforms ensuring contract transparency and enforcement, secured transactions, data privacy, and compliance with credit reporting regulations. Improving financial literacy could mitigate information failures and asymmetries, reduce monitoring costs, and greatly improve risk perceptions for small entrepreneurs, individuals, and households. International experience suggests that financial literacy is strongly linked with the business performance of young entrepreneurs, since it enables individuals and firms, particularly MSMEs, to use debt, credit, and strategic investment more creatively and allow more proactive and complex financial decisions.

Digitizing payment systems, particularly through mobile phones, could prompt millions of unbanked Afghans to use formal financial services. According to the New York Times, in 2023 around 70% of the Afghan population had access to mobile phones, and an even higher percentage of adults. Mobile payment systems can achieve much greater geographical coverage for financial services, are far more competitive than local informal lending, and can deliver benefits to those whose limited mobility and cash assets currently prevent them from opening bank accounts. Developing and expanding interoperable payment infrastructure to facilitate transactions and financial transfers among mobile money providers, banks and other lenders, and public agencies can promote broader, lower-cost access to a wider range of financial services.

More resources

Asian Development Bank and Afghanistan: Fact Sheet

Asian Development Bank and Afghanistan: Fact Sheet

The Fact Sheets summarize ADB's partnerships with member economies, providing key facts and figures and an overview of activities and future directions.

Asian Development Outlook (ADO) April 2024

Asian Development Outlook

The Asian Development Outlook analyzes economic and development issues in developing countries in Asia.

Key Indicators for Asia and the Pacific 2023

Key Indicators

The Key Indicators for Asia and the Pacific publication presents data regarding the economic, financial, social, and environmental situations in a broad range of countries across the region.

Basic Statistics 2024

Basic Statistics

The Basic Statistics brochure presents data on selected social, economic, and SDG indicators such as population, poverty, annual growth rate of gross domestic product, inflation, and government finance for economies in Asia and the Pacific.