Exploring the Challenges of the Historical Development of Islamic Banking System in Afghanistan Using Document Analysis

Abstract

The banking system of Afghanistan has experienced various conditions since the establishment of the first bank in 1933 and could not develop enough due to the civil war. This study investigates the historical development of the banking sector especially Islamic banking in Afghanistan. In addition to civil wars, Afghanistan's banking system has faced many challenges in terms of modernization, the low number of depositors and borrowers, regulations, and so on. It is found through qualitative research approach using documentary analysis that there was significant progress in modernizing the banking sector in Afghanistan with the help of international donors since 2001. Afghanistan has a dual banking sector and there is a full-fledged Islamic bank, the Islamic Bank of Afghanistan (IBA), and some banks with Islamic banking windows. However, according to findings the number of banks decreased compared to 2018 from 14 banks to 12 banks in 2020. The implication of this study is to provide information for the policymakers and Islamic banking institutions in
Afghanistan to learn from these challenges and to improve the Islamic banking system in the country. Moreover, this study will fulfill the literature gap regarding the Islamic banking system in Afghanistan.