Sharia, the American Withdrawal, and Other Reasons Few Afghans Use Banks

As in other poor countries, people in Afghanistan tend to keep their money away from financial institutions. What's that say about their society?


A Herat trader compares the quality of locally grown and imported grain. (Jan Chipchase/Frog Design)

To get a sense of how unusual some financial transactions can be in the developing countries, take this scene describing the Afghan version of car insurance, which was detailed in a recent report by a group of researchers visiting the country:

The default way of assigning blame in the event of a car accident, we learned in our interviews and observations, is to step out of the vehicle and argue for as long as necessary for both sides to reach a workable compromise, pulling in members from the crowd to support or detract from arguments. A nice twist in the tale is that the person that is paying out for someone else's vehicle gets to choose the garage where the repair work will be done, creating a whole new round of discussions on the quality of work.

That's one of the anecdotes uncovered by a group from Frog, a design firm that helps companies enter emerging markets. A group from the company travelled to Afghanistan in December to try to understand why so few Afghans use banks, and what, if anything, could encourage them to do so.

In general, the world's poor are likelier to be "unbanked," meaning they keep their money with relatives, in other investments such as cattle or land, under the mattress (sometimes literally) -- really, anywhere but banks. Last year, the World Bank found that the proportion of adults who have accounts at financial institutions in high-income countries is more than double that in developing countries.

Afghanistan has one of the lowest levels of bank account penetration, with only 9 percent of Afghans aged 15 and older holding an account at a financial institution. Here's how it compares to countries that are more "banked" (dark red), according to the World Bank:

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Being "unbanked" is generally considered a problem because it can perpetuate the cycle of poverty. Money is usually safer in a bank account, it earns interest and can more easily be transferred to family members abroad. There's also the issue of "temptation management," or the idea that bank accounts help us to avoid buying frivolous items.

In all, Frog conducted about two dozen interviews around Herat and Kabul over two weeks to try to understand how typical Afghans think about money and financial institutions. Granted, that's not a very large sample size, but given that some of the interviews were full- and half-day affairs, their report offers a unique, qualitative glimpse into how saving and banking works in this war-torn, predominantly Islamic country. Here are some of the most interesting findings:

It's really difficult to access banks in Afghanistan

According to Frog, "the distances, wait times, and the steps involved in moving electronic value proved cumbersome and complicated. Having a diverse portfolio of grain, livestock, property, gold, and what-have-you proves more effective than having a bank account." If the trip required traversing an especially dangerous area, some young people said they were ambushed and beaten on their way to and from the bank, so they stopped going.

The researchers also said that instead more practical acts such as investing in a brother's business, for example, was considered an acceptable form of savings, since the brother would be expected to return the favor someday.

Sharia law puts additional restrictions on banking

Sharia law forbids earning interest, so traditional savings accounts might not be morally acceptable for many Afghans and others in the Muslim world. What the interviewees did seem open to, however, was a type of bank that randomly awarded prizes to account holders, similar to a lottery. A few years ago, the Sydney Morning Herald found that the most popular product of Afghanistan's biggest local bank, Kabulbank, is called "Bakht," which translates as "fortune" in Dari. For every $100 deposited, the account holder gets a ticket for a monthly, nationally-broadcast lottery.

"In talking with folks, we immediately encountered their objections to interest. But all of them were very open to the idea of random spot awards, as long as you couldn't depend on getting it," said Mark Rolston, chief creative officer at Frog.

Afghans' uncertainty about a future after the American pullout made them more likely to not use banks

The Frog researchers said that nearly every family they spoke with cited their anxiety about the future of Afghanistan after the NATO withdrawal as one of the main reasons they prefered to keep their cash at home or with relatives. If the Taliban returns, some said, it might be too difficult or dangerous to retrieve their savings from financial institutions.

"Why save money, invest, or build if tomorrow things will get bad again?" said Jan Chipchase, executive creative director at Frog. "The lack in economic confidence is not unlike that in Western markets in recent years, after the global financial crises that began in 2008. Economies are driven by confidence, and if that is low, people will not save and invest."

The rise in love marriages may bring with it a rise in banking

Though marriages are traditionally arranged in Afghanistan, some urban couples have begun using social networks to initiate so-called "love marriages." Weddings are pricey, though, often costing more than $15,000, and they're usually financed by the extended family. In the case of love marriages, however, the couple must shoulder the cost independently, which might incentivize banking in the future.