Transfers From Afghanistan: Navigating The Complexities Of International Banking In Europe

It is difficult to transfer money to Afghanistan from Europe due to sanctions and banking issues. The country's aid crisis has worsened, with up to 98% of the population in need of support. Even if NGOs get funding, banks are hesitant to transfer cash into Afghanistan. Billions of dollars of Afghan assets have been frozen abroad, causing chaos in the Afghan banking system. Western Union is a popular option for sending money to Afghanistan, but it may not be available in all countries.

International money transfer services that operate in Afghanistan

While there are some international money transfer services that continue to operate in Afghanistan, the country's financial situation is unstable, and the process of transferring money into the country is challenging.

• Western Union: This is a popular option for sending money to Afghanistan from various countries, including Norway and the UK. Western Union has a large agent network and offers convenient and flexible options for senders, including online transfers, app transfers, and transfers at agent locations.
• MoneyGram: MoneyGram is another well-known money transfer service that operates in Afghanistan. It offers secure and fast transfers and is often the cheapest option for cash pick-up services.
• PayPal: PayPal is a recognised international money remittance service that operates in Afghanistan.
• M-Paisa: M-Paisa is a mobile-based cash transfer service with over 287,000 mobile agents worldwide.
• Debit and Credit Cards: Using debit and credit cards is another option for transferring money to Afghanistan. Services like MoneyGram and Western Union accept these payment methods.
• Checks and Money Orders: This is a simple method where you write a check or money order and mail it to the recipient in Afghanistan. However, the recipient will need to deliver the check to a local bank for processing, which can take a few business days.

It is important to note that Afghanistan's financial system has been disrupted due to sanctions and political instability. As a result, there may be frequent shortages of local currency, and credit cards are not widely accepted. Additionally, banks are closed on Fridays, and there may be lengthy queues and infrequent opening hours. Therefore, it is advisable to check the latest information and consider the potential risks before initiating any international money transfers to Afghanistan.

The use of foreign currency in Afghanistan

Afghanistan's official currency is the Afghan Afghani (AFN). It is nominally subdivided into 100 puls (although there are no pul coins in circulation), and its exchange rate is around 70-80 afghanis for 1 US dollar. The afghani was introduced in 1923 but is still sometimes referred to as a rupee in conversation and transactions, as this was the previous Afghan currency.

In November 2021, the use of foreign currency in Afghanistan was banned, with payments needing to be settled in Afghanis. This was done to encourage the use of Afghani as national tender. However, the ban also came about as a result of Afghanistan's foreign assets being frozen after the Taliban took over in 2021, causing the value of the Afghani to plummet.

The economy of Afghanistan has experienced severe bouts of inflation in the past, and the country has faced substantial economic challenges. The Soviet-Afghan War, which began in 1979, and various civil wars have impacted the country's economy. Prior to 2002, there were several different versions of the AFN in circulation, many of which were controlled by local warlords, making it difficult to determine the value of the currency.

Today, the AFN is managed by Afghanistan's central bank, "Da Afghanistan Bank", and the currency is expected to return to stability as the economy heals following the resurgence of the Taliban.

The impact of sanctions on the Afghan banking system

Sanctions from the United States and the United Nations have had a devastating impact on the Afghan banking system, plunging it into chaos and causing a liquidity crisis. Billions of dollars of Afghan assets have been frozen abroad, and the country is facing a severe shortage of cash.

The sanctions have made it extremely difficult to transfer money into Afghanistan, even for humanitarian aid. Banks are reluctant to engage in sending aid due to the risk of violating sanctions and the associated reputational risks. As a result, funds are often transferred through informal channels such as physically transporting cash or using local money transfer networks, which are costly and inefficient.

The lack of access to the international banking system has also severely impacted the ability of Afghan banks to conduct basic operations. They are unable to access their foreign currency reserves, settle incoming dollar transactions, or purchase banknotes to hold auctions for private banks. This has led to a massive liquidity crisis and nationwide shortages of banknotes, both in US dollars and the local currency, Afghani.

Private Afghan banks are struggling to cover withdrawals, and even when funds are electronically transferred into banks, they cannot be withdrawn due to the lack of physical cash. The Central Bank of Afghanistan, Da Afghanistan Bank, has imposed restrictions on transfers of banknotes to private banks and limits on withdrawals to manage the shortage of cash.

The impact of the sanctions has been exacerbated by the decision of the US and other governments to cut off Afghanistan's Central Bank from the international banking system. This has disrupted the flow of foreign aid, which previously accounted for about 75% of public spending in Afghanistan. The International Monetary Fund (IMF), World Bank, and other international financial institutions have also halted the dispersal of loans and aid to the country.

The economic crisis in Afghanistan has had severe humanitarian consequences, with up to 98% of the population in need of support. Acute malnutrition is widespread, and many households lack the income to purchase food. The crisis has been particularly devastating for women and girls, who face greater obstacles to accessing food, healthcare, and financial resources.

The role of money exchangers in the Afghan economy

Money exchangers, locally called sarrafs, have been indispensable to the Afghan economy for the past two centuries, even during periods of crisis. They operate like one-person credit unions, providing a wide range of financial services beyond currency exchange. They store money for safekeeping and facilitate the movement of goods between Afghanistan and neighbouring countries by providing traders with bills of credit and transferring funds through an informal system called hawala.

The formal banking sector in Afghanistan has gained limited traction due to competition with exchangers and the country's high poverty levels. The first Afghan bank, Bank Millie, was established in 1933 and provided rudimentary services such as savings accounts for government elites. However, the banking sector has struggled to gain a foothold due to political instability, international sanctions, and the dominance of the money exchanger system.

Money exchangers have proven resilient and adaptable, surviving the rise and fall of regimes. They have resisted being captured or co-opted by the state and have strong economic networks that allow them to quickly disburse funds across the market. They can also take risks that banks would not, as their loans are often based on trust.

The Taliban takeover has impacted money exchangers in both positive and negative ways. On the one hand, deteriorating security and economic turmoil have caused some exchangers to leave the market, and investment has decreased. On the other hand, conflict has created opportunities for exchangers as they are the only remaining financial link between Afghanistan and the outside world. They provide essential services such as money transfers, savings accounts, and loans to Afghans, both locally and abroad.

The Taliban has implemented stricter regulations on money exchangers, increasing guarantee deposits and converting them into multistakeholder businesses for greater government oversight. However, they have been unable to fully control this informal sector, and exchangers have devised strategies to appease and elude Taliban officials.

In conclusion, money exchangers play a crucial role in the Afghan economy, particularly during times of crisis. Their global financial network and adaptability ensure that Afghanistan remains connected to the international financial system. While banks have struggled to operate due to various constraints, money exchangers have become the lifeblood of the Afghan economy, providing essential financial services to millions of Afghans.

The challenges of sending money to Afghanistan from Europe

Sending money to Afghanistan from Europe is challenging due to a combination of economic sanctions, a struggling banking system, and a lack of financial infrastructure. Here are some of the key challenges:

Economic Sanctions

US and UN economic sanctions have significantly impacted Afghanistan's financial system. Billions of dollars of Afghan assets have been frozen abroad, causing chaos in the country's banking system and a liquidity crunch. These sanctions have made it difficult for NGOs and aid organizations to transfer funds into the country, even for humanitarian purposes. While some exemptions have been made to allow humanitarian aid, the regulatory environment remains complex and risky for financial institutions.

Banking System Issues

Afghanistan's banking system has been plunged into chaos due to the effects of sanctions and the country's political situation. There is a lack of appetite among foreign banks to transfer funds into Afghanistan, and those that do operate in the country face restrictions on cash withdrawals and limited opening hours. Additionally, credit cards are not widely accepted, and there are frequent shortages of local currency.

Informal Financial Networks

Due to the challenges with the formal banking system, informal money exchangers and networks, known as "hawala," have become crucial for transferring funds into Afghanistan. However, these networks charge high fees (up to 10% per transfer), and there are risks associated with using these unregulated channels.

Political Instability and Security Concerns

The political situation in Afghanistan, with the Taliban in control, has led to increased security concerns and economic instability. This has further discouraged foreign banks and financial institutions from engaging in transactions with the country. The lack of a stable political structure and effective governance has made it challenging to establish reliable financial systems and channels for sending money into Afghanistan.

Limited Options for Money Transfer Services

Money transfer companies, such as Western Union and MoneyGram, have suspended or limited their services to Afghanistan due to the country's political and economic situation. This has reduced the options available for sending money into the country.

Recommendations for Sending Money

Despite the challenges, there are some recommended ways to send money to Afghanistan:

• Using online providers, such as Western Union, is often the cheapest and fastest option.
• Utilizing an international organization like the Red Cross or World Vision, which may have more experience and infrastructure for delivering aid in challenging environments.
• Considering alternative payment methods, such as blockchain and digital currencies, which can provide a more direct connection between donors and recipients.

Frequently asked questions