With funding from the Institute for Money, Technology and Financial Inclusion, a small team from frog, a design and innovation consultancy traveled to Afghanistan in December 2012. Our goal was to research the attitudes and practices around savings and people’s perceptions of risk. In the Hands of God: A Study of Savings and Risk in Afghanistan documents our exploration of financial relationships and the strategies adopted by salaried Afghans for mitigating financial risk, the role played by extended families in leveling out drops in income, and what that means for more formal financial services and the future of Afghanistan.
Photo Credit: Jan Chipchase
We were particularly interested in the fierce competition among existing financial services in this market. The choices ranged from formal bank accounts to informal hawala banking, mobile money accounts to tangible investments, or simply stashing cash at home. Those we spoke with often used multiple mechanisms to reach their savings goals and counter their fear of giving their money to a single service, often viewed with distrust. Part of the research aimed to inform the design of a soon-to-be-launched mobile savings product. In such a competitive landscape, what could bend the choice towards a mobile savings scheme over what already exists?
Through fifteen in-depth interviews in Herat and Kabul, our team found the key factors for any new product include its liquidity, accessibility, and credibility.
Here is a glimpse of the financial services landscape from Afghanistan.
Formal Savings Accounts
AIB, Azizi, FMFB, ACB, Arian Bank, Bakhtar, Ghazanfar, Maiwant, Aryan, NBA, Brak Afghanistan, Afghan United, New Kabul Bank
Less than 9% of Afghans use formal banking products and only 3% of people in Afghanistan save at formal financial institutions. Distrust in banks is widespread, heightened by Kabul bank’s shareholder corruption scandal revealed in 2010 and New Kabul bank’s association with the government.
Storing cash at home is a common savings mechanism as this is historically how the family has saved. Banks and mobile programs are a recent (post-2001, after the fall of the Taliban) addition to the savings ecosystem. The dangers of saving at home are constant - theft, property destruction due to fire or flood, the ease of spending what is readily available - yet its draw remains high given it is the ultimate in accessibility, and liquidity.
Citing lack of infrastructure, many Afghans also complain about the inaccessibility of money saved in the bank. We heard complaints of banks imposing impromptu limits on withdrawals, long lines, complex procedures, and inflexible operating hours. Further, few banks offer mobile banking on feature phones, limiting access to the select few of the population that own smart phones. With a short history (and one marred with corruption), most of whom we spoke with preferred alternate services for saving.
Despite these complaints and current levels of distrust, the general feeling is that banks have potential. Once conditions settle, business expands, and investing is less risky, banks could become an appealing solution.
Local markets and Hawala agents (informal money brokers and transfer agents)
Money markets are one of the oldest and more flexible savings options available to the Afghan people. Services available include no-fee currency conversion between the Afghan Afghani, US dollar, Pakistan rupee, and Iranian rial; short- to medium-term savings; domestic and international money transfer to other Hawala banking locations; and local financial knowledge.
With an 800-year history within Afghanistan, money markets have proven themselves to be a long-standing, viable savings solution. “It is their job to hold money” asserts one telecom employee who saves up to $1,000 at a time with a friend who works at a money market.
Though not a formally recognized financial institution, money markets are heavily regulated from a community perspective. There is a community code of conduct - all conversion rates are set (no undercutting), piles of cash in varying currencies are safeguarded by neighboring stalls. Theft is a non-issue. This code extends to the community at large. Most participants have a father/brother/uncle/friend who works as a trader, providing anytime access and a heightened level of trust when depositing money. There is limited need for paperwork before sending, receiving, or depositing money, connoting the deep-seated trust between the money-giver and money-taker. wherein comparison, banks require institutional checks and paperwork for most transactions. Trust must be validated with a signature on the dotted line.
Mobile Money Services
M-Paisa (via Roshan), M-Hawala (via Etisalat)
Currently, Mobile Money services are used primarily to send and receive money, to top-up mobile accounts, and to pay select utility bills. While Roshan and other operators have plans to launch dedicated savings services, at the time of our study no such services were available.
More and more, mobile money users are those who receive their regular salary payments through Mobile Money. The ANA, ANP, and several large Afghan firms have enrolled in programs to pay salaries via M-Paisa; members of our team have been studying one such deployment, with results from a large-scale impact evaluation forthcoming in mid-2013. All account transactions require a mobile pin to complete, lending confidence that money would be protected if the handset is lost or stolen.
Receiving money remains mobile money’s biggest challenges. Cashing-out is largely dependent on local banks, and complaints abound of long lines, cash limitations, and often prohibitively limited access due to strict bank hours. Barriers to withdrawal had ambivalent effects in encouraging saving behavior. A few participants kept “leftover” money in their M-Paisa account to limit spending; most, however, withdrew their salary in its entirety because they saw no obvious benefit saving large amounts or for timelines beyond a month on their mobile account.
The majority of those whom we spoke to who did not use mobile money services were not aware that these services existed, but were interested in learning more. Trust was rarely raised as an issue as all mobile money services are offered (and backed) by major telecom companies (Afghanistan-based Roshan; Dubai-based Etisalat) which, to date, have given no reason to doubt their solvency or credibility. Our interviewees indicated that these private (non-government-affiliated) institutions provide a tangible, reliable, immediate service.
Gold, grain, goats, land...
Regardless of formal or informal savings mechanisms used, investing in tangible assets is commonplace. Assets are most valued when they come in a form that is highly liquid, and ideally when that liquidity holds its value. Gold, grains, goats, and land are common valuable forms, though others exist.
One of the most institutionalized assets within Afghan culture is gold. As part of the marriage ritual, brides and their families designate a set of gold jewelry that the groom is obliged to purchase. Women continue to purchase gold jewelry after marriage as an investment, knowing its price is stable if the need to sell arises in the future. Gold is sold by the gram, and can be resold at a slight discount, at a price dictated by international markets unperturbed by local politics.
Its value is perhaps increased because of its portability; one gold shopkeeper in Herat felt he had reached the pinnacle of his trade, having graduated from food to gold. “Gold is like money. I can pack my store with me and leave if I need to.”
Access and liquidity were of high importance for Afghans. If our interviews are any indication, there is a general feeling that emergencies – that require financial spending to fix – can happen at any time. These concerns impact how banks are perceived and have implications for Afghanistan’s financial future.
-------The authors are a research team from frog design.