Financial Exchange

Afghanistan Holding Group has automated the primary and secondary market for capital notes
by creating a secure online trading system for DAB, the Central Bank of Afghanistan.
This is part of the larger Afghanistan Stock Exchange concept for the future of Afghanistan.

Problem Analysis


Capital outflow

Currency reforms and the passing of the banking laws have gone some way towards addressing requirements for establishing financial markets. This, in turn, has led to the strengthening of the Afghan currency and establishment of international banks inside Afghanistan. However, with a lack of financial markets, much of the benefits of establishing these banks would not be realized in Afghanistan. In particular, whilst savings may be generated through bank savings and deposit accounts, with a lack of financial and capital markets, the banks would be forced to invest the money overseas, resulting in a capital outflow.


State Owned Enterprises

The National Development Framework has articulated the role of the private sector as central to the reconstruction efforts. As part of this, many of the state owned enterprises (SOEs) will be either disbanded or sold to the private sector. This process has been substantially delayed due to lack of clear mechanisms for transparently selling these organizations. Nor is there an understanding of what investors would require in terms of due diligence to have sufficient confidence to invest.


Raising capital

Much of the reconstruction in Afghanistan has relied on donor funding and investments by wealthy individuals who could fund entire projects. This would expand the gap between the wealthy and the poor, with much of the investments in the hands those who already have substantial wealth. Major projects that are outside the scope of any one individual are left to international companies or donors to fund. This severely limits the ability of the country to shift towards a self sustaining investment and reinvestment cycles rather than continued reliance on external capital generation.


Foreign Investment

Foreign investors, for their part, are reluctant to enter into Afghanistan due to not only the security risks but a lack of clear mechanisms for investment. Any potential investor would need to take a majority or outright stake in an organization to be able to have confidence in operations. There is limited scope for spreading risk through minority share holding in a number of companies.
The issues facing investments in Afghanistan are by no means limited to the above issues. Without a viable financial market to facilitate investments, the country will continue to remain at risk of donor dependant nation.



In order to promote investments and provide mechanisms for raising equity, we propose the establishment a market for the exchange of capital and credit, including the money markets and the capital markets. Playing a key role in the economic development of Afghanistan and located in Kabul, financial markets would include a viable stock, commodity, currency, and debt markets. Located in an integrated facility, this would become the heart of a financial centre in Kabul that could ultimately cater for the region.
Our goal is the construction of a modern, fully equipped facility that would be the beginnings of a financial district. It would provide potential stakeholders, such as stockbrokers, investment bankers, and traders to operate within the market infrastructure and minimise set up costs for an electronics dependant market.



A Stock Exchange is the mechanism that supports the transparent exchange of capital and credit. Stock exchanges allow for companies to grow at a rate that is impossible without public shares. They also allow for the individual to invest their money in large-scale endeavors even if their investment is minimal. These conditions lead to the creation of national companies that are owned by many Afghans and not simply a rich few (national or international individuals). Currently there is no system of a stock exchange in operation within Afghanistan.

AFS is fully committed to establishing the technology, environment, and systems to launch the first stock exchange for Afghanistan. Afghanistan Stock Exchange (ASE) would consist of regulatory framework, regulatory body, government oversight body and market participants. They would also include any technology solution and back office (clearing and settlements) aspects that facilitate transactions.

ASE is the entity foreseen to be operating locally in Kabul. It aims to provide investment opportunities and corresponding services to potential equity investors and funding opportunities to companies that seek to be visibly listed for that purpose.

In terms of regulatory supervision, the obligation or duty to monitor individual traders’ behavior (‘surveillance’) lies with the Trading/Matching platform operator, according to the regulations (rule book) managed and issued by the Stock Exchange under approval and supervision of Da Afghanistan Bank.

A Stock Exchange is the critical element in establishing financial markets and will provide a number of vital services, including:

  • Funding source for newly emerging Afghan corporate sector
  • A mechanism for eventual divestment for potential investors in Afghanistan
  • Transparent system for the privatization of State Owned Enterprises (SOE)
  • Investment mechanisms for financial institutions setting up operations in Afghanistan
  • Wealth accumulation for Afghan investors
  • Listing opportunity for regional as well as local companies
  • Facilitating a shift from NGO to for profit companies for sustainable development

ASE’s success will depend on its ability to maintain a high level of market integrity. ASE will promote market integrity in a number of ways including:

    • the development and implementation of Business Rules and Listing Rules designed to ensure orderly and fair markets
    • supervision of those markets
    • the active pursuit of technological improvements to meet market participants’ requirements for system reliability, integrity, performance, capacity and cost effectiveness
    • close cooperation with other regulators

In partnership with global players, ASE plans to implement the technical details of trading, clearing and settlement thereby planting the seeds for the first exchange in Afghanistan.


Legal Infrastructure

The 2005 Private Investment Law specifically prohibits discrimination against foreign investors.
Investments can be 100% foreign owned; foreign investors are not required to secure an Afghan partner. Private investors have the right to transfer their capital and profits out of Afghanistan.

Foreign and domestic investors enjoy equal treatment, including under ongoing privatization programs.
The Government has adopted progressive policies to foster trade and investment, including currency reform, rationalized customs tariffs and a simplified tax code. There are no restrictions on converting or transferring funds associated with investment into a freely usable currency and at a legal market clearing rate. The Private Investment Law states that an investor may freely transfer investment dividends or proceeds from a sale of an approved enterprise abroad. Furthermore, Afghanistan does not maintain a dual exchange rate regime, currency controls, capital controls, or any other restrictions on the free flow of funds abroad.

Da Afghanistan Bank already has laws and regulations on various debt securities ( such as capital notes and secured transactions. Providing regulations regarding equity securities will be providing a Sharia compliant product and in lines with the trading spirit of the Afghan entrepreneur.


Risks and Mitigation

There needs to be serious advances in company disclosure and transparency that is needed to protect small investors.

All companies listed on the Afghanistan Stock Exchange will be subject to annual financial audits by a certified accounting company.

Companies that needed equity capital, or long term debt, may prefer to go to an established exchange, e.g. Dubai or Turkey.

Companies may list on more than one exchange. The Afghanistan Stock Exchange will make every effort to minimize costs, time and effort for qualified companies to list on its exchange, thereby providing ensuring Afghan companies to at the very least list on their own exchange if they prefer to list on more established exchanges as well.

Afghanistan’s laws and banking system are not developed enough to account for the complex laws required of capital markets.

Afghanistan Stock Exchange will lobby the Afghan government for legislation to enforce public companies transparency in financials and operations. In addition, the Afghanistan Stock Exchange plans to enforce upon itself as well as its listed companies, the highest standards of regulation learned from emerging market countries.

Afghan investors, large or small, may prefer to go online and open an account with a broker who had access to developed markets.

The Afghanistan Stock Exchange plans to make every effort to link to major brokerages around the world to access not only Afghan but also international investors. Various marketing and incentive plans can be arranged, as successfully implemented in Mongolia for example.

Emerging market investments may not be liquid enough to attract retail investment, and any institutional investment will be private equity.

As the Afghanistan Stock Exchange builds a capital markets culture in Afghanistan, public company investments will become increasingly liquid. In the first years, the Afghanistan Stock Exchange will focus on creating a commercial paper market by buying receivables from merchants, securitizing bank loans, trading commodities and currencies to build up volume.

Afghanistan Holding Group has carefully assessed the needs and the demands of capital markets in Afghanistan in order to properly understand the role of the Afghanistan Stock Exchange. Feel free to download our report, prepared for USAID Afghanistan:
Afghanistan Capital Markets Assessment
Annexes to Afghanistan Capital Markets Assessment



The future of Afghanistan depends on visionary solutions to the numerous challenges we face. With ambitious goals of being the leading stock exchange in emerging markets through rapid local expansion and foreign investment, the Afghanistan Stock Exchange promises substantial economic development for Afghanistan at the cusp of its transition period

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