Reform and Regulation of Economic Institutions in Afghanistan: Formal and Informal Credit Systems

The book investigates the root causes of failed reforms in trade and credit institutions in Afghanistan and identifies the barriers to access to credit. It argues that countries like Afghanistan should adopt an approach called Grounded Institutional Reform to formalize existing informal institutions to support economic growth.

Format: Hardback
Length: 276 pages
Publication date: 21 October 2022
Publisher: Taylor & Francis Ltd

The return of the Taliban to power in August 2021 sparked widespread curiosity about the failure of two decades of institution-building efforts in Afghanistan. This book delves into the underlying causes of unsuccessful reforms in a crucial area of reform: trade and credit institutions. It explores why attempts to reform and regulate Afghanistan's economic institutions fell short and offers valuable insights from their shortcomings. Drawing on over eighty interviews with Afghan merchants, business leaders, money dealers, and government officials across five major provinces, the book identifies barriers to access to credit and assesses the performance of formal institutions (banks) and their informal counterparts.

The findings reveal that Afghan merchants often faced significant challenges in benefiting from formal institutions due to a volatile business climate, uncertain contract enforcement, and an inadequate property rights system. In response, several informal institutions have emerged to alleviate some of the credit constraints faced by Afghan merchants. These informal institutions include risk-sharing trade credit operations, short-term working capital loans provided by money dealers, Gerawee, and Sar qufli. While these institutions have helped Afghan merchants survive, they are insufficient for supporting economic growth.

In conclusion, this book argues that countries like Afghanistan should address their institutional dilemma by adopting an approach known as Grounded Institutional Reform. This approach involves formalizing existing informal institutions, which can significantly enhance their effectiveness. While the focus of this book is on credit and trade in Afghanistan, the analysis of formalizing the informal can be extended to address other types of economic problems in similar contexts. By recognizing the importance of informal institutions and integrating them into the formal system, countries can foster economic development, promote stability, and create opportunities for their citizens.

Weight: 700g
Dimension: 234 x 156 (mm)
ISBN-13: 9781032157351