Afghanistan Stock Exchange

Afghanistan Financial Services 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 bigger Afghanistan Stock Exchange concept for the future of Afghanistan.

Afghanistan has emerged from over 20 years of conflict and is rapidly growing at nearly double digit real GDP growth annually. Access to capital is citied as fourth highest constraint to private businesses after electricity, access to land and corruption. Although a growing number of microfinance companies, banks, and public institutions provide financing solutions for businesses, the need for capital remains vast. The government continues to pass favorable laws to setup a legal framework that attracts foreign investment and regulates business. By steadily developing a culture of using public capital markets as well as financial and business transparency, the Afghanistan Stock Exchange envisions growing to be the preferred source of capital for business and as well as target for wealth investment. Job creation in the sectors of financial auditing, market research, credit checks, etc is expected to take place, in addition to direct foreign investment in Afghan companies. AFX will drive the growth of agricultural sector of the country. By expanding the economy, the country’s GDP is expected to be significantly positively impacted.

AFX assists in meeting three main objectives, as outlined in the ANDS:

• Facilitate private sector companies to raise capital for new businesses and to expand existing firms.
• Facilitate the privatization of public sector owned companies.
• Enable local investors to participate in the growth of the Afghan economy.

What are the major benefits to SME’s provided by AFX?

Access to capital: Gaining access to capital is a struggle for SMEs in developing economies for three reasons. Firstly, most financial institutions are risk-averse and perceive lending to the SME sector to be inordinately risky. Secondly, interest rates are often punitive on debt finance in the emerging markets. And thirdly, SMEs frequently lack both the collateral and appropriately prepared financial accounts to meet banks lending requirements. In contrast, public equity can redress this gap by considering a broader range of criteria–most importantly quality of management and growth prospects–when evaluating SME financing. It can also mitigate risk by actively participating in investee companies through board representation. Sectoral development: The organic expansion of SMEs through injections of risk capital, combined with their exposure to more sophisticated managerial and financial practices, technology and know-how helps to foster indigenous sectoral development. In successful investments, the close relationship between investor and investee promotes productivity, competitiveness, innovation and entrepreneurship in the latter. In response, other SMEs in the sector often strive to emulate and supersede these advances in order to safeguard market share and/or remain competitive. In consequence, the sector as a whole deepens and progresses.

Economic linkages: SMEs that expand generate vital linkages which cross-cut economic and social boundaries. They connect formal markets with informal markets and small-scale producers with large-scale producers. They also draw the poor further into the cash economy and provide low-income workers with more opportunities to increase their incomes and accumulate wealth. A corollary of this process is the graduation of firms from micro-enterprises to small businesses, from small to medium-sized businesses and, eventually, from medium-sized to large businesses.

Market integration: As SMEs grow and their participation in the supply and demand chains of large enterprises increases, market integration occurs. This helps to erode imbalances of economic power and resources between large companies and smaller players. In many emerging markets, these imbalances thwart steadier economic growth and present significant barriers to entry.

Export and investment development: Lack of resources, information and economies of scale often prevents SMEs from developing export markets. International public equity helps to educate SMEs about export opportunities and to incorporate export development into wider growth strategies. Not only does this mitigate the risk that SMEs face in the form of sudden changes in domestic market conditions, but also, it provides vital access to foreign currency.

Sustainability: AFX could become a fully self-sustainable company within five years. As with most other stock exchanges, fees can be increased as the stock exchange becomes more liquid. While the majority of revenue is expected from transaction charges per trade, there are a number of other sources as well, such as: annual company listing fees, individual trader account fees, brokerage connection account fees, interest accrued on account balances, IPO fees, audit fees, and so on.

There is little question that a country cannot become really independent and have a reasonable business environment without a stock exchange to offer its firms an opportunity to grow, expand and create jobs. The Dari and Pashtu term for “businessman” is “tujar”- which literally means “trader.” AFX provides a twenty first century platform for a spirit of trading in Afghanistan is as old as the silk route.