COMMERCIAL LAWS INTRODUCED BY DA AFGHANISTAN BANK Sharifullah Shirzad Acting General Council March 28, 2010

New Commercial Laws - DAB Law of Islamic Banking in Afghanistan. Law of Islamic Banking in Afghanistan. Status: Initial stage. Afghanistan Deposit Insurance Corporation (ADIC) Afghanistan Deposit Insurance Corporation (ADIC) Status : under review by Economy committee of Lower House Law on Financial Leasing Status : under review by Economy Committee of Lower House. Law on Mortgage of Immovable Collateral (Mortgage Law) Status : Enforced. Printed into OG

New Commercial Laws - DAB Law on Secured Transactions of Movable Collateral (Movables Law). Status : Enforced. Printed into OG 990. Law of Negotiable Instruments (NI Law) Status : Enacted. Printed into OG 971. Under review by lower house. 2

New Commercial Laws - DAB EACH LAW - REVIEW OBJECTIVES PURPOSE & APPLICATION UNDERLYING POLICIES SOURCES PARTICIPANTS OUTREACH

Law of Islamic Banking in Afghanistan OBJECTIVES Legal framework for licensing/supervising banks operating in accordance with Shariah PURPOSE & APPLICATION Equal treatment of banks offering conventional and Shariah financing Creation, capitalization, governance, activities and operations Conversion of a conventional bank to an Islamic bank and vice versa Permitted and prohibited banking activities DAB authority to revoke licenses, take enforcement measures and take other actions Applies to Islamic banks, and conventional banks with an “Islamic window” 4

Law of Islamic Banking in Afghanistan UNDERLYING POLICIES Encourage fair competition Facilitate financial innovation Safeguard financial sector SOURCES IMF PARTICIPANTS DAB Governor and Office of the General Counsel IMF 5

Afghan Deposit Insurance Corporation (AIDC) OBJECTIVES Support DAB’s mandate to foster liquidity, solvency and proper functioning of a stable, market-based financial system Create the Afghan Deposit Insurance Corporation PURPOSE & APPLICATION Protection of small, individual depositors Capitalization and governance of ADIC Attachment to Law of Banking Applies to “insured” deposits up to 50,000 Afs Covers conventional and Islamic deposits Mandatory for all deposit taking financial institutions 6

ADIC (cont.) UNDERLYING POLICIES Enhance stability of financial sector Risked based premiums charged to deposit taking institutions Coordinate regulatory and supervisory functions within DAB SOURCES Drafted by DAB Office of General Counsel PARTICIPANTS DAB Governor and Office of the General Counsel 7

Leasing Law OBJECTIVES Instrument to finance certain fixed and movable assets Means to finance on a medium or long term basis PURPOSE & APPLICATION Allows small/medium enterprises to expand and modernize production Applies to financial leases where lessee selects supplier and asset Allows financing with less cash required “up front” Does not affect “non-financial leases” UNDERLYING POLICIES Provides access to finance where bank credit unavailable Promotes competition in the financial marketplace by providing alternatives to bank lending

Leasing Law (cont.) SOURCES Model leasing law - International Institute for the Unification of Private Law (UNIDROIT) PARTICIPANTS DAB Governor and Office of the General Counsel Legal Experts at IFC Comments from BearingPoint Legal Advisors OUTREACH - WORKSHOP AT PARLIAMENT, MARCH 2007 Conducted by IFC Legal Experts Arranged by BearingPoint Advisors Attended by members of National Economics Committee of Lower House

Mortgage Law OBJECTIVES Legal framework to clarify rights and obligations Encourage banks to expand mortgage lending PURPOSE & APPLICATION Increase access to credit for consumers and SMEs Establish consistent, transparent practices & timeframes “Power of Sale” rights for lenders upon borrower’s default Applies mainly to non-possessory mortgage loans among banks and borrowers secured by immovable property Does not apply to leases of immovable property

Mortgage Law (cont.) UNDERLYING POLICIES Clear & modern law governing mortgage loans Consumer protection provisions Limit delay or interference by the courts Rules of priority and transfer SOURCES Common Law (England) and parts of Movables Law Comments from Office of Microeconomic Analysis - US State Dept. State statute in the US and one Canadian province PARTICIPANTS DAB Governor and Office of the General Counsel Afghanistan Banks Association and their counsel BearingPoint Legal Advisors

Movables Law OBJECTIVES Clarify rights and obligations between secured creditor and borrower Encourage expansion of credit secured by movable property PURPOSE & APPLICATION Increase access to secured credit by consumers and SMEs Establish consistent, transparent practices & timeframes Authorize Central Charge Registry for collateral notification Improve Creditors’ Rights for lenders upon default of repayment Applies to bank loans, long term leases, vendor sales and consignment arrangements

Movables Law (cont.) UNDERLYING POLICIES Clear & modern law governing credit secured by movable property Formal requirements for a charge and notification Consumer protection provisions Limit delay or interference by the courts Provide rules of priority and transfers SOURCES Movables Law in Albania and Bosnia (to a lesser extent) EBRD Model Law on Secured Transactions Comments from USAID’s BizCLIR Team

Movables Law (cont.) PARTICIPANTS DAB Governor and Office of the General Counsel Afghanistan Banks Association and their counsel BearingPoint Legal Advisors OUTREACH - WORKSHOP HELD AT DAB, MARCH 2007 Explained concepts in the Mortgage and Movables Laws Co-sponsored by DAB, ABA and Afghanistan Chamber of Commerce Attendees included business community and officials from Parliament, Ministry of Justice & Donor Community Coverage by local media

Law of Negotiable Instruments OBJECTIVES Legal framework for negotiable instruments (NIs) Rights & obligations of those connected with NIs PURPOSE & APPLICATION Establish consistent, transparent practices for NIs that conform to international best practice Will apply to common instruments of trade, i.e. bills of exchange, cheques & promissory notes UNDERLYING POLICIES Clarify & modernize the law Treat trade instruments as ordinary goods passing hand to hand Expand commercial practices through agreement of the parties

Law of Negotiable Instruments (cont.) SOURCES Core parts of Civil and Commercial Code of Afghanistan NI laws used in this region (Pakistan and India) UN Convention: International Bills of Exchange and Promissory Notes PARTICIPANTS DAB Governor and Office of the General Counsel Afghanistan Banks Association (ABA) and their counsel BearingPoint Legal Advisors OUTREACH - WORKSHOP HELD AT DAB, JANUARY 2007 sponsored by DAB, ABA and Afghanistan Chamber of Commerce Over 100 attendees - business community and officials from Parliament, Ministry of Justice & Donor Community Coverage by local media including Afghan television

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