IT’S 8AM IN northern Kabul and the temperature is 35°C and climbing. Scores of financial traders are already hard at work in Shahzada Market, their stalls crammed with bricks of cash yellowed from the sun and frayed from constant fingering. Bundles of the local currency, the afghani, sit cheek by jowl with folds of Pakistani rupees and the occasional small stack of US dollars, mostly twenties and hundreds.
Traders seated on mud steps, perched on balconies or locked behind their stalls look up constantly from their work, eyes darting as they take in passers-by. They look for regular clients and the occasional wealthy lone wolf.
Shahzada – meaning Prince – Market is the beating heart of Afghanistan’s financial system. Brokers have operated out of here – transferring cash seamlessly from Kabul to a thousand tribal areas and foreign destinations – since 1931 when the market was set up by a cousin of King Mohammad Zahir Shah. It is still owned by his descendants.
The key to the informal banking system is the use of freewheeling money markets, where bundles of afghanis are traded primarily for dollars or Pakistani rupees. Another big exchange is in Peshawar, Pakistan, the origin of much of Afghanistan’s foreign trade.
Brokers can transfer cash to accounts in minutes. Give them a $100 bill and it will be in your HSBC or Citi account in the US or Europe – minus a 1% commission at both ends – the same day. Customers still come here in droves – forsaking Afghanistan’s fast-growing banking system – because they trust the traders implicitly, having worked with many of them for generations.
Entering the market, the first impression is of a genteel, businesslike hum. Money is being made here but there is none of the chaos and cursing of the old trading pits of New York and Hong Kong. Like the 18th-century coffee houses that proliferated in the City of London, there is a steady ebb and flow of customers. Most of the traders, called sarraf, are doing business: haggling with customers, exchanging notes and thinking on their feet, working out basis points in their heads as they go.
A giant turbaned dealer half-blocks the entrance to Shahzada – a blue-eyed Pashtun from the northern province of Balkh. Hawking his wares to newcomers – it later turns out that he pays a higher tariff in order to be the first trader operating every morning – his stall is jammed with blocks of Pakistani rupees in denominations of PRe500 and PRe1,000 ($12.05). He can talk, but quickly, as he has business to do. The trader, who will give neither his name nor the tiniest of smiles, says he cuts about 50 separate foreign exchange deals a day, mostly with repeat customers. He takes a 1% cut of each transaction but that depends on the size of the deal: it can vary by up to 50 basis points in either direction.
Healthy income
The Pashtun trader expects to turn over about PRe50,000 ($602 or 30,000 afghani) each day, allowing him to clear a profit of about $5 a day after taxes and tariffs, which run to about 30% of revenues. It’s a pittance by western standards but in a poor agrarian country with annual per capita GDP of less than $500, it’s a highly respectable income.
Within minutes, however, word has got out – there is a foreign financial reporter here with a translator, taking notes and pictures. A man ambles over – the temperature is rising fast and the marketplace is getting seriously busy: why don’t we join him for a cup of tea?
The new host, Qazi Imam Jan, is a stallholder but much more than that. As the secretary and president of Shahzada, it is his job to determine who works here and who doesn’t. To operate as a broker at one of the market’s 300 trading houses requires $20,000 in paid-up capital. With an average of 10 traders in each house, making 3,000 in all – Shahzada boasts about $60 million in paid-up capital – quite a tidy sum for an economy measured in total at $12.85 billion in 2008, according to the CIA World Factbook.
Shahzada’s loose structure operates not unlike the traditional London or New York system of buying a seat on a stock exchange – the seat then being transferable to a third-party broker able to stump up the licence fee. Doesn’t the Shahzada licence cost seem rather steep, particularly for such a poor country? "Maybe it is true," Qazi concedes. "But everyone here can get $20,000 if they try. They can get it from abroad, or by selling their house or land, or borrowing from another merchant."
"Or," he adds, with a lugubrious smile giving him an air of the actor Bill Murray, "they can borrow that money from us. We don’t charge much interest and we always look after our traders." Three traders work for his firm, Qazi Imam Jan Trading Co, and the president extracts a small daily fee from every brokerage house working in Shahzada.
How much money does he make each year – what was his profit last year, or last month, or at the very least his operating margin? Again the smile. "I can’t tell you how much I make," he says. "If I do everyone will know and they will want to come to Kabul to take my business away from me. I know of the problems in London and in New York. If they know how much I make, they will want a piece of it."
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The official numbers |
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Consolidated Afghanistan banking sector data |
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Source: IMF |
Like everything in Afghanistan, Qazi is a bundle of contradictions. He’s had as many careers as hot meals, starting out as an engineer in the 1980s, before studying finance and law at Lomonosov Moscow State University – an after-effect of the Soviet invasion of Afghanistan in 1979. He returned to Kabul, working as a military judge in the early 1990s under president Burhanuddin Rabbani.
