ABSTRACT
Credit transactions raise a number of fundamental problems in the context of Afghanistan. The highly uncertain business climate of Afghanistan increases the borrowing costs and renders adherence to fixed repayment terms challenging. Sarraf's short-term working capital loans help sellers/creditors meet their financial obligations to their foreign suppliers despite unpredictable cash flow from their domestic buyers/debtors. Sar qufli and judicial jurisprudence that has developed in connection to it have the capacity to improve liquidity in the capital markets in cases where the use of a property creates additional value that cannot be easily separated from the property. In conjunction with reforming the banking system, Afghanistan also needs to improve the non-banking sources of credit. Sar qufli has been able to improve liquidity in capital market by making it easier for developers to recover their capital costs. Grounded institutional reform posits that an effective way to approach this task is to set reasonable expectations and utilize the potential of organically developed institutions.
