Many of the crises and instabilities in Afghanistan are linked to the employment crisis and the lack of entrepreneurship. However, while the higher education system should play decisive roles in training entrepreneurs, evidence indicates that this system faces numerous challenges and barriers to becoming entrepreneurial. Therefore, the primary objective of this study is to analyze the obstacles hindering the entrepreneurial transformation of Afghanistan’s higher education system. Conducted within an interpretive paradigm, this qualitative research employs grounded theory and in-depth interviews. The target population consists of 15 Afghan elites, including faculty members, entrepreneurs, and entrepreneurship experts. The findings reveal that a combination of factors and conditions act as challenges to the system’s entrepreneurial development, categorized into three groups: causal conditions (e.g., lack of vision, resources, and entrepreneurial organizational culture), contextual conditions (e.g., non-applied higher education, absence of internationalization, and insufficient supportive laws and normative mandates), and intervening factors (e.g., government neglect, war, and instability). However, participants emphasized that strategies such as university-market collaboration, redefining the nature and goals of higher education, and comprehensive public support are essential for fostering entrepreneurship. Additionally, the consequences of the system’s non-entrepreneurial status were categorized into rising poverty and unemployment, uncontrolled migration, the spread of war and violence, addiction, and increased social deviance. The central phenomenon in the paradigmatic model was identified as “lack of dynamism and marginalization.” In conclusion, the study highlights that Afghanistan’s higher education system faces multifaceted barriers rooted in social, cultural, economic, political, and legal conditions. To transition toward entrepreneurship, the system requires redefinition, a shift from the margins to the center, and holistic, collective support.