Reports| 08:31 – 19/03/2023
Follow-up – Mawazine News
Since last January, Iraqi Prime Minister Mohammed Shiaa Al-Sudani announced a number of financial and economic reforms in the country, including the activation of the electronic payment system, where a statement issued by his office announced the work on activating the “Point of sales” system, as of June 1.
The government had confirmed the start of implementing the system with its electronic equipment exempting from taxes, in an attempt to encourage private companies to adopt this system, as Iraq is one of the countries that are lagging behind in its implementation.
Economic specialists confirm that the implementation of the electronic payment system means the need to open bank accounts for all shopping centers, hospitals, factories, medical clinics, pharmacies and others, in light of the country’s lack of branches of foreign international banks as well as in the rest of the world, which may cause a great demand for private and government banks that may not be able to keep up with the escalating demand.
According to a study prepared by the Central Bank of Iraq in 2018, the percentage of Iraqis with bank accounts does not exceed 3.2% of the total population of the country, and the number of government banks in Iraq is 7 banks, in addition to 25 private commercial banks, 3 Islamic private banks, and 3 branches of foreign Islamic banks, according to the official website of the Central Bank.
As for the number of foreign commercial banks, it is 16 banks belonging to Turkey, Lebanon, Iran and Jordan, taking into account that the Central Bank placed 7 of these banks under guardianship with the liquidation of their business in the country in 2020, according to the Central Bank website, with an office of the American Bank “CITY” and another for the German Bank “Commers”, where they are based in the Babylon Hotel in Baghdad.
3 months ago, the Central Bank of Iraq excluded 4 local banks from the currency auction, due to accusations against these banks related to dollar smuggling and money laundering, as this coincided with Iraq’s start of implementing the international money transfer system known as “SWIFT”.
With regard to the electronic sales system and the extent to which it can be implemented, Professor of Economics at the Iraqi University in Baghdad Abdul Rahman Al-Mashhadani explained that Iraq is still in the first phase of this experiment, and that former Iraqi Prime Minister Haider Al-Abadi had started this since 2017 without applying it.
Speaking to Al Jazeera Net, Al-Mashhadani revealed that the electronic sales system needs to have “automated exchange units” (ATM) throughout Iraq, and that the total available of them does not exceed 1,564 ATMs, most of which are in Baghdad and Erbil, pointing out that ATMs are an integrated bank whose work includes withdrawal, deposit and transfer, but the services it provides in Iraq are limited to cash withdrawal only.
On why European and American banks refrained from working in the country, member of the parliamentary finance committee Jamal Kojar spoke about the political situation. He argued that the coming period may see foreign banks enter the country. He explained that Iraq was classified in the past among the non-Western friendly countries, and was not subject to the international financial transfer system, and with the start of the application of this system and the electronic platform 4 months ago, it became ready to enter these foreign financial banks and companies.
Abdul Rahman Al-Mashhadani goes in this direction, who added that the main reason for the lack of branches of foreign international banks is due to the security situation witnessed by the country over the past two decades, at the same time alarming that these banks are afraid of Iraq because of indicators related to money laundering operations.
After noting the security stability in the past period and the steps and actions taken by the Central Bank in reducing money laundering through the electronic platform, Mashhadani hopes that the Iraqi government will be able to attract Western banks.
For his part, financial analyst Mahmoud Dagher spoke about another reason that may prevent the entry into force of government economic reforms, which is the instability of the Iraqi dinar in parallel markets, which makes traders prefer to deal with Iraqi cash or dollars away from the electronic selling system, which may apply to the work of foreign banks in the country.
With regard to the possibility of local and foreign banks absorbing government economic reforms, Dager explained – in his interview with Al Jazeera Net – that there are about 10 thousand and 500 “electronic points of sale” (POS) spread in the commercial sectors, stating that despite the small number of these devices, they are still not used so far, considering that there is a fear among traders of tax prosecution, which requires a high banking culture.
Absence of banking culture
Economists in Iraq agree that Iraqis still face the problem of trust in banks operating in the country, as well as a lack of banking awareness, which Mahmoud Dagher adopts by saying that “Iraqi banks and branches of foreign banks have the ability to absorb hundreds of thousands of bank accounts in the country, but the problem lies in the banking culture that is still modest.”
Mashhadani agrees with this view in part, and adds that there is a lack of banking culture due to the reluctance of Iraqis to deal with banks due to the lack of services they provide, proposing the government to grant a 5-year “tax holiday” to encourage all commercial sectors to operate the electronic payment system.
On the other hand, economic journalist Nabil Al-Najjar believes that Iraqi banks have been able during the past five years to develop the technical sector, making them ready for the electronic sales system, and that they still need to increase the number of ATMs in all cities.
Regarding the banking culture, he explained that the Iraqi government is still failing to educate to deal with electronic criticism, indicating – in his talk to Al Jazeera Net – that the Iraqi government has what he described as the golden opportunity to adapt and encourage the Iraqi street to deal electronically, through many gradual measures by expanding the circle of imposing it on traders, markets and then the rest of the sectors. Otherwise, Iraq will remain dependent on paper cash with its problems and defects, as he put it.