Since January, Iraqi Prime Minister Mohammed Shia 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 work to activate the "electronic payment" system (Point of sales), starting from the first of next June.

The government has confirmed the start of the application of the system with the exemption of its electronic equipment from taxes, in an attempt to encourage private companies to adopt this system, as Iraq is one of the countries that are late in its application.

The number of ATMs in Iraq does not exceed 1564, the majority of which are in Baghdad and Erbil and their work is very limited (Getty Images)


Economic specialists confirm that the application 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 so far of the presence of branches of foreign international banks 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 who have 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 affiliated with Turkey, Lebanon, Iran and Jordan, taking into account that the Central Bank placed 7 of these banks under trusteeship with the liquidation of their business in the country in 2020, according to the Central Bank's website, with an office for the American "Citi" bank and another for the German "Commerz" bank, where they are based in the Babylon Hotel in Baghdad.

The Central Bank of Iraq had excluded 3 months ago 4 local banks from the currency auction, due to accusations against these banks related to dollar smuggling and money laundering, as this coincided with the start of Iraq to apply the international financial transfer system known as "SWIFT".

With regard to the electronic sales system and the extent to which it can be implemented, Abdul Rahman al-Mashhadani, a professor of economics at the Iraqi University in Baghdad, explained that Iraq is still in the first phase of this experiment, and that former Iraqi Prime Minister Haider al-Abadi had started doing so since 2017 without applying it.

Speaking to Al Jazeera Net, Al-Mashhadani revealed that the electronic sales system needs the presence of "automated teller units" (ATM) throughout Iraq, and that the total available ones do not exceed 1564 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 they provide in Iraq are limited to cash withdrawal only.

Jamal Koger attributes the reluctance of European and American banks to enter Iraq to the political situation in the country (Al-Jazeera)

Foreign banks

Asked why European and American banks are reluctant to operate in the country, Jamal Koger, a member of the parliamentary finance committee, spoke about the political situation. He said that the coming period may see foreign banks enter the country. He explained that Iraq was classified in the past among the countries not friendly to the West, 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 is ready to enter these banks and foreign financial companies.

Abdul Rahman al-Mashhadani added that the main reason for the lack of branches of international foreign banks is due to the security situation that the country has witnessed over the past two decades, warning at the same time 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 taken by the Central Bank to curb money laundering through the electronic platform, Al-Mashhadani hopes that the Iraqi government will be able to attract Western banks.

For his part, financial analyst Mahmoud Dagher talked about another reason that may prevent the entry into force of government economic reforms, which is the instability of the Iraqi dinar in the parallel markets, which makes traders prefer to deal in Iraqi currency or dollars away from the electronic sales system, which may apply to the work of foreign banks in the country.

With regard to the possibility of absorbing local and foreign banks for government economic reforms, Dagher explained – in his speech to Al Jazeera Net – that Iraq has about 10 thousand and 500 "electronic points of sale" (POS) spread in the commercial sectors, warning that despite the small number of these devices, but they are still not used so far, as there is a fear among traders of tax prosecution, which requires a high banking culture.

Lack of banking culture

Economists in Iraq agree that Iraqis still face the problem of confidence in banks operating in the country, as well as a lack of banking awareness, which Mahmoud Dagher adopts by saying, "Iraqi banks and branches of foreign banks have the capacity to absorb hundreds of thousands of bank accounts in the country, but the problem lies in the banking culture, which is still modest."

Al-Mashhadani agrees in part with this view, adding that there is a deficiency in banking culture due to the reluctance of Iraqis to deal with banks due to the lack of services they provide, suggesting that the government grant a five-year "tax holiday" in order to encourage all commercial sectors to work with 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 to make them ready for the electronic sales system, and that they still need to increase the number of ATMs in all cities.

On the banking culture, he explained that the Iraqi government is still failing in education on dealing with electronic cash, indicating - in his speech to Al Jazeera Net - that the Iraqi government has what he described as a golden opportunity to adapt and encourage the Iraqi street to deal electronically, through many gradual measures by expanding the circle imposed on traders and markets and then the rest of the sectors, otherwise Iraq will remain dependent on paper cash, including the problems and defects, as he put it.