Falah Mousa
Iraq has long struggled with a weak and underdeveloped banking system, which has hampered economic growth and financial inclusion in the country. Despite some recent progress, such as the establishment of a central bank and the issuance of a new banking law, Iraq's banking sector still faces significant challenges, including low levels of confidence, limited access to banking services, and a lack of transparency and accountability.
One of the key areas that could help improve Iraq's bank system is the adoption of electronic payment systems, which have the potential to change the way people and businesses transact and interact with financial institutions. Electronic payments can offer many benefits, such as convenience, security, and efficiency, while also reducing the costs and risks associated with cash transactions.
However, the usage of electronic payment systems in Iraq is still in its early stages and faces several obstacles. One of the main challenges is the lack of infrastructure and technical capacity to support electronic payments, such as the need for reliable and affordable internet connectivity, mobile devices, and point-of-sale terminals. Another obstacle is the low level of financial literacy and awareness among the population, which can hinder the adoption and usage of electronic payment methods.
Moreover, there are concerns over the security and privacy of electronic transactions, as well as the potential for fraud and cybercrime. These issues require strong regulatory frameworks and enforcement mechanisms to ensure the safety and integrity of electronic payments and to build trust and confidence among users.
The Government's Dilemma: How to Implement Unpopular Financial Reforms?
In such challenging environment and obstacles, the Iraqi Prime Minister Mohammed Shia' Al Sudani has unveiled a series of financial and economic reforms, including the activation of the electronic payment system starting from June 1st of this year. Economic experts assert that the implementation of the electronic payment system will require opening bank accounts for all state institutions and the private sector, including shopping centers, hospitals, factories, medical clinics, and pharmacies, among others. However, the absence of foreign international bank branches in Iraq could lead to a surge in demand for local government and private banks, which may struggle to keep up with the increasing demand.
A recent study conducted by the Central Bank of Iraq reveals that only 3.2% of Iraq's population holds a bank account. Iraq has a total of 7 government banks, 25 private commercial banks, 3 local Islamic private banks, and 3 foreign Islamic bank branches, according to the Central Bank. As for the number of foreign commercial banks, there are 16 banks hailing from Turkey, Lebanon, Iran, and Jordan. However, in 2020, the Central Bank of Iraq assumed control over 7 of these banks and liquidated their operations within the country. Presently, only two foreign banks, namely the American City Bank and the German Commerzbank, continue to operate in Iraq, but have so far done very little, and their scope of serves are very limited. Three months ago, the Central Bank of Iraq took action against four local banks, excluding them from a currency auction, following allegations of dollar smuggling and money laundering. This move came at the same time as Iraq began implementing the SWIFT international financial transfer system. The introduction of the electronic payment system is set to bring about a significant transformation in Iraq's financial landscape, enabling the country to tackle corruption and enhance financial transparency.
Would the usage of electronic payment system in Iraq help in countering corruption?
The implementation of electronic payment systems in Iraq holds the potential to curb corruption by minimizing cash-based transactions, improving transparency and accountability, and generating digital records of financial transactions. This, in turn, can facilitate the tracking and monitoring of financial flows and the identification of suspicious activities, making it challenging for corrupt officials or individuals to conceal their wrongdoing.
Apart from countering corruption, the adoption of electronic payment systems can also promote financial inclusion by reducing dependence on informal and cash-based channels that are more susceptible to illicit activities. By offering a secure, efficient, and reliable mode of transaction and money storage, electronic payment systems can boost confidence in the financial system and mitigate the risks of fraud and corruption.
However, it is important to note that electronic payment systems alone cannot solve the problem of corruption, as corruption is a complex and multifaceted issue that requires a comprehensive and holistic approach. Electronic payment systems should be part of a broader strategy that includes measures such as strengthening institutional capacity, improving governance and accountability, and promoting a culture of transparency and integrity. By addressing these underlying factors, electronic payment systems can play a vital role in countering corruption and promoting sustainable economic growth and development in Iraq.
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