Will digital banks change the banking sector in Iraq in light of the sanctions?

Will digital banks change the banking sector in Iraq in light of the sanctions?

5-19-2024

Baghdad – The Central Bank of Iraq is trying to keep pace with technology and progress in the Iraqi banking sector, which is receiving great government attention to restructure it again according to a new reform vision pursued by the Iraqi government.

Today, the monetary policy of the Central Bank of Iraq has taken an unconventional curve in the mechanism of opening banks. The Central Bank of Iraq revealed the instructions and controls for digital banks at the end of last March, which provides the public with options other than traditional banks, which contributes to increasing electronic payments and enhancing financial inclusion in Iraq.

Iraq owns more than 70 banks, many of which were subjected to US sanctions, while the financial inclusion rate reaches a low level due to weak confidence between the banking sector and citizens as a result of the bankruptcy of some of them.

Large numbers to establish digital banks
. At the beginning of this month, the Governor of the Central Bank of Iraq, Ali Mohsen Al-Alaq, confirmed on the sidelines of a celebration organized by the bank that the steps achieved in financial inclusion that were accomplished today are accelerating and can close the gap that occurred during the past years as a result of the circumstances that Iraq went through.

Al-Alaq stated that the bank has ongoing meetings with the Iraqi government to expand the customer base in electronic payment methods and enhance financial inclusion, “as we see a great response from various state institutions in the context of expanding the financial and banking culture in Iraq.”

Al-Alaq believed that the factors that lead to the success and expansion of the role of financial inclusion are the citizen’s confidence in the institutions and tools available to him, as well as his vision of his interest in using them.

He continued that the Central Bank has become at the forefront of global central banks using various financial technologies that provide speed and accuracy, revealing at the same time that the bank has received large numbers of requests to establish digital banks. The concerned departments are working on the possibility of granting them a license to carry out their work in accordance with the controls and instructions issued by the bank.

30% of the digital bank’s shares belong to a traditional bank.
On the other hand, the Executive Director of the Iraqi Private Banks Association, Ali Tariq, revealed to Al Jazeera Net that, according to the instructions of the Central Bank, the establishment of any digital bank, inside Iraq, requires that about 30% of its shares return to a bank. Traditionally, services are published via the Internet and mobile applications, and there is no branch, but only the general administration, and all services are online, including issuing a bank card, money transfers, deposits, loans, and others.

In response to the possibility that the sanctioned banks might take advantage of the opening of the space for digital banks to circumvent the US sanctions against them by launching this type of digital banks, Tariq responded that the sanctions on banks are diverse, including some that are restricted from using the dollar only, without any other sanctions, so that they carry out their activities in a manner Normally within the country in other currencies.

Regarding the goals pursued by the monetary authority behind the matter, Tariq acknowledged that the world is moving towards the digitization of services in all sectors, and thus, the establishment of digital banks, which leads to the activation of electronic government and the facilitation of services for citizens, which reflects positively on the economy through the withdrawal of the monetary mass. Hoarding in homes.

Meanwhile, the financial expert and Chairman of the Board of Directors of Al Janoub Islamic Bank, Mahmoud Dagher, points out that digital banks are natural banks, just like traditional banks, but they operate through applications and do not have face-to-face interactions. According to Dagher, digital banks can perform their work as an independent digital bank or even as classic banks.

Dagher continued in his interview with Al Jazeera Net that the young generation has become knowledgeable in using financial technology for withdrawal, transfer, etc.

Today, Iraq has one digital bank, while many applications are waiting for the green light from the Central Bank of Iraq to grant them a license to carry out their work in accordance with the controls and instructions issued by it.

Changing the map of the banking sector
In addition, the economic researcher, Bassam Raad, revealed that after issuing the controls for licensing digital banks by the Central Bank of Iraq, the map of the banking sector will change during the coming period, and these digital banks will provide additional value alongside traditional banks and will work to increase digital services. And providing them with lower fees, as these banks are working to digitize all levels of banking service and transform them into digital transactions that take place over the Internet.

The use of online banking is closely linked to the ability to connect to the Internet.

The use of online banking services is closely linked to the communications and Internet infrastructure in any country (Getty).
Raad continued in his interview with Al Jazeera Net that the maturity of digital banking services will not be achieved except with a ready technological infrastructure and building trust with potential customers and the behavior of these customers in managing Their accounts are through the digital bank, pointing out that the majority of society is not familiar with digital banks and their developments, which causes concerns about the safety and security of their money.

According to the Central Bank of Iraq, licensing requirements to practice digital banking activity include that licenses for digital banks in Iraq do not exceed (10%) of the total licensed banks, in addition to the presence of an economic feasibility study that includes business plans, strategies, and financial indicators for 4 years, including the technical aspect and the planned services. Launch it.

It is worth noting that these digital banks are subject to all laws, regulations and instructions issued by the Central Bank, including the Anti-Money Laundering and Terrorist Financing Law No. 39 of 2015.

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