The financial sector in Iraq is still in its infancy and a lack of understanding of it, by the political elite and economically illiterate policy makers, has not helped.
Politicians in Iraq keep failing to grasp the importance of this vital part of the economy, a part that could transform the country's dated economic structure and bring it out of the cash economy and further toward the modern world of finance.
Iraq’s banks were nationalised in the mid-1960s, in line with the government’s nationalist and socialist policies of the time. Before then there had been a privatised banking system. In the early 1990s, former Iraqi leader Saddam Hussein’s regime tried to kick start private banking again but two decades later not much progress has been made.
According to the website of Iraq’s National Investment Commission, the minimum capital required to set up a bank in Iraq is IQD100 billion (around US$85 million). Currently there are 49 banks with licenses to operate – 42 of these are private banks, including 11 Islamic banks and foreign banks. The rest of the licensees are state owned banks like the giant Rasheed and Rafidain banks, which account for the vast majority of banking business in Iraq. There has also been a surge in the numbers of financial and investment firms, with around 40 such licences issued to date.
Interestingly, despite the capital requirement of IQD 100 billion though, some of the private banks have yet to comply with that regulation.
Iraq currently has around one local banking branch for every 60,000 people. Compared to other countries in the region, this is very low: for example, the average in Saudi Arabia is around one branch for every 3,500 citizens. Which means that despite the growth needed in the banking sector and the emergence of many small, boutique-style banks and investment houses, the population still has little, or no, access to banking facilities.