Cash Only: Why the Messy Banking Sector Endangers Iraqi Development

Most Iraqis rely on relatives and friends to borrow money. But obviously this can cause social problems. There are also small organizations that provide loans for start up businesses but the amount that these schemes can lend is usually minimal.

There is also the issue of trust in the banking system. In a recent banking scandal in the semi-autonomous state of Iraqi Kurdistan, local businessmen, most of them based in the city of Sulaymaniyah, lost around US$500 million. This was due to the drop in value of Iranian currency, after US and European sanctions were imposed, which led to the failure of a small but active Iranian “bank”. The so-called bank had been operating as a middleman transferring funds to and from Iraqi Kurdistan, Dubai and Iran.

Incidents like this do not reinforce public trust in the banking sector; most Iraqis remain very sceptical about local banks due to a lack of rigorous regulation. And the weak banking culture simply encourages the current cash economy. All of which has stalled foreign and local investment needed to rebuild the country. It has also encouraged local businesses to be apathetic about taxation or social responsibility.

Another major issue plaguing Iraq’s banking sector, and for that matter, the private sector too, is the prevailing ideology of top-down politics and big government. Many Iraqi politicians, including Prime Minister Nouri al-Maliki’s ruling party, are suspicious of the private sector; they prefer to stick to what they know best, which is having the state control almost all economic activities - including the banks.

Looking around the world, it is clear that a strong banking sector is essential to a successful economy. Apart from helping the private sector and small business grow by providing financing, the government can also measure and quantify economic activity. Once the banking sector flourishes, and transactions are recorded and regulated, money laundering and corruption is automatically reduced.


4 Responses to Cash Only: Why the Messy Banking Sector Endangers Iraqi Development

  1. Uruki-the-Iraqi 3rd March 2012 at 00:54 #

    "Looking around the world, it is clear that a strong banking sector is essential to a successful economy" ... This is an absolutely false statement and a mirage reality … Once the World Bank, the IMF and other big financial corporations in London, New York and Tell Aviv (behind them) enter a country, a total monetary collapse follows … We have seen such disastrous results in Greece, Italy, Spain, Portugal, Ireland, Malaysia and many other countries … Iraq must not be manipulated by these so called world financial institutions… Iraq must follow the Chinese financial model, since CHINA is anticipated and posed to become the next super power in 2015 and beyond … Iraq should also keep its finances CLOSED to these international robbers… Iraq MUST oppose ALL foreign interventions in its economy… Iraq must also create a new Iraqi GOLD dinar and force the rest of the world to trade with it instead of trading in Dollars, Euros and British Pounds!!

  2. Jaydee 3rd March 2012 at 10:54 #

    Iraq's weak currency is killing their economy. I'm inclined to say the Iraqi politicians really don't care for their people like they lead the world to believe. A boost in currency value would allow the Iraqi citizens to trade and have more buying power. Everyone knows the stronger your currency the more you empower your people, the more folks spend and stimulate the economy. Its a shame what these Iraqi politicians are doing. The U.S. has done what it was suppose to liberated the country. It's time for Iraq to stop acting like baby's(that need breast milk).

  3. Stew 3rd March 2012 at 19:59 #

    That's interesting Jaydee.
    Why does Japan have one of the top economies in the world with a yen rate of about 100:1?
    How did Italy have one of the top economies in the world for years with a Lira valued at 1500:1 prior to them joining the E.U.?
    There are also many coutries at the bottom of the economic ladder that have great exchnage rates. Why is that?

  4. Uruki-the-Iraqi 4th March 2012 at 06:44 #

    Jaydee, it appears that you do not know much about Iraq’s economy or even its history… The Iraqi Dinar was (at one point in TIME) worth 4 Dollars (that is a rate of 1:4)… Iraq is also somewhat a semi-socialist country (Islamic society dictates that), meaning the Iraqi government is STILL the biggest employer of Iraqis in Iraq… The problem of Iraq was the senseless WARS (three successive wars) which depleted Iraq’s national GOLD reserves (currently 5 tons)… Here are some examples: USA (8133 tons), Germany (3396), China (1054), Iran (907), Russia (883), Japan (765), India (557), Saudi Arabia (322), UK (310), Lebanon (286), Algeria (173), Libya (143), Kuwait (79), Jordan (12) and so on… As you can see Iraq stands at the bottom list of gold reserves and small countries such as (Lebanon, Kuwait and Jordan) hold even more GOLD than Iraq, which by the way is larger (in size, population and economy) than these 3 Arab countries combined!!!... As to your suggestion of liberating Iraq, well we also wanted to liberate your (countries and peoples) from BUSH, TONY BLAIR and most definitely the BILDERBERG GROUP … Yes we are babies feeding on breast milk but the million dollar question is “What is it to you?” And what are your babies feeding on then?? BLOOD!!