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Eight years on from the US-led invasion of Iraq and with seven months to go until the remaining American combat troops are due to leave, thoughts are turning from guns to butter.
In particular, the belated arrival of the international oil companies has boosted Iraq’s hydrocarbon exports and its macroeconomic prospects. The International Monetary Fund forecasts real gross domestic product growth in Iraq of 9.6 per cent this year and gross official debt falling from $107.8bn to $33.9bn.
Yet it is clear the banking system in Iraq remains under-developed – particularly for a country of more than 31m people.
Hussein al-Uzri, chairman of Trade Bank of Iraq, estimates there are still only 4.5m bank accounts in the country.
Set up in 2003 in the immediate aftermath of the invasion, government-owned Trade Bank has 15 branches but it is opening outlets in Hilla, Mosul, Kirkuk and Ramadi this year. Normality, Mr Uzri argues, is returning to what were previously no-go areas.
Even if security is improving somewhat, James Hogan, chief executive of Dar Es Salaam Investment Bank, points out that there are still fewer than 800 branches countrywide. This contributes to a huge and persistent reliance on cash.
“We have learnt across the banks to get quite adept at manhandling – I use that term deliberately – fairly large amounts of cash on a day-to-day basis. That obviously has security and logistics challenges and insurance implications that you don’t normally associate with banking,” says Mr Hogan with some understatement.
Now, attention is turning to communication systems and interoperability. There are, for example, 239 automated teller machines (ATMs) in Iraq but the individual banks have yet to see the benefits of linking up and, Mr Hogan says, half the machines may not be working at any one time.
Dar Es Salaam uses an expensive satellite network for its 16 branches. Maintaining the network is “probably one of the bigger costs of doing business” in Iraq, Mr Hogan says.
Carl Rosenquist of Synercom, a consultancy working on a USAID-funded project to automate the Iraqi payments system dating back to 2005, says a wholesale system is in place. It provides the “backbone” for real time settlement and clearing for cheques, direct credits and debits between the banks – but it is not fulfilling its potential.
“That system is basically not being used a lot because first of all there is no regulation mandating the use of it and secondly there is no retail infrastructure that creates interbank transactions,” Mr Rosenquist says.
Elsewhere in the world, institutions have generally determined, after a period of time, that it is better to co-operate than to maintain standalone systems of ATMs and points of sale. The owners and managers of Iraqi banks have yet to reach that conclusion.
For Iraq, mobile telephony is the way forward, Mr Rosenquist says, because of the security situation and because of the much higher rates of telephone penetration compared with bank accounts.
This month, USAID held a conference in Baghdad to promote the merits of private sector-led banking and mobile banking.
“A mobile payment system . . . would allow people to pay anytime, anywhere, and anybody to pay,” says Mr Rosenquist. “We need to make sure that it becomes easy to get a bank account.”
He says a tender will be issued in August for a switching system to link the mobile networks.
“Basically it is a tender for a central switch that will be a hub for all the other switches,” he says. The contract, likely to fall in the range of $15m-$20m, is due to be awarded by the end of the year and the project can then be rolled out over the following six to eight months.
Mr Hogan adds: “A lot of this can happen very quickly. You have got the political will – certainly more so than we have seen over the past couple of years – and the energy on the part of the various banks to pull together.”
Rasheed and Rafidain, the state-owned behemoths that between them account for 80 per cent of bank customers in Iraq, already operate a switch that allows pensioners to pick up their payments from a local branch. A second system, Amwal, aims to do the same for armed forces personnel but is less successful than envisaged, bankers say.
Though dangerous, banking in Iraq can be fruitful. Dar Es Salaam has been profitable since the day HSBC bought 70 per cent of the bank in 2005. Trade Bank made $361m last year compared with $305m the year before on assets of $14,991m.
And interest in Iraq is picking up, even if from a low base induced by years of extreme violence.
“Almost every day we have foreign investors coming to the bank,” Mr Uzri says. “They are coming and they are spending time. That is very encouraging.”
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In particular, the belated arrival of the international oil companies has boosted Iraq’s hydrocarbon exports and its macroeconomic prospects. The International Monetary Fund forecasts real gross domestic product growth in Iraq of 9.6 per cent this year and gross official debt falling from $107.8bn to $33.9bn.
Yet it is clear the banking system in Iraq remains under-developed – particularly for a country of more than 31m people.
Hussein al-Uzri, chairman of Trade Bank of Iraq, estimates there are still only 4.5m bank accounts in the country.
Set up in 2003 in the immediate aftermath of the invasion, government-owned Trade Bank has 15 branches but it is opening outlets in Hilla, Mosul, Kirkuk and Ramadi this year. Normality, Mr Uzri argues, is returning to what were previously no-go areas.
Even if security is improving somewhat, James Hogan, chief executive of Dar Es Salaam Investment Bank, points out that there are still fewer than 800 branches countrywide. This contributes to a huge and persistent reliance on cash.
“We have learnt across the banks to get quite adept at manhandling – I use that term deliberately – fairly large amounts of cash on a day-to-day basis. That obviously has security and logistics challenges and insurance implications that you don’t normally associate with banking,” says Mr Hogan with some understatement.
Now, attention is turning to communication systems and interoperability. There are, for example, 239 automated teller machines (ATMs) in Iraq but the individual banks have yet to see the benefits of linking up and, Mr Hogan says, half the machines may not be working at any one time.
Dar Es Salaam uses an expensive satellite network for its 16 branches. Maintaining the network is “probably one of the bigger costs of doing business” in Iraq, Mr Hogan says.
Carl Rosenquist of Synercom, a consultancy working on a USAID-funded project to automate the Iraqi payments system dating back to 2005, says a wholesale system is in place. It provides the “backbone” for real time settlement and clearing for cheques, direct credits and debits between the banks – but it is not fulfilling its potential.
“That system is basically not being used a lot because first of all there is no regulation mandating the use of it and secondly there is no retail infrastructure that creates interbank transactions,” Mr Rosenquist says.
Elsewhere in the world, institutions have generally determined, after a period of time, that it is better to co-operate than to maintain standalone systems of ATMs and points of sale. The owners and managers of Iraqi banks have yet to reach that conclusion.
For Iraq, mobile telephony is the way forward, Mr Rosenquist says, because of the security situation and because of the much higher rates of telephone penetration compared with bank accounts.
This month, USAID held a conference in Baghdad to promote the merits of private sector-led banking and mobile banking.
“A mobile payment system . . . would allow people to pay anytime, anywhere, and anybody to pay,” says Mr Rosenquist. “We need to make sure that it becomes easy to get a bank account.”
He says a tender will be issued in August for a switching system to link the mobile networks.
“Basically it is a tender for a central switch that will be a hub for all the other switches,” he says. The contract, likely to fall in the range of $15m-$20m, is due to be awarded by the end of the year and the project can then be rolled out over the following six to eight months.
Mr Hogan adds: “A lot of this can happen very quickly. You have got the political will – certainly more so than we have seen over the past couple of years – and the energy on the part of the various banks to pull together.”
Rasheed and Rafidain, the state-owned behemoths that between them account for 80 per cent of bank customers in Iraq, already operate a switch that allows pensioners to pick up their payments from a local branch. A second system, Amwal, aims to do the same for armed forces personnel but is less successful than envisaged, bankers say.
Though dangerous, banking in Iraq can be fruitful. Dar Es Salaam has been profitable since the day HSBC bought 70 per cent of the bank in 2005. Trade Bank made $361m last year compared with $305m the year before on assets of $14,991m.
And interest in Iraq is picking up, even if from a low base induced by years of extreme violence.
“Almost every day we have foreign investors coming to the bank,” Mr Uzri says. “They are coming and they are spending time. That is very encouraging.”
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