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Rest of the World: Why is paper money still dominant in Iraq?
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Economy News - translation
After decades of war, displacement and sanctions, Iraq remains isolated from the global financial system. Iraqis are cut off from electronic payment systems, which most companies around the world take for granted. According to a report published by the "Rest of the World" website and translated by "Al-Iqtisad News".
Less than a fifth of the population has a bank account, and global payment service providers are not present in the country.
Wars, displacement and sanctions have left the Iraqi economy lagging behind and dependent on oil exports.
One of the most important parts of the old bazaar in the Iraqi Kurdish city of Sulaymaniyah is the currency market, where currency counting machines make their usual thump while porters haul heaps of Iraqi dinars, Iranian tomans and US dollars around cramped desks, where groups of men try to stir up commotion.
To take advantage of the slight fluctuations while traders and brokers share among themselves cigarettes and news of the latest prices, it is noted that their mobile devices are in their hands but are often used to contact their counterparts in other cities to allow the passage of cash payments.
While businesses and customers around the world are increasingly using electronic transactions, cash is still the norm in Iraq.
Of course, there are a number of electronic payment platforms available to Iraqi consumers, as the Central Bank of Iraq issued licenses to 17 companies to operate electronic wallets, most notably: AsiaHawala, Zain Cash, Nass Wallet, and FastPay, in addition to issuing 15 other licenses for services related to electronic payments.
However, entrepreneurs and business owners trying to grow the country's anemic private sector face a double challenge: on the one hand, local consumers are reluctant to adopt locally available electronic payment platforms,
and Iraqis are cut off from the electronic payment systems that most companies around the world take for granted.
On the other hand. "People here don't understand cryptocurrency," Anas Fadel, a market data analyst who works at the bazaar, told Rest of the World. He continued, saying:
According to the World Bank, the vast majority of Iraqis do not use credit or debit cards, less than a fifth have the required bank account, and global payment service providers such as PayPal, Apple Pay, and Stripe are not available in the country.
Experts explained this to Rest of the World:
"In our opinion, this is likely to happen because these companies view the operations there as very, very risky."
Electronic payments are increasingly becoming the standard across the world, as the Covid-19 pandemic has accelerated their growth rates until they have become a global standard.
According to an analysis released by the World Bank, two-thirds of adults globally now make or receive electronic payments.
This number increased from 35% in 2014 to 57% in 2021 in developing countries, and this shift is particularly evident in regions such as Africa and Asia.
The wars, displacements and sanctions that have devastated Iraq since the early 1980s have left its economy underdeveloped and dependent on oil exports.
Efforts to reform outdated legal and financial systems, develop the private sector, and diversify Iraq's economic base are frequently and routinely hindered by entrenched interests, of which corruption is the main deterrent, as the non-profit organization Transparency International ranked Iraq as one of the most Countries are vulnerable to corruption in the world in 2021.
As a result, ambitious entrepreneurs, whom many consider crucial to Iraq's future, are unable to conduct many of the basic financial transactions common to economies around the world.
Their business depends on cash transactions with their local clients, and they are unable either to expand abroad, or to easily secure financing from abroad.
Diaa Sattar, founder and CEO of Baghdad-based startup Seven Sanayeh professional services company, told WR:
Increasing access to electronic payments would help create opportunities for businessmen, women, and unemployed workers.
"Instead of keeping them dependent on government appointments and political patronage systems, this will make it easier for them to work for themselves."
Because of the limited access to electronic financial services that Iraq suffers from, managing Starr’s business was a series of complications, as he added:
“It took me more than five months to find a way to pay and register the application on the Apple App Store because I had no way to conduct the transaction myself.”
As the Visa card linked to my Iraqi bank account only works within the country and I cannot link it to the Apple account. He continued the conversation, stressing:
"This simple thing constitutes a great challenge for new startups, which makes the process of growth and expansion of startups not easy."
Eventually, Starr persuaded a developer living abroad to pay the money on his behalf, but he admitted,
"It wasn't safe or professional."
Business owners across Iraq, from ordinary merchants in the bazaar to tech-savvy entrepreneurs, may want to use electronic payments,
but they will face the problem that most of their customers are unwilling to use anything other than cash.
For example, in the Iraqi e-commerce platform, online payment transactions, in the online shopping store "Maswaq", constitute only 2% of the total transactions. Ali Al-Hilli, Head of Marketing and Communications at Maswaq, confirmed to The Rest of the World, “The remaining 98% was paid by cash on delivery.”
The most common electronic transaction in the country is the withdrawal of Iraqi public servants and retirees their monthly salaries from prepaid cards at currency exchanges, banks and ATMs. Then, they use the cash for everyday transactions, savings and making large purchases.
And about the reason for not using electronic payments, Joanna Abu Bakr, owner of a small business in Sulaymaniyah, answered: "By God, what can I say? I do not need electronic payments. Whatever I want to buy, I can pay for it with cash. That is why I do not think of using it (methods). electronic payment).
On the other hand, some are eager to use electronic payments, but claim that local platforms can be unreliable. “Electronic payments are easier and faster than cash,” Ali Zalzalah, an engineer living in Baghdad, told Rest of the World.
But he admitted, “There is a possibility that it may not work or be interrupted, which is what happened often.”
Many entrepreneurs find that the lack of widespread use of electronic payments is frustrating for them, as it hinders the growth of their business.
Ahmad Jamal, co-founder and COO of °Kordovia, an Erbil-based startup offering interactive online games that attract tens of thousands of users every night, told Rest of the World:
“The biggest challenges we face are in transactions. Cash-based is bookkeeping.
It takes time, effort and money to track down clients spread over a wide geographic area and collect cash from them.
If payments were electronic, everything would work in an automated and fast way, it would be much easier."
However, many companies do not offer electronic payment options, despite recognizing its advantages over cash.
After Shahd noticed that women in Iraq are often harassed while accessing routine car care services, Shahd Noman Adel founded AutoCare, It is a Baghdad-based company based on an app that allows customers to book car washes and maintenance online, and gives them a safe place to wait.
Adel told "Rest of the World" that she has not yet offered the electronic payment option, but she hopes to add one soon.
Iraqi business owners and entrepreneurs, who are eager to increase their connection to the global economy, want to take advantage of electronic payments to obtain services and supplies from abroad via electronic payment service providers such as PayPal, Apple Pay and others.
Adam Hassan, a project development specialist at Al-Mahatta co-working space based in Baghdad, told Rest of the World:
“There is a demand from Iraqi business owners and businessmen for payment platforms such as PayPal, but unfortunately, these are not supported.” The platforms are officially accounts created in Iraq.
Historically, the international community imposed heavy sanctions on Iraq to punish the former regime of Saddam Hussein and monitored its financial sector to undermine support for terrorist groups such as the Islamic State (ISIS).
Now, the name of Iraq has been removed from the official lists to a large extent, for example, in January of 2022, the European Union removed Iraq from its list of countries at high risk for money laundering and terrorist financing.
“We were not aware of any external constraints that would prevent global public service providers from operating,” Alice Bosley, co-founder and CEO of the Sulaymaniyah-based entrepreneurial incubator Five One Labs, told WORLD OF THE WORLD. in Iraq".
"We have been made aware that there are no [Office of Foreign Assets Control] specific regulations against Iraq related to this case," Bosley added, referring to the department of the US Treasury responsible for economic sanctions.
As for Ali Al-Hilli, Head of Marketing and Communications at Miswak, he pointed out:
“At the end of the day, electronic payment service providers are private entities and decide whether to enter the Iraqi market or not.. Iraq may still not be very convincing as an electronic payment market.” for them".
Deficiencies in Iraq's domestic legal and financial framework are seen as the most significant barriers to entry into the country for global public service providers.
Al-Hali cites the example of AlgoPay, a company that provides electronic payment services.
It is based in California and is closely linked to PayPal. It tried to enter Iraq in 2020. Al-Hilli continues:
“The public reception of AlgoPay was great, but then the Central Bank of Iraq banned its use because it It is not organized, and it does not have a local license to operate in Iraq.”
"If the Iraqi government faces these challenges, the opportunities will be huge, making the Iraqi start-up ecosystem more scalable," Bosley said.
"A lot of startups and companies want to use the services available outside the country, but they are unable to do so because they cannot pay," she added.
The full realization of the potential of electronic payment in Iraq will require major regulatory reforms by the government in Baghdad to facilitate the work of local and global payment service providers, as well as changing the mentality of consumers to distance them from dependence on cash transactions.
“This double shift would provide a much-needed boost to Iraqis, especially those struggling to find a future in the country’s dysfunctional economy,” said Sattar, a businessman from Baghdad.
“Enabling electronic payments in Iraq will not [sic] help startups and businesses.”
Not only that, but it will create many job opportunities for the unemployed in Iraq."
Views 210 Added 02/11/2023 - 11:11 AM Updated 2023/02/20 - 12:46 AM
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