ERBIL, Kurdistan Region — The Iraqi Central Bank announced on Sunday that it has given permission for a “first of its kind” electronic banking service to be rolled out in Iraq over the next few years. The new service seeks to revolutionize the way Iraqis spend money by providing an alternative to the cash economy currently prevalent across the country, including the Kurdistan Region, its founder tells Rudaw English. Established by Iraqi entrepreneur Kawa Rekani six months ago, First Iraqi Bank is the sole bank to get permission to operate such a service, allowing customers to perform financial transactions online or through their mobile device with ease rather than through cash payments. Unlike Qi Card, a service that has been touted as Iraq’s first step toward electronic banking, customers will not have to retrieve cash at any point. “This is not just a bank; it is a new financial system for the whole of Iraq and will change the Iraqi economy,” Rekani told Rudaw English via WhatsApp from Dubai on Saturday. “In Iraq everything is in cash, we aim to work in a way that from now until the next three years, there would be an 80% of the population that rely on electronic payment. So the money transfer would be from phone to phone.” First Iraqi Bank’s service is based on an application that acts as a mobile wallet and can be downloaded by customers on both IOS and android devices, allowing to transfer money from one mobile phone to another 24 hours a day. The application will be in app stores in mid-March. Only 23 percent of Iraqi households have access to an account at a financial institution, one of the lowest levels in the Arab world, according to data from the World Bank. Most companies in Iraq still operate in cash, with only 26 percent using the formal banking system. Roughly 98% of employers pay in hard currency and nearly half pay their suppliers that way. The Iraqi banking system riddled with bureaucracy only allows for citizens to open bank accounts in person and only after offering documents and going through a cumbersome process. However, Rekani who has been active in the telecommunication and banking system for over two decades believes that this new method would do away with the red tape. He says that his service will dramatically simplify the process of opening an account, where customers only have to download the application and then scan either their passport or the national ID. The company has paired up with a Los-Angeles based Acuant, to verify the documents and check them against a database for possible money laundering and terrorism financing offenses. Once completing the process successfully, customers will receive a standard International Bank Account Number (IBAN). The idea of starting an electronic banking service has been an ambition for Rekani for a long while, but in 2015, following the financial crisis that struck the Kurdistan Region after the central government stopped paying the share of the Kurdistan Regional Government (KRG) from the national budget due to perennial disagreements, the issue became more urgent. The KRG took an unprecedented action of seizing money deposited in local banks to pay the salaries of the bloated civil service and fund an existential war that was raging along 1,050 kilometers against the militants of the Islamic State (ISIS) group. Trust in the local banking system received a huge blow following the seizure. To look into the market, Rekani says his company surveyed around 1,000 merchants in Iraq and the Kurdistan Region, and concluded that the overwhelming majority of the merchants were not in favour of the credit card system that entailed a processing fee. “The moment the processing fee was mentioned the merchants opted for the cash transactions,” Junaid said of the 2017 survey. “The Visa and Mastercard system do not work because of the processing fees.” “The current economic crisis in the country is partly due to the cash economy, you can’t pay the salaries of civil servants until you sell oil and then the money has to be repatriated to Iraq and then converted into dinar and then distribute it into other banks, hence the delay,” Rekani told Rudaw English. “Even the United States would struggle to undertake such an operation.” It is estimated that more than two billion people in the world do not have bank accounts. Similar projects as part of a growing financial technology (FinTech) have been hugely successful across the world in countries where the cash economy was entrenched. In Kenya, M-Pesa, a mobile phone-based money transfer, payments and financing service launched in 2007 has expanded into neighboring countries. The bank will also provide up to 35% of civil servants salaries as loans on a monthly basis if they register with the bank, Rekani said. The bank could also offer installments to customers from merchants that decide to bank with the First Iraqi Bank. “We place a lot of emphasis on merchants like the shopkeepers to accept this [method]. This method will make sure that emphasis is not on cash. And if the reliance on cash is reduced, it would benefit Iraqi and Kurdistan economy a lot." Once the Iraqi government accepts to pay the salaries into the electronic banking system and enough businesses accept the new method, the entrepreneur says, the need for cash in circulation, by in large, will disappear.
