In Iraq “cash is king”. Whether you are buying a shirt or a house, chances are you will be doing so in cold, hard cash. Is this because of collective personal preference that Iraqis have? Unfortunately it is due to necessity as there are no alternatives. Iraq’s banking and financial sectors are not only lagging, they are crippled.
Iraq is different from its neighbours in many ways. The financial sector helps set Iraq apart from other countries. While credit cards grew in popularity during the 1980’s in most countries, Iraq was preoccupied with the Iran-Iraq War. As credit and debit card usage became mainstream during the 1990’s, Iraq was suffering from severe sanctions imposed by the United Nations. By the time the regime of Saddam Hussein was toppled in 2003 most Iraqis’ savings and investments were depleted and hardly anyone claimed to own a bank account.
This history of war and sanctions has left many Iraqis financially illiterate. As things stand, there aren’t hoards of people demanding different financial services or products from Iraqi banks. Iraq’s history has also caused the financial and banking sectors to mature at a snail’s pace post-invasion. This lack of supply and demand for modern banking, among other reasons, is what is keeping Iraq from progressing.
For example, recently there was uproar in Iraq over a proposal by the government to change the ration system. The thinking was, rather than provide each individual a monthly amount of staple foods (worth about $5 USD) each Iraqi would receive 25,000 IQD (roughly $20 USD). Countries with efficient welfare systems tend to hand out their benefits with money. Whether a cheque is sent in the mail or funds are electronically sent to recipients via direct deposit, the individual and the state do not have a reason to meet face-to-face as the transaction is seamless.
Such a welfare system is not viable at the moment in Iraq as people cannot cash cheques (never mind the fact that the mail service is so unreliable that the cheque wouldn’t arrive to begin with) nor do many have bank accounts with which to receive direct deposit. Given the backlash against this proposal the Iraqi government shelved it, only kicking the can further down the road.
This is unfortunate for a couple of reasons. The existing method for distribution of the food rations is highly susceptible to corruption and inefficiency. The food distributors are known to holdback a family’s rations unless a bribe is paid or they skim off the top of their food allocation. Also, the need for Iraqis to go to a neighbourhood food distribution center and transport the rations home is tiring work. Had the monthly welfare stipend been implemented, these are two issues that would have been eliminated.
For Iraq to emerge from its crippling past, construct a stable economy and emerge as an economic powerhouse, it must tackle the incredible undertaking of building its banking system. As it does, it can start educating its people on the importance of personal banking, saving and even investing.
Hassan Hadad is an economist and works in retail & small business banking at one of Canada’s largest financial institutions. The views expressed here are solely his own and do not reflect those of his employer. You can follow him on twitter (@Abufellah).