By Aiyob Mawloodi
The Kurdish Globe
Kurdistan Region's banking situation has vastly improved since 2003 with the fall of the Baath Regime and the relaxation of UN sanctions.
Nearly two decades ago and with the uprising of the Kurdish people in March 1991, the greatest part of the region's infrastructure, including the banking system, collapsed. Due to dual sanctions on the region, the UN sanctions on the whole country due to the First Gulf War and the central government's sanctions on the region, the newly born regional government with very limited budget and resources could not keep things going as before. Thus, it tried to use its limited power to reestablish the most important institutions and provide the basic needs of its people. Therefore, the financial institutions, like the banks and insurance companies, were all shut down.
This left people with no choice to put their savings in the banks, but rather precious jewelry, cash, and, less commonly, real estate became the only mediums of saving, which unlike the banks, promised no interest payment. People who wanted to borrow, on the other hand, had nowhere to go except to relatives.
This situation continued until the fall of Saddam's Regime in 2003 and the relaxation of both sanctions on the Kurdish region, a substantial increase in the KRG budget, through sharing part of Iraq's oil revenues, inflow of foreign direct investment (FDI), and subsequently an improvement in the economic situation of the Kurdistan Regional Government (KRG) and the people of Kurdistan.
Since 2003, dozens of banks, public and private, have been established in Kurdistan. This is in addition to a few insurance companies. Additionally, there are plans by the KRG Ministry of Trade to establish a Stock Exchange in the Region's capital, Erbil.
Though still in their infant stage and with little reputation, most of the newly established banks have been able to survive and function in one way or another. The major functions of the banks are currency transfers, LCs and LGs, business loans, and implementing investment projects. Besides that, a growing number of people are opening accounts, current and savings, in the banks.
Kurdistan International Bank (KIB), a "leading and first private bank" as its general manager, Ibtisam Najem Aboud, describes it, has thousands of current and savings accounts, the total deposit of which is roughly $18 billion.
KIB is an Islamic bank; that is, it doesn't give interest on savings, but instead shares its profits with savers at the end of the year.
"We have distributed profits two times: first at the end of 2006, our first year of operation, which was 35%; and the other at the end of 2007, which was 30%," Aboud told The Globe.
This is at a time when the interest rates in other private banks are generally around one third of those KIB rates. The Trade Bank of Iraq (TBI), an Iraqi bank owned by the government, gives only 9% interest on savings.
Besides the savings accounts, people have started to open current accounts in the banks, for some kinds of transactions. However, this function of the banks is still very limited, since still most of the payments in the region are made by cash. Few stores accept payment against credit cards and there are very few ATM machines where people can draw cash for transactions. One has to go to his/her bank or find an ATM to draw cash from his/her account.
The banks are working to improve the situations and provide more facilities and services to their customers. KIB, which presently has branches in Baghdad, Suleimaniya, and Duhok, besides its headquarters in Erbil, is planning to open 30 other sub-branches in most Kurdish cities and towns. It is also going to install ATM machines in most of the supermarkets, hotels, and other places.
"Other plans are applying the swift system, which is very important, and issuing credit cards, Visa, MasterCard, and American Express," the KIB general manager said.
According to Lawa Mufti, TBI Facilities Department manager, his bank, which is already issuing credit cards, is also planning to install more ATM machines throughout Kurdistan Region cities.
"TBI's strategy is to finance giant investment projects in the various sectors such as tourism and industry," Lawa told The Globe. "We are ready to finance local production projects and give incentives to local entrepreneurs, but there are few of them. Nobody comes with his own production project and asks us to finance it."
KIB has also financed several investment projects in Kurdistan, mostly in the fields of infrastructure, construction-material manufacturing, construction, housing, and imports.
"We have a project of 15,000 residential units in the three Kurdish provinces," Aboud told The Globe. "This is besides some local production projects like a dairy production project, and a store for frozen goods near the town of Zakho, which will be used to store imported foodstuff."