NADER FROM MID EAST: there’s some good news about the IQD Iraqi dinar

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Summary

Iraq is undertaking a major overhaul of its banking sector to modernize, increase efficiency, and integrate with the global financial system, with support from leading international consultancy firms.

The government has tasked Ernst & Young to restructure six out of seven state-owned banks, including major institutions such as the Industrial Bank, Real Estate Bank, Rafidane Bank, and Rasheed Bank.

Meanwhile, the Trade Bank of Iraq is working with K2I and KPMG to upgrade its internal and external operations to comply with international standards.

A significant component of the restructuring involves reducing government ownership in the largest state-owned bank, Rafidane Bank, to less than 24%, with the majority of shares to be sold to private banks and international investors. This plan is expected to be finalized within the year.

Alongside state-owned bank reforms, the private banking sector is also undergoing transformation. A contract between the Central Bank of Iraq and consultancy firm Oliver Wyman aims to provide recommendations within two to three years for private banks to either exit the market, merge, or comply fully with international regulatory standards.

Iraq is also making considerable progress in expanding financial inclusion and digital payments. Since 2018, the inclusion rate has jumped from below 10% to approximately 40%. There are now between 60,000 and 70,000 active debit and credit cards, and the number of bank accounts has grown to over 2.2 million. Starting in June 2025, all government transactions will be electronic, with cash payments banned across government institutions. The government is actively promoting awareness campaigns to encourage the transition away from the traditional cash-based economy.

The Riyota program, launched in partnership with the Central Bank of Iraq, aims to stimulate small and medium enterprises (SMEs) by providing a platform for training and financing opportunities. This initiative exemplifies the government’s commitment to fostering a more dynamic private sector.

Dr. Sali Salman, adviser to the Iraqi Prime Minister, highlighted that Iraq welcomes foreign investment and international consultancy in various sectors including legal, financial, accounting, auditing, and compliance. These reforms seek to reconnect Iraq with the global banking network after years of isolation caused by sanctions and frozen assets. Since November 2022, Iraq has facilitated all bank transfers via a central bank platform working with the U.S. Federal Reserve, signaling the country’s formal reintegration into international financial systems. Iraq now collaborates with approximately 30 overseas banks, although challenges still exist in establishing international banking relationships.

Overall, the ongoing comprehensive banking reforms mark a foundational shift towards adopting global best practices, expanding private sector involvement, embracing digital financial services, and attracting foreign investment into Iraq’s financial system.

Highlights

🌍 Iraq is restructuring six of its seven state-owned banks with Ernst & Young’s assistance.
💳 Financial inclusion has risen dramatically from under 10% to about 40% since 2018.
🏦 Rafidane Bank’s government ownership will drop below 24%, opening shares to private and international investors.
📈 The private banking sector is undergoing reform guided by Oliver Wyman, aiming for improved compliance or consolidation.
💻 By June 2025, all government payments in Iraq will be electronic; cash payments will be banned in government institutions.
💼 The Riyota program supports SMEs with training and financing in partnership with the Central Bank of Iraq.
🌐 Iraq has re-entered global banking networks, processing transfers through a central bank platform in cooperation with the U.S. Federal Reserve.

Key Insights

🔄 Systemic overhaul of state-owned banks is crucial for modernization: Iraq’s decision to engage Ernst & Young to restructure the majority of its state-owned banks reflects a strategic push toward creating a more efficient and market-oriented banking sector. This restructuring will reduce state control, increase private participation, and elevate governance standards, which are essential to build investor confidence and improve service delivery. Transitioning Rafidane Bank into a primarily privatized entity underlines the government’s commitment to market liberalization.
💰 Increased financial inclusion as a foundation for economic development: The growth in financial inclusion from below 10% to around 40% signals rapid improvement in access to banking services among Iraqi citizens. This expansion is vital for broader economic participation, enabling businesses and individuals to engage more fully in formal financial activities, which supports economic stability and growth. The surge in debit and credit cards and the rise in bank account ownership demonstrate an accelerating cultural shift toward formal financial systems.
📉 Reducing cash dependency mitigates risks and increases transparency: The planned prohibition of cash payments within government bodies from 2025 marks a significant policy to enhance transparency, reduce corruption risks, and promote efficiency. Transitioning to electronic payments also supports better audit trails and boosts accountability, which lays the groundwork for higher governance standards within public finance. Public awareness campaigns play an important role in addressing cultural resistance tied to a historically cash-based economy.
🤝 Private banking reform is essential to align with international standards and competition: The Central Bank’s collaboration with Oliver Wyman shows Iraq’s intention to not only improve state-owned banks but also elevate private-sector banking quality. Recommendations for banks to exit the market, merge, or comply with standards will help cleanse the sector of weaker institutions, fostering healthier competition and investor confidence. These reforms aim to ensure stability while promoting a resilient private banking environment.
🚀 SME sector empowerment as a driver for economic diversification:Through the Riyota program, Iraq is targeting the SME sector with financing, training, and registration platforms. SMEs are critical engines of job creation and innovation but often face barriers accessing credit and expertise. This initiative is likely to nurture entrepreneurship and enable SMEs to contribute more effectively to Iraq’s economic output. It further signifies an integrated approach linking banking reforms with real economic development.
🌐 Reintegration into global financial systems reopens economic opportunities: The collaboration with the U.S. Federal Reserve to process bank transfers highlights Iraq’s renewed engagement with the international banking community after decades of sanctions and frozen assets. Restarting these vital financial linkages enables cross-border trade, investment, and remittances, critical to economic recovery and growth. However, challenges remain in expanding international banking relationships, signaling that the reform journey is ongoing and complex.
🌟 Inviting foreign expertise bolsters reform credibility and effectiveness: Iraq’s openness to foreign investment and consultancy across multiple sectors, including legal and compliance services, demonstrates a comprehensive approach to reform. By leveraging international expertise, Iraq can accelerate the adoption of best practices, improve regulatory frameworks, and build institutional capacities necessary for a modern financial system aligned with worldwide standards. This multidimensional reform strategy strengthens the country’s prospects for sustainable economic advancement.