KTFA:

Samson:  Demands to revaluate the dinar, the government responds

13th November, 2021

Devaluating the Iraqi dinar in the 2021 budget has stirred the discontent of the public, and economic and financial experts alike. In spite of the warnings from its negative economic and social reverberations, the Iraqi Ministry of Finance ascribes it a breakthrough amid a stifling economic crisis that has struck the country.

Last December, the Central Bank of Iraq (CBI) opted to raise the exchange rate of the U.S. dollar from 1,182 dinars to 1,460 dinars to alleviate the ramifications of the plummeting oil revenues, bringing down the value of the Iraqi national currency and the purchasing power immediately. 

As oil prices gradually climbed beyond the 80 dollars a barrel threshold, citizens and economists voiced demands to revaluate the dinar in next year's budget or mitigate the impact of its devaluation on the community. "The rise is an outcome of a white paper that organizes the process over three to five years.

They deem it a part of the economic reform process for the financial situation and banks," economist Bassem Jamil Antoine told Shafaq News agency, "the state cannot change its currency. Still, real reform that serves the poor classes is essential."

“The currency rate is not as vital as compensation for the poor classes, which constitute the bulk of the population; social welfare, ration card availability, and job development are all critical," he said, "unemployment and poverty rates skyrocketed due to lack of job opportunities in the public sector. On the other hand, the private sector is frozen and unable to function properly."  "The recovery of oil prices must compensate for the people, address the deficit, and provide job opportunities for unemployed youth. This will reinvigorate the market, put an end to corruption, and activate the private sector," he said.

Gradual Revaluation 

Economist Dhurgham Mohamed Ali said that revaluating the dinar shall be contingent upon several factors, "The exchange rate of the dollar should be gradually reduced to 1,300 dinars while keeping an eye on the cash transactions to preclude creating a black market, dollar smuggling, and tighten the control over imports." "The outcomes of the devaluation were detrimental. The inflation rates grew, poverty rates soared, while development rates remained static and foreign currency smuggling exacerbated," Ali added.

Neglecting the private sector

"The government has not contributed to reducing the poverty gap and unemployment after raising the dollar rates that inflicted all the strata of society," trader Amir Mohammed al-Hasani told Shafaq News agency, "Its concern was how to pay the salaries of officials and ministers without considering the negative aspects of the devaluation."

"The government should have combated the widespread corruption in the Iraqi state, revived the private sector by eliminating the obstacles hindering its growth and activating laws that would provide support and protection to this important sector," al-Hasani said. "The rise in the dollar has hurt us as foodstuff prices have risen to more than 30% despite the steady salaries we earn," Hussein al-Khafaji, an employee of the Ministry of Education, told Shafaq News agency. "My salary ends by the middle of the month, forcing me to look for another job to meet the needs of the family," he said, calling on the government to revaluate the dinar.

For its part, a government source told Shafaq News agency that the dollar rates will remain unchanged in the fiscal year 2022. "There is no change or incident that causes the exchange rate to change," the source said, adding, "the Ministry of Finance has confirmed this." "Over the previous nine months, the ministry has constantly followed the indicators of devaluation against the dollar," the Ministry of Finance stated on October 5, 2021.

The exchange rate alteration has contributed to a rise in the Central Bank's foreign reserves to 60 billion dollars in April 2021, up from 54 billion dollars in December 2020.

According to the Finance Ministry, the currency rate shift also helped "reduce the demand for foreign currency, lower the dependence on imports, and enhance local production." "In the context of the crisis, there has been a clear recovery in corporate activity in the last nine months of this year," the Finance Ministry stated. 

According to the ministry, it is working to "reinvest the revenues of the funds achieved to build a target production base outside the oil sector and rely on other sectors, which will contribute to the decline in demand for the dollar as a result of compensating some of the goods produced."

Since the current government's formation, the ministry has adopted plans and mechanisms to reform Iraq's fiscal policy, culminated in adopting the "White Paper", which outlined future economic and financial policy steps to promote domestic production and reduce imports for the country.  LINK

 

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Samson:  FinTech in Iraq

17th November, 2021

One of the most significant worldwide developments during Covid-19 was the increase in consumer engagement in financial markets, many for the first time especially in Iraq. The coronavirus outbreak has acted as a catalyst for a digital revolution facilitated by financial technology (fintech).

As Iraq recovers from the Covid-19 epidemic, the city's technology industry is booming with enthusiasm in the "new normal" economy, assisting corporations and people in tackling new business models.

In the rest of the world contactless payment has risen significantly, more People are adopting digital payment in their daily lives. Except for Iraq which still lacks the will power of the people to use Bank Cards in the first instance to make payments, this is due to lack of confidence in the financial regulations in Iraq.

The fintech space is not subject to specific legislative and regulatory provisions in Iraq as this is a new and emerging Market.

Fintech Entities are subject to specific complex ambiguous laws and regulations applying to banks, financial institutions, and insurance companies if they carry out such regulated activities.

Entities must seek legal guidance before operating in Iraq to determine any special registration or authorisation requirements, which vary depending on whether the fintech engages in a regulated business such as electronic payment services, which requires a license from the Central Bank of Iraq.

When considering operating in the FinTech Market of Iraq, it's best to consider the below legal Acts and precedents.

Iraqi Banking laws and regulations:

Central Bank of Iraq Regulation (28/2/1994);

Central Bank Law (56/2004);

Banking Law (94/2004);

Financial Investment Companies Regulation (6/2011);

Central Bank of Iraq Regulation (611/14 of 2019)

Central Bank of Iraq Regulation (1/2018) as amended by Regulation 30/12/2019.

Iraqi Technology laws and regulations:

E-signature and E-transactions Law (78/2012); and

Electronic Payment Services System Regulation (3/2014)

Iraqi Technology laws and regulations:

E-signature and E-transactions Law (78/2012); and

Electronic Payment Services System Regulation (3/2014);

Other Iraqi laws and regulations:

Civil Code (40/1951);

Penal Code (111/1969);

Companies Law (21/1997);

Capital Markets Interim Law (74/2004);

Insurance Business Regulation (10/2005);

Consumer Protection Law (1/2010); and

Anti-money Laundering and Counter-Terrorism Financing Law (39/2015).

Iraq has not enacted a specific law to govern the fintech space but there are some legal doctrines which may apply to certain regulated activities carried out by fintech entities, e.g., "The provision of electronic payment services". Based on the Electronic Payment Services System Regulation (3/2014), the providers of electronic payment services must obtain a licence from the Central Bank of Iraq (CBI).

The Supplier

The Central Bank of Iraq should issue a license to the supplier of such services. The license is valid for five consecutive years and can be renewed by the Provider by submitting a written request to the Central Bank of Iraq 90 days before the license expires.

The Supplier must be a legal entity that has the organisational and technical skills to operate the required mechanism, takes all measures to secure and protect electronic transactions, ensures that the Central Bank of Iraq can enter the used system at any time for supervision and control purposes, and has submitted an economic feasibility study to the Central Bank of Iraq.

The Benefactor may designate an agent or agents and authorise them to provide electronic payment services. The Provider must disclose to the Central Bank of Iraq all agent information, including name, address, internal control methods utilized by the agent, description of the services supplied by the agent, and any other information deemed required by the Central Bank of Iraq. The agent's identity will be entered in a public record at the Central Bank of Iraq, and the Provider is required to notify the Central Bank of Iraq of any changes connected to the agent to be corrected in the above-mentioned record. The following duties of the Provider are specified in Article 16 of the Regulation (list of duties are provided in Annex 1).

If the Benefactor offers electronic payment services through mobile phone "App", he is required to

Sign formal agreements with mobile operators and send copies to the CBI.

The payment procedure will take place within Iraq and in local currency which is Iraqi Dinars (IQD).

Account settlement via the instantaneous overall settlement system, or through a guarantor bank in the absence of a settlement bank account.

Responsible authority to enforcing the applicable laws and regulations?

The CBI is responsible for granting licences to institutions that conduct banking operations and to electronic payment service providers.

The Iraq Securities Commission is responsible for supervising the Iraq Stock Exchange and issuing laws relating to investment management activities and investment advice for brokers, banks, and securities companies.

As outlined by the Decision 14/611 of 2019 on governance and institutional management of information and communication technology in the banking industry, the Central Bank of Iraq has taken a favourable stance toward fintech. When interacting with cloud computing service providers, this judgment establishes certain standards that banks, financial institutions, and other licensed institutions must follow. Furthermore, the Electronic Payment Services System Regulation (3/2014) allows non-bank payment service providers to offer electronic payment services subject to a licence from the Central Bank of Iraq.

The Iraqi Central Bank has a negative perception on the use of cryptocurrency. It barred the usage of cryptocurrencies, which are subject to sanctions under the Anti-Money Laundering and Counter-Terrorism Financing Law.

Fintech Industry in Iraq

The fintech business in Iraq will become massive in the upcoming years however it is currently limited to a few sub-sectors.

Online shopping, trading and electronic services, and smartphone applications are some of the "Hot" growing Information system fields that are maturing progressively.

In comparison to other nations in the middle east, Iraq is sluggish to adopt fintech, and overall investment in fintech market and the passage of associated regulations is low. This is attributable to a variety of reasons, including the following:

The significant number of the unbanked population - according to a World Bank Group only 23% of Iraqi households have access to a financial institution's account. However, we do see a change regarding government employees who are now getting paid Via Master Card & bank accounts rather than the old cash payment procedure.

The relative cost of internet and mobile services to income, which limits demand for digital financial services

Due to worries about the security of online payments, Iraqis prefer cash on delivery in e-commerce transactions.

Although the use of mobile and electronic payment systems is growing, it is still not as widespread as it is in other nations in the region. Cash payment up on delivery when ordering goods online and money transfer "hawala" are the most prevalent payment options, with credit cards being used infrequently. Iraq's primary underdeveloped areas are e-commerce (food, real estate, shipping, transportation, and travel services), e-banking, and digital payments.

Managing deposits and cash withdrawals through automated teller machines (ATMs), as well as executing electronic debit and credit payments, are among the electronic payment services authorized in Iraq. These electronic payments are performed using any type of digital communication and information technology, such as a network operator acting as a middleman between the user and the service provider, or any other receiver, via mobile phone transfers.

Electronic payment service providers with an Iraqi license may also facilitate to acquire bank loans that are delivered directly to the user's credit card.

The typical structure of fintech companies

The E-signature and E-transactions Law governs electronic transactions in Iraq. Online and technology enterprises, on the other hand, are not regulated in Iraq. This means that unless they have a physical office address in Iraq, e-commerce sites and mobile applications are not legally deemed enterprises. As a result, most tech start-ups choose to register their firms as "bricks and mortar" businesses in order to gain legal legitimacy.

Fintech services are also supplied by banks that operate under the supervision of the Iraqi Central Bank (CBI).

Regulations

Article 27 of the Electronic Signature & Electronic Transactions Law No. 78 of 2012, which states that the electronic transfers of money should be regulated by a regulation that to be suggested by the Central Bank of Iraq (CBI), the Iraqi Council of Ministers issued Regulation No. 3 of 2014 regarding the Electronic Payment Services of Money (The "Regulation").

This Regulation covers all the electronic payment activities including issuing the electronic payment tools, managing the deposits and cash withdrawals through ATMs and selling points, implementing of electronic payment processes (payable and receivable) that their money be guaranteed by the credit of the services user or by any means of digital communications or information technology, and implementing of electronic payment processes in accordance with the overall settlement system or the clearing mechanism system.

Please click here to download this article in pdf format.  LINK

Samson:  The Central Bank of Iraq celebrates its seventy-fourth anniversary

17th November, 2021

The Central Bank of Iraq celebrated the 74th anniversary of its founding and the completion of concrete works for the new Central Bank building in Baghdad

The ceremony was attended by the former central bank governors Ali Al-Alaq, Abdul Basit Turki, the head of the National Investment Commission, Dr. Suha Al-Najjar, the head of the Iraqi Private Banks Association, Wadih Al-Handal, and a number of heads of bank boards

The Governor of the Central Bank, Mustafa Ghaleb, said during his speech at the ceremony, that we celebrate today the anniversary of the founding of the Central Bank of Iraq, which was established in the year 1947 AD and is considered one of the oldest and most pioneering institutions in the region, which has been established for seventy-four years, during which great national efforts joined forces in serving the Iraqi national economy from through commitment to a monetary policy based on national and moral responsibility, in coordination and continuous cooperation with the relevant state institutions despite all challenges

He added that he is the best witness to the great effort of the Central Bank of Iraq, those development initiatives that it launched in the sectors of housing, industry, trade and agriculture, which brought about a turning point in the lives of millions and created job opportunities for many of the unemployed and victims of the exceptional conditions that our country went through

He explained that the founding anniversary coincided with the completion of concrete works for the new Central Bank building, which is the largest building in Iraq designed by an Iraqi woman who rose to the throne of global architectural design and created unique architectural masterpieces in several countries, and our building will be another masterpiece recorded for this woman and a national pride for us and everyone who worked in this the project is for all Iraqis

He pointed out that it is not possible to talk about this great achievement without going back to the origin of the story and the details of the event, as the first step was a decision by the Governor of the Central Bank at the time, Dr. Their choice was to go to the architect Zaha Hadid, who set out with her amazing design to plan the most beautiful and wonderful architectural and engineering arts, and then this building was born, and our Azerbaijani friends and those with them from our Turkish friends and those who helped them from other nationalities began to work with the determination of the Iraqis, connecting night and day to mix their experiences and efforts in this place

He pointed out that the successive departments of the Bank have been keen since then to complete the phases of this project to be in the most beautiful form, as the height of the building reaches 173 meters and the construction area is 100,000 square meters, in which three thousand tons of iron have been placed, and its life is one hundred years, and it works with more than 1500 people from inside and outside Iraq

And between Ghaleb, the material and human resources have combined to make a unique achievement in our dear Baghdad, and a promising transition has been established in the architectural culture and an invitation to invest in our beloved Iraq.

The functions of the building will be like its boldness and its effects in imparting beauty to the public taste of the community. It is considered one of the landmarks of value and significance that humanity inherited to its ancestors and be proud It has generations after us as we are proud of today, and in conclusion, I extend my thanks and gratitude on behalf of myself and all the Central Bank employees and those working in this project to all those present who shared the joy with us on these two occasions

For his part, the former Central Bank Governor, Dr. Sinan Al-Shabibi, confirmed in his message to the celebration, that this wonderful edifice, which I had the honor to present and adopt, is an authentic Iraqi edifice, an idea and a design. And she told me that she would fulfill her desire to leave an imprint for her in her mother country, Iraq

Finally, I would like to extend my thanks and appreciation for the efforts made and made by the current Central Bank administration, headed by the Governor of the Central Bank of Iraq, to ​​complete this great project   LINK

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Samson:  The Arab Monetary Fund, in cooperation with the German Central Bank, organizes a course on Banking Supervision in the Framework of Basel III

17th November, 2021

This morning, the "Bank Supervision within the Basel III Framework" course, organized by the Institute for Training and Capacity Building at the Arab Monetary Fund, in cooperation with the German Central Bank, was inaugurated during the period from  November 16-18, 2021,  through the remote training method adopted by the Fund in continuation of its training activity.  

Banks play a key role in economic activity, which leads to raising economic growth rates. This role, despite its importance, entails risks arising from the nature of the bank's work itself, at the level of the banking sector, or at the level of the economy as a whole. Because of the interdependence that exists between banks, financial institutions and the business sector in general, any crisis that the bank is exposed to can turn into a severe financial and economic crisis that may afflict national economies and extend its impact to the global economy, as happened in the global financial crisis in 2008.

This basic role of banks in the economy on the one hand, and the degrees of risks they are exposed to on the other hand, makes the control and supervision of banks one of the most important roles entrusted to central banks and monetary institutions, as they strive to monitor the activities of banks and set controls that enhance the safety of their activities without restricting them and limiting their ability to carry out its various activities to drive economic growth. 

Therefore, the supervisory authorities in the countries have obliged the banks operating in them to abide by international standards, especially the Basel standards, to protect the banks, and consequently, the financial sector and the economy from serious risks.

On this occasion, the speech of His Excellency Dr. Abdulrahman bin Abdullah Al-Hamidi, General Manager and Chairman of the Board of Directors of the Fund stated:

Ladies and gentlemen,

I am pleased to welcome you to the opening of the remote training course on  "Bank Supervision in the Framework of Basel III"  organized by the Institute for Training and Capacity Building at the Arab Monetary Fund in cooperation with the German Central Bank.

Ladies and gentlemen,

Banks play a key role in economic activity, as they aim to accumulate savings, provide loans to investors and settle payments between different economic entities, which leads to raising economic growth rates, thus increasing employment rates and achieving welfare for the community. This role, despite its importance, entails risks arising from the nature of the bank’s work itself, as it attracts funds with short terms and directs them to long-term projects.

 It is also based on high degrees of financial leverage, which makes it sensitive to changes that occur at the level of the bank’s activity, or at the level of the sector banking, or at the level of the economy as a whole. Because of the interdependence that exists between banks, financial institutions and the business sector in general, any crisis that the bank is exposed to can turn into a severe financial and economic crisis that may afflict national economies and extend its impact to the global economy, as happened in the global financial crisis in 2008.

Ladies and gentlemen,

This basic role of banks in the economy on the one hand, and the degrees of risks they are exposed to on the other hand, makes the control and supervision of banks one of the most important roles entrusted to central banks and monetary institutions, as they strive to monitor the activities of banks and set controls that enhance the safety of their activities without restricting them and limiting their ability to carry out its various activities to drive economic growth. Therefore, the supervisory authorities in the countries have obliged the banks operating in them to abide by international standards, especially the Basel standards, to protect the banks, and consequently, the financial sector and the economy from serious risks.

Ladies and gentlemen,

In light of these developments, Basel III focused on reforms related to the capital and liquidity standard to make the capital able to absorb any losses as soon as they occur through the mandatory formation of a reserve to protect capital during crises, and the allocation of additional capital in exchange for commercial operations, and the concept of strengthening reserves was introduced. In the capital to counter cyclical fluctuations, and to make provisions for expected risks during the economic boom and recovery periods.

Ladies and gentlemen,

The reforms introduced by Basel III requirements emphasized strengthening the issue of liquidity management and emphasized that it is no less important than other capital requirements. By setting special ceilings on financial leverage ratios.

Ladies and gentlemen,

The holding of your session comes within the framework of the efforts of the Arab Monetary Fund to enhance the capabilities of the supervisory and supervisory authorities in the Arab countries to keep pace with the best practical practices for monitoring the banking sector, and the most important amendments related to calculating risks according to the standard method and how to manage them. The course focuses on the practical aspects, which ensures its effectiveness and achievement of its desired goals, as it focuses on the following main topics:

Market risks in banks and methods of managing them.

Credit risk in banks and methods of its measurement and management.

Operational risk and its management.

Internal capital adequacy assessment.

The supervisory review and evaluation process.

In conclusion, I would like to commend the constructive, fruitful and continuous cooperation with the Bundesbank, hoping and looking forward to the continuity of cooperation.

I wish you a successful session and may God protect you wherever you are.

Peace, mercy and blessings of God.  LINK