Financial Inclusion in Iraq: A Double-Edged Sword Against Financial Crime

The State of Financial Inclusion in Iraq

Iraq’s banking system is characterized by a high concentration of state-owned banks, which account for approximately 80 percent of the country’s banking assets. However, despite this, only 23 percent of adults have access to formal financial institutions, and micro, small, and medium-sized enterprises (MSMEs) face significant barriers in accessing bank lending.

Consequences of Limited Financial Inclusion

The lack of financial inclusion has far-reaching consequences, including:

• Limited economic growth: Reduced access to credit and financial services hinders the growth of MSMEs, which are crucial for creating jobs and driving economic development.
• Social development opportunities missed: Vulnerable populations such as women, youth, and internally displaced persons are denied access to essential financial services, exacerbating social inequalities.

Addressing Financial Inclusion in Iraq

To address this issue, the German Federal Ministry for Economic Cooperation and Development (BMZ) and the European Union have co-funded a project aimed at promoting financial inclusion in Iraq. The Financial Inclusion (FI) Project, implemented by Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), seeks to improve access to inclusive financial services through a comprehensive approach that focuses on both demand and supply.

Key Objectives of the FI Project

• Improve framework conditions for financial inclusion
• Enhance the organizational capacity of regulatory actors, including the Central Bank of Iraq (CBI)
• Develop a comprehensive national strategy for financial inclusion that takes into account the risk of financial crime

Balancing Financial Inclusion with the Risk of Financial Crime

As Iraq continues to rebuild its economy, there are growing concerns about the risk of financial crime. With limited regulation and oversight, the country’s financial system is vulnerable to money laundering, terrorist financing, and other illicit activities.

According to Jaafar Aslan, Head of the Financial Inclusion Project, “Financial inclusion is not only about providing access to financial services but also about ensuring that these services are delivered responsibly and sustainably. This includes measures to prevent money laundering and terrorist financing.”

Expected Outcomes of the FI Project

• Adapted financial services that meet the needs of beneficiaries
• Tailored awareness-raising activities on inclusive financial services
• Strengthened capacities of the CBI to promote and regulate inclusive financial services
• Improved institutional prerequisites for women-led businesses to access financial services

Ultimately, the success of the FI Project will depend on its ability to balance the need for financial inclusion with the risk of financial crime. By doing so, Iraq can create a more stable and sustainable financial system that benefits both citizens and the economy as a whole.