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Kurdish Banks Slowly Win Trust
5.5.2006
By Mariwan Hama-Saeed in
Erbil (ICR No. 175) |
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In a cash-based society,
convincing Kurds to trust their savings to banks is
still an uphill battle.
Kurdistan-Iraq, - A new bank in Iraqi
Kurdistan is trying to build confidence in the
faltering banking system by bringing cash machines
and wire transfer systems to the city of Erbil.
Kurdish officials are trying to promote their region
to investors as a safer alternative to Baghdad, but
a dearth of banks that can be trusted even for money
transfers has been a frustration for residents and
businesspeople.
A 2004 report by the government-run Kurdistan
Corporation said that business executives were
"unanimous that the lack of banking facilities is
the biggest impediment to economic growth".
Two years on, however, Kurdistan’s banking system is
growing, albeit slowly.
Erbil’s Kurdistan International Bank for Investment
and Development - one of only three registered
private banks in Erbil and Dohuk provinces - was
established last year with 35 million US dollars in
capital. According to Ibtisam Najim Aboud, the chief
executive director, it is the biggest private bank
in the country with about 2,000 customers.
He said the bank would open ATM cash machines in the
region in a few weeks. The first ATM in Iraq opened
in Baghdad in March.
Aboud said the bank is using the SWIFT system to
wire money and charges only 0.4 per cent,
significantly less than the five per cent charged
under the “hawala” system, an informal network of
agents who send and receive money.
Iraq is still a cash-based society, and businessmen
and individuals are more likely to carry tens of
thousands of dollars across borders rather than
transfer money. Sending money using the honour-based
hawala method involves a significant amount of
trust, since there are no absolute guarantees that
the money will arrive.
Khalil Abdulla Mirza, head of the Khalil-Goran
company which sells electricity generators, said he
used to be nervous about sending money abroad via
the hawala network. He was wiring a substantial sum
to Lebanon through the bank when he spoke to IWPR,
and said he felt much more comfortable with the
modern process.
For many in Iraq, even putting money into a bank is
a leap of faith.
The Kurdish government provides insurance on
accounts held in government-approved banks so that
if a bank collapses, customers can get their money
back. But few people know about the insurance, and
most Iraqis do not keep their money in banks because
they consider it riskier than putting cash under the
mattress.
"The money I carry with me is my guarantee," said
Ahmad Abdullah, 30, who he never uses banks because
Iraq is still unstable.
Other Iraqis prefer to hold all of their money in
cash in case circumstances change and they suddenly
need to flee.
Nor do Kurdish banks offer the kind of services that
might attract more customers, such as home and
personal loans.
"We haven't been able to fulfil people's demands,"
admitted Adham Kareem Darwesh, director of Harem
Central Bank, the main government bank in Iraqi
Kurdistan, which handles the payroll for civil
servants.
People still lack the basic confidence that banks
will not take off with their money. Shamal Nuri, an
economist and managing editor of the Political
Economy magazine in Erbil, said people find it hard
to trust the banks because "they lack transparency
and guarantees".
Aboud, of the Kurdistan International Bank, said his
institution is trying to win hearts and minds
through transparent policies, and hopes to build up
its capital to 150 million dollars within the next
few years.
Aboud’s bank adheres to Islamic banking practice
which prohibits the charging of interest. Instead,
it uses a system where it shares in profits made
from collateral put up by clients.
Darwesh said that whether banks offer interest-based
accounts or favourable loan terms, they will still
find it hard to get the average Iraqi to deposit his
or her money in an account. He said people would
much rather buy a piece of land and profit from
Kurdistan's booming real estate market than earn a
small income from a bank account over a longer
period of time.
"People are after businesses in which they can turn
a profit in a short space of time," he said.
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