To build trust in Iraq’s tarnished banking system, a deposit insurance company has been established with the support of both conventional and Islamic banks. MARC ROUSSOT has the story.
Among a crowd of protesters waving Iraqi flags in the air saturated with tear gas and smoke, four young men with their faces covered by masks rush an injured protester to the hospital. The bandaged man is one of the 350 Iraqis wounded last Friday during the largest rally since demonstrations began in October in defiance of the country’s elite, vilified for its level of corruption and inefficiency — two evils Iraq’s financial system is also suffering from.
To restore trust in the banking sector with the aim of achieving greater financial inclusion, the Central Bank of Iraq recently established the Iraqi Deposit Insurance Company to protect small depositors and manage depositors’ compensation.
The financial institution was recently granted a certificate of establishment by the Ministry of Trade following a successful capital exercise in which 63 banks — seven government banks, 40 private Iraqi banks and 16 Arab and foreign banks — participated. Initially, only 42 banks were expected to take part in the setting-up of the company.
In addition, four state-owned and mixed companies, as well as the National Retirement Authority/Pension Fund of State employees, have also committed to the inception of the Iraqi Deposit Insurance Company of which the IRQ100 billion (US$83.83 million) capital is owned at 53% by 21 Islamic banks, according to Dheyaa Salim Beda, the head of bank performance analysis and risk monitoring at the apex bank.
With both conventional and Islamic financial institutions as its shareholders, the Iraqi Deposit Insurance Company has established two separate funds to cater to the needs of each segment.
The new institution is expected to reduce Iraqis’ level of distrust in their banking system epitomized by the extremely low level of bancarization. Only 23% of the population aged above 15 has a bank account, according to the Global Partnership for Financial Inclusion.
Iraqis have good reasons to doubt the soundness of their domestic banking system, which has been rocked by fraud and corruption scandals for years. Not only private banks have been in turmoil. In 2012, Sinan Al-Shabibi, the then-governor of the Central Bank of Iraq, was fired amid allegations of corruption.
The establishment of the Iraqi Deposit Insurance Company is expected to reverse this situation. But building confidence takes time, and Iraq does not have much of it as public anger mounts amid slow progress in the reconstruction of the country after 15 years of conflicts.