The collapse of the Iranian currency led to the loss of many Iraqi merchants and capitalists who had deposited their money in Iranian banks.
The Iranian government and non-government banks have provided large facilities for Iraqi investors to attract their capital and to encourage them to deposit their money in order to save their national currency “Toman” which has been deteriorating and decreased significantly because of Washington’s decision to cancel the nuclear agreement and impose sanctions on Tehran, as the Iranian authorities have given licenses to the offices in the cities of Karbala, Najaf and Kadhimiya linked to it, allowing investors to deposit their money after conversion to the Iranian currency in their accounts in those banks without the need to travel to Iran.
Since 2012, thousands of small and medium-sized Iraqi capitalists, especially the citizens of Karbala, have invested their money in Iranian banks after Iranian authorities raised the interest rate on deposits to 22 percent a year.
With these temptations, the Iraqis resorted to Iranian banks to deposit their money in order to make big profits, which some economists counted as a loss to the Iraqi economy. It was better for the Iraqi government to encourage citizens and investors to deposit their money inside the country.
The Iranian banks offered to Iraqis who deposit their money with guaranteed profits of up to 100 percent, as well as the easy and soft conditions set by it, so that the Iraqi citizen can withdraw his money monthly, or quarterly, or semi-annually or every year and Iranian banks have also calculated progressive interest rates on deposits and interest rates and allowed each investor to withdraw 2 million riyals a day through the ATMs existed in Iran and Iraq, and there are no impossible conditions.
These and other offers have been tempting for small and medium-sized capital owners who are afraid to invest their money in Iraq or do not have the opportunity for that investment. An investor in Iranian banks (Mohammad Abbas) confirms that he was earning half a million dollars in the first three years of deposits, he asserts that tens of thousands of Iraqis have deposited their money in Iran’s banks just as he did.
The investor adds that the large benefits he gets from the deposit amount provide him with an excellent capital accumulation and allow him to use some of the benefits in improving his living conditions and spending on his frequent trips and tourism in Iran.
And concerning the recent Iranian measures to raise the value of the Iranian riyal, the investor, “Mohammed Abbas said ,” it is “a hoax” to which the Iranian authorities resorted to suggest that they are serious in accounting those who are responsible for the collapse of the exchange rate of Iranian currency on the black market ,and it is believed that the decline of the exchange rate of Iranian currency will benefit the Iranian economy because it prevented many depositors from withdrawing their deposits for fear of double losses.
In the same context , Hassanein al-Amiri , an employee in the office of one of the Shiites Marja in Baghdad confirms , the existence of fatwa issued by most religious Marja , provided that there is no religious problem in the interest given by Iranian banks; as Iran is an Islamic state does not deal with usury.
Iran is attracting the dollar and turning it into the Tuman to benefit from the difference in currency. Consequently, the money is exposed to losses from time to time because the Iranian currency is suffering in the last period of fluctuation and instability in price due to the economic siege imposed on Tehran recently. All these are factors in Iran where they helped to attract foreign funds, to deposit them in their banks.
The Iranian economy is suffering from a major deterioration and the economic embargo imposed by the United States because of its nuclear program, as the Iranian Toman witnessed a rapid decline in its exchange rate against the dollar. According to specialists, the price of the dollar exceeded 10,000 Iranian Tumans on the black market while expecting a larger decline after the implementation of the first phase of US economic sanctions on the August 6, followed by a second phase of sanctions in November, which will include a total ban on Iranian oil imports.
The financial losses of Iraqi investors transferred to Iranian banks are estimated at millions of dollars due to the devaluation of the Iranian riyal. The economic expert, Salam Samisem, said that the Iraqi financial deposits in Iran’s banks lost one-third of their monetary value due to Washington’s sanctions on Tehran and before that the conditions set by the Iranian government on the Iraqi capital, as many of the Iraqi families, especially over the past four years, sold their properties in order to transfer funds to Iran, in a way that can be said to be improper, and the Iranian government imposed conditions on Iraqi capitals not to withdraw their medium balances from its banks until one year from the date of deposit, and treated the same as the fixed deposit for a large interest.
The Iraqi banking system:
The banking system in Iraq consists of 54 banks, distributed according to ownership, including seven government banks and the rest are private commercial banks, including nine Islamic banks, as well as fifteen branches of foreign banks, but this banking system remains a backward system, it is not in line with the size of the development challenges, and lacks the existence of laws that activate the banking sector and reconsider its structure and keep pace with banking technological developments in the world.
As it needs to study the development of new methods of reform and the restructuring of government banks in accordance with the law of the Central Bank of Iraq, according to economists, the development of the banking system in Iraq is not only needs to carry out legislative reforms , but requires the availability of security and political stability.
The economic expert, Majid al-Suri, said that the economic incubator of banks is confused and suffers from major problems due to the security disturbance and the lack of electricity, this has hindered development and thus hindered the development of the Iraqi banking system and the construction of a modern banking system based on administrative facilities will contribute to create a rapid change in the growth of the Iraqi economy.
The banking expert, “Fayek Nasser Hussein said,” The stage of the Iraqi banking sector, especially private banks, is very difficult, because of the loss of confidence of citizens, and in a way that prompted the majority of depositors in private banks, to withdraw their deposits, while others were unable to lack liquidity in many banks to pay dues to depositors.
The bureaucracy dealt by banks and financial institutions of Iraq, and lack of confidence between the Iraqi citizen and financial banks, has become an obstacle to the work and development of banks, and the lack of confidence of the citizen in the banks in the issue of deposits of funds, because of mismanagement of funds for some banks, and declared bankruptcy, and the presence of banks stumbling in compliance to the requirements of the Central Bank on the subject of combating money laundering, the mismanagement of some banks for investors’ funds, and the failure of the work of some private banks, in meeting the requests of some of their customers to withdraw some of their assets, thus the Iraqi investor fears from the exposure of his money to the loss that led Iraqis and the owners of capital to abstain from depositing their money in Iraqi banks, whether government or private, and to resort to Iranian banks, especially after increasing the interest rate there from fifteen percent to twenty-two percent.
Thus… Iraq needs : To develop legal banking frameworks to correct the deteriorating banking path in the country, return the immigrant money and benefit from it within the country by granting facilities, abolishing bureaucratic transactions, raising the value of financial interest, and working hard in banking reforms to encourage owners of capitals to invest in the country in order to revitalize the Iraqi economy, and build confidence between the citizen and the banking system in order to deposit funds at home, and encourage investment, and the amendment of laws to serve the development of the Iraqi economy, the fact that depositing outside Iraq is a loss to the Iraqi economy.
Shatha Khalil *
Economic Studies Unit
Rawabet Center for Research and Strategic Studies