Institute for War and Peace Reporting | Giving Voice, Driving Change

Iraqis Distrust Banks

Banking officials struggle to dissuade people from using traditional method of sending cash.
By Nameer Hussein

Many Iraqis say they still prefer using a traditional money transfer system, despite government efforts to encourage them to use banks.

Iraqi bank officials say the informal hawala system can be exploited by insurgents and provides few guarantees that the sender will not be ripped off.

Under hawala, which is based on a traditional code of trust and personal connections, money exchangers are used to transfer money through contacts in Iraq or abroad.

According to this traditional system, a person who wants to transfer money exchanges cash for a hawala note, which is then transferred to the intended recipient, who swaps it for the appropriate amount of cash.

Modern technological advances such as the internet now allow money to be moved much faster, with transactions completed within hours. Banks, however, can still take up to two weeks to conduct a transfer.

Many Iraqis living abroad use the hawala system to send money to relatives back home, like Riyadh al-Sharak, who receives 200 US dollars a month from a brother living in America to pay for his rent in Iraq.

And the system is often preferred for transfers inside Iraq because it’s more flexible than banks and charges less commission.

“This matters very much for a tradesman like me,” said Ala’a Abdul-Wahid, an auto parts trader. “I can transfer money without having an account balance and in any currency I want.”

But Abdul Razq al-Khafajee, director of Baghdad Bank, is warning that the traditional system is prone to exploitation by insurgents and other criminals, because security procedures are not as rigorous as those adopted by banks.

Faysal Abdul-Hussein, a manager at the al-Rafidain Bank, agreed and noted that his bank carefully monitors all transactions on a daily basis.

However, Falal al-Rawee, the owner of a hawala money exchange office, insisted that insurgents were not among his - or his colleagues’ - customers, as they have their own network of private companies and banks which they use for transferring funds. “They do this so no one can know about their cash operations,” he said.

He maintained that if someone involved in a hawala transaction suspected that a customer was an insurgent, the exchange would be stopped “even if it costs us our life”.

Al-Khfajee has also warned that people wishing to make money transfers risk losing out when putting their faith in some hawala operators, who might not handle the transaction properly or steal the money being exchanged.

“The bank guarantees the rights of the client, even when something goes wrong,” he said.

Nevertheless, there are many people who prefer to stick to the traditional system.

Um Thair al-Rubai’e, a real estate agent, said she won’t use banks because she’s lost several deals in the past through money-transfer delays.

“Now I don’t accept any transfers through banks,” said al-Rubai’e, who buys and sells properties for Iraqis living abroad.

Ahmed al-Ka’abi, a merchant in Baghdad’s al-Shorja market, says he opts for traditional exchanges because the operators sometimes lend him money when he is short.

“This strengthens the relationship with the money transfer office and deepens our resistance to banks,” he said.

Nameer Hussein al-Rubai'e is an IWPR trainee in Baghdad.

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