Shafaq News/ Iraq’sinformal “parallel banking system” threatens financial stability and hampersregulatory oversight, theIraq Future Foundation for economic studies and consultancy warned on Saturday.
“Financial institutionsoperating outside official supervision had grown significantly over the pasttwo decades, offering credit, deposit services, and cross-border money transfers,”the foundation’s head, Manar Al-Obaidy, stated. “These entities range fromsalary distributors and currency exchange shops to cooperatives and somenon-profit groups.”
The foundation’s headattributed their growth to “a lack of regulatory enforcement and demand fromsmall and medium-sized enterprises (SMEs).”
“SMEs represent about 84% ofthe informal economy in Iraq,” he added, highlighting that their exclusion fromformal financial services drives them toward these parallel institutions.
Al-Obaidy cautioned that theparallel system “enables tax evasion, money laundering, and other illicitpractices, while restricting authorities’ ability to monitor financialtransactions.”
He called for stricterregulations to integrate the informal sector into the formal system. Measurescould include banning unauthorized financial services, incentivizing SMEs toenter the formal economy, and placing informal institutions under central banksupervision.
“In severe cases, shuttingdown unlicensed entities and mandating all financial operations through formalinstitutions may be necessary,” Al-Obaidy said.
Iraq’s shadow economy has attimes outgrown the formal sector, posing a persistent challenge for authorities,he noted, with past crackdowns often proving ineffective due to the system’sadaptability.
Al-Obaidy urged a balancedapproach, combining legal enforcement with incentives to integrate informalinstitutions into the formal economy, to mitigate broader economic risks.