What can you tell us about current banking regulations and the impact they have on KIB’s operations?
We are licensed by the Central Bank of Iraq, so we have to abide by their regulations. They are the primary supervisor throughout the Iraqi banking sector. We are also subject to supervision by the Minister of Trade and we are listed on the Iraqi Stock Exchange, which creates further regulation. So, there is a lot of supervision in the banking community. Then, because KIB is an Islamic bank, we must also conform to Sharia Law as well. We abide by Islamic finance rules in terms of contacts and returns on investment. We generate a return on our investments and our savings accounts, but not with a fixed rate. We don’t simply implement rates of 5% or 10%. Our returns are based on profit sharing, so the amount earned dictates the amount that will be returned.
Who would you say are KIB’s usual clientele?
It’s a very diverse group. We have individual investors or individual businessmen, as well as medium to large local businesses. Of course, we also provide banking and financial consulting services for large corporations or organizations, both foreign and domestic. These companies are usually involved in a variety of different economic sectors, which means they come to us for many different reasons. However, we provide our services on an Islamic basis. This means we encourage risk taking, profit sharing, and joint ventures, but not interest bearing loans. I believe that this is very advantageous policy in this market because the people of the Kurdistan Region seem to have more reliance and trust in Islamic finance. They don’t like interest, but they do like taking risks and sharing profits.
How would you describe the current state of the banking sector?
In 2004, there were no private sector banks in operation. Now, there are 30 or 35 banks, including major foreign banks from Lebanon, Turkey, and the UK. This is a major development. These banks are providing numerous services, most notably financing for domestic operations. In my opinion, the continued involvement of foreign banks will further increase the strength of the financial sector. It will allow for more foreign operators to come here, see that things are financially stable, and get involved. For example, we recently signed an agreement with SACE, the Italian financial institution that provides private sector insurance and investment protection. This agreement will cover Italian companies working in the Kurdistan Region against commercial or political risks.
The banking sector here is clearly developing rapidly, especially when compared with the rest of the country. People are starting to see clear distinctions between Kurdistan and the rest of Iraq in terms of both stability and economic forecasts.
So, the banking sector here is clearly developing rapidly, especially when compared with the rest of the country. People are starting to see clear distinctions between Kurdistan and the rest of Iraq in terms of both stability and economic forecasts. The amazing development in terms of infrastructure is obvious evidence of this fact. So, I think the Kurdistan Region is becoming a gateway to both the rest of Iraq and the rest of the Middle East. The economic advantages that are offered here are only further reinforcing that idea.
What specific advantages are you referring to?
The geographical location, the stability, the security situation, and the legal framework. The legal framework is very critical, particularly the Investment Law. It allows for incredibly beneficial exemptions and, most notably, free land. With most construction projects, obtaining the land makes up a third of the total cost. So, free land is an obvious benefit for investors.
Then there’s just the general climate here: the Kurdistan Region has a very accommodating culture. People here are interested in the quality of the project or product, not in someone’s race, creed, or religious beliefs. So, I think this allows the region to attract people from all over the world to work here in a free, accommodating environment.
The population here still doesn’t entirely trust the banking sector as a result of the policies and actions of the previous regime in Baghdad. Would you say that is the case and what has KIB done to change that attitude?
The issue is banking awareness. Specifically, what the cultural attitude is regarding the financial sector. As a result of the actions of the previous regime in Iraq, some people still do not believe in banks. They prefer to leave potential deposits at home. So, it’s really a matter of trust: banks have to go about the process of earning that back.
The people of the Kurdistan Region are more interested in trust than in interest rates. I believe that Islamic banks are able to instill this trust. In 2004, KIB conducted a survey in Erbil and Duhok. Most of the people surveyed indicated that they preferred to deal with Islamic banks because they were more responsive to individual needs and because they were seen as more trustworthy. As a result, in the past 10 years, we have seen a steady increase in deposits. In fact, in comparison to 2011, we have now managed to double our total deposits, our shared capital, and our total profit.
You mentioned that investors have begun to see clear differences between the Kurdistan Region and the rest of Iraq. Is that just in the financial sector or in other areas as well?
If you examine the per capita income in the Kurdistan Region, it’s much higher here than in the rest of the country. In my opinion, the rate of development is at least double that of the rest of Iraq. Similarly, there are clear differences in terms of the poverty line. In the rest of Iraq, it fluctuates between 20% and 23% of the population living beneath it. In the Kurdistan Region, the number is closer to 3% or less.
All of these figures indicate that there is a much higher standard of living here in the region. You can see this reflected in a number of different areas. The unemployment numbers are very low. Workers are needed to complete the numerous construction projects. The traffic here is another indicator of the standard of living: everyone has a car! Some people have two or three.
Financial education has also improved. In 2004 and 2005, we were actively recruiting workers. However, because of our requirements, only a few people were able to apply. Today, because more young people have elected to pursue education opportunities abroad, there is more unique knowledge than ever before. Local universities have also improved significantly, and are much better at preparing their students to work in the modern world. I believe all of these developments can serve as stepping-stones for the rest of Iraq, but have also gone a long way towards convincing people that the Kurdistan Region is a secure place that is good for investment.
What sort of things is KIB itself doing to encourage more investment in the Kurdistan Region?
KIB is an investment-oriented bank. We pursue different opportunities when they prevent themselves. For example, in 2011, we initiated the “Kurdistan Taxi Loan” project. Over the past three years, we have imported over 15,000 cars from Japan (mostly Toyotas and Nissans) for use as new taxis. We offered loans to people who were either seeking a new opportunity or were willing to replace their old taxis with brand new ones. The loan was offered under Islamic Murabaha, and could be paid pack within a pre-arranged period of time. The program proved to be both environmentally friendly and economically beneficial, as it created thousands of employment opportunities for both men and women.
Another example would be our push to establish affordable housing. We have cooperated with other investors to construct housing and then sell those individual units on installments. Our goal with this type of project is not to cater to deluxe housing or high-income purchasers, but rather to middle or limited income families. We prefer to have a social agenda combined with our investment projects.
Based on your experiences here, what do you think is the future of the banking sector?
The past is the key to the future. I believe that, given the rapid growth of the past 6 or 7 years, the region will continue to develop at a fast pace. I believe this growth will naturally create further competition, but it will also allow for further cooperation as well. It allows for international investors to partner with domestic businesses. It allows for budgets to expand because of increased financing options. Most importantly, it allows for the creation of even more unique opportunities that will serve to highlight the overall growth of the Kurdistan Region.