Shafaq News- Baghdad

Exchange and money transfer offices have expandedsignificantly across Iraq in recent years, reflecting continued reliance bycitizens and traders on non-bank financial services despite gradualimprovements in financial inclusion.

According to Prime Minister’s financial adviser MudherMohammed Saleh, about 87% of Iraq’s money supply, roughly 95 trillion Iraqidinars (about $72.5 billion) out of a total 109 trillion dinars (around $83.2billion), remains outside the banking system. “The trend limits banks’ ability to channelfunds into lending and investment and highlights the persistence of cashhoarding and weak integration into the formal financial sector.”

Although financial inclusion indicators have improved, alarge segment of Iraq’s population remains outside the banking system or usesit only occasionally. The Central Bank of Iraq said financial inclusionsurpassed 40% in 2025, up from around 20% in previous years. The figureincludes bank accounts, electronic wallets, and digital payment tools ratherthan traditional bank accounts alone.

Economic estimates nevertheless suggest that many adultseither do not have active bank accounts or rarely use them, underscoring thecontinued dominance of cash transactions in the local economy.

Iraq’s heavy dependence on imports has also contributed todemand for exchange offices. Traders often turn to these businesses for foreigncurrency and international transfers because of customs-related complicationsand difficulties some importers face in accessing US dollars through theCentral Bank’s official channels.

This dynamic has increased demand for dollars in the localmarket, particularly among small and medium-sized traders who struggle toaccess formal transfer mechanisms. Regulatory estimates indicate that Iraq hasthousands of exchange offices and currency companies nationwide, compared withroughly 900 branches operated by public and private banks.

The exchange sector plays an important role in maintainingliquidity flows, but the gap between the official dollar exchange rate and theparallel market rate, ranging from 15% to 20% during periods of market stress, hasencouraged transactions outside the banking system and fueled currencyspeculation. The sector is also estimated to support more than 50,000 directand indirect jobs in money transfers and liquidity management.

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In an interview with Shafaq News, economic expert DirghamMohammed Ali said some exchange companies have begun performing functionssimilar to those of banks by providing loans and salary-backed financing,practices he described as falling outside their legally authorized activities.

Ali noted that the trend reflects the limited role of somebanks in extending credit to economic sectors and warned that such lendingcarries significant risks because of high interest rates and the absence ofregulatory oversight governing loan issuance and repayment mechanisms.

“Lending activities are not part of the nature of exchangecompanies’ work or the licenses granted to them,” he said, adding that theirlegal role is limited to currency exchange and foreign transfers.

Financial expert Hilal al-Taan told Shafaq News that manyIraqis prefer exchange offices because they offer faster services, simplerprocedures, and longer operating hours than government banks.

He added that weak confidence in the banking sector and theeconomy’s heavy reliance on cash have reinforced this preference. Exchangeoffices, he argued, facilitate domestic and international transfers and helpprovide dollars for trade and imports.

On the foreign exchange market, al-Taan stressed thatexchange offices influence the dollar rate indirectly through supply and demanddynamics. Increased demand for foreign currency, speculation, and the gapbetween official and market rates contribute to exchange-rate fluctuations,while expectations of future price increases can also encourage citizens to buydollars.

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