Factors supporting financial inclusion, e-payment culture and its developmental role in Iraq for the period (2012-2023)

Prepared by the researche : Asst. Prof. Dr. Shaymaa Rasheed Mohaisen – Kerbala University / College of Administration and Economics

DAC Democratic Arabic Center GmbH

International Journal of Economic Studies : Thirty-fourth Issue – August 2025

A Periodical International Journal published by the “Democratic Arab Center” Germany – Berlin

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Abstract

The research aims to analyze and present the reality of financial inclusion and electronic payment through access, payment and quality indicators and its developmental role in the Iraqi economy, financial inclusion is a cornerstone of international development policies and this is due to the fact that six out of seventeen sustainable development goals are related to financial inclusion, and financial inclusion is to ensure the provision of financial services to all members of society, especially marginalized and disadvantaged groups in an easy, affordable and high-quality manner and to increase the beneficiaries of services and products because it has a significant impact on improving growth opportunities, sustainable development, stability and financial sustainability.

In order to achieve the research objective, the descriptive-analytical approach was adopted to analyze the research variables by relying on data issued by official authorities and academic references on the subject. One of the most important findings of the research is that the indicators of financial inclusion and electronic payment in Iraq were not at the required level, which emphasizes the actual and real need to enhance and develop the factors that support and contribute to the growth of financial inclusion to achieve the goals of sustainable development and benefit all individuals without exception.

Introduction

Financial inclusion is one of the modern terms on the economic and banking level, and depends mainly on key elements related to financial stability and integrity on the one hand, and consumer financial protection on the other.

Financial inclusion and development meet in many points, the most important of which is providing a better life for individuals and providing services easily and with high quality, especially for the poor classes , and financial inclusion expresses the extent to which financial and banking services reach the largest number of the population and has become one of the goals sought by international financial institutions such as the World Bank, the Arab Monetary Fund and the International Alliance for Financial Inclusion organization to integrate all groups of society into the financial system.

Research issue: The research question is whether the indicators of financial inclusion and e-payment in Iraq are at the required level and achieve developmental goals for individuals, companies and financial and banking institutions.

Importance of the research: Financial inclusion is an important topic and a priority for financial institutions in all countries of the world because it works to achieve financial stability and sustainable development by providing financial and banking services to various members of society.

Objective of the research: The research aims to clarify the concept of financial inclusion and its developmental role by analyzing the indicators of financial inclusion and their relationship as one of the important tools in achieving the sustainable development goals in Iraq.

Research hypothesis: The research is based on the hypothesis that financial inclusion has a positive developmental role in achieving the sustainable development goals in Iraq by relying on the data of financial inclusion indicators. Research structure: To reach the objective of the research, it was divided into two research topics, the first is the theoretical framework of financial inclusion, and the second is financial inclusion and its developmental role in Iraq and concluded with a set of conclusions and recommendations reached by the research based on the data adopted from the Central Bank of Iraq’s website.

1– Theoretical Framework for Financial Inclusion

Financial inclusion is a cornerstone of international development policies. This is due to the fact that six of the seventeen Sustainable Development Goals (SDGs) are related to financial inclusion. For example, reducing poverty in all its forms and making financial services available to all individuals, especially the poor and low-income people, promoting inclusive and sustainable economic growth, supporting small and medium enterprises, increasing the rate of economic growth and gender equality are only possible through financial services available to all and of high quality (Clotteau, N., & Measho, B. (2016). & Measho, B. (2016) So financial inclusion is not a goal but a tool adopted by countries to achieve the Sustainable Development Goals in 2030.

• The concept of financial inclusion

Financial inclusion emerged in the 1970s and was then known as microcredit and then evolved to the present to the concept of financial inclusion (Christen,Rosenberg&Jayadeva,2006.2), which depends on financial systems aimed at providing financial services to various members of society in general and to the poor and low-income people in particular (Brigit David20061. Littlefied,Elizabeth) Financial inclusion is defined as access to timely and sufficient financial and credit services when needed for low-income groups at a reasonable cost (Al-Khazraji, 2020: 262), while the FATF Committee defined it as ensuring

access to affordable financial services in a fair and transparent manner and for the purposes of combating money laundering and terrorist financing, it is important that these financial products and services are provided through appropriately regulated financial institutions in line with the Financial Action Task Force (Attia & Benson, 2018):23 The Arab Monetary Fund defined financial inclusion as individuals, including low-income earners, and businesses having access to and effectively utilizing a wide range of high-quality formal financial services, namely payments, transfers, savings, credit, and insurance, at affordable prices, delivered in a responsible and sustainable manner by a variety of financial service providers operating in an appropriate regulatory and legal environment (CGAP & Arab Monetary Fund, 2017) While the Asian Development Bank defined it as “easy access for households and businesses to affordable financial services” (Mohammed et al., 2024: 115).

1.2- The importance of financial inclusion

Many economic studies have shown that financial inclusion is very important in achieving economic, social and political stability and development, and the G 20 countries have recognized the importance of financial inclusion and considered it the main pillar in the global development process (Bank Group, 2015). (Khalil, 2016).

1. Increased investments: Financial inclusion leads to attracting investors from the global market in our country, which leads to increased business opportunities and employment.
2. Increased business opportunities: This in turn leads to an increase in GDP, so it is a means of growth and development.
3. Reduced reliance on cash: Financial inclusion contributes to reducing transaction costs by shifting to electronic payments.
4. Efficient allocation of productive resources: An inclusive financial system facilitates the efficient allocation of resources and can therefore reduce the cost of capital.
5. Improved financial management: Access to appropriate financial services significantly improves the financial management of the state and individuals, as well as providing opportunities for the banking sector to reach out to different segments of society.
6. Limit the growth of informal sources of finance: An inclusive financial system can help limit the growth of informal sources of finance.
7. Promote financial stability: Financial inclusion provides individuals with the possibility of having a safe place to save for the future, and thus can promote financial stability.
8. Combat poverty and inequality: Financial inclusion is an effective tool that can help reduce poverty and minimize income inequality (Nisreen, 2017, p. 14)

1.3- The objectives of financial inclusion

It is noted that the Central Bank generally seeks to achieve a set of objectives, including its contribution to promoting economic development, improving the living standards of citizens, reducing unemployment rates, and empowering the youth and women financially through (5: 2006, Helms) (Al-Shammari, 2017: 30) (85: 2024, Mahmoud): –

1. Encouraging private sector projects and economic growth.
2. Reducing poverty levels by enhancing the ability of individuals to start projects and businesses.
3. Sensitizing and educating consumers of financial services and products and increasing their knowledge of their rights and duties when using these services and products in order to protect their rights.
4. Encourage small, medium and micro enterprises to invest.
5. Adopting a modernized system based on electronic banking settlement
6. Promote innovation and new partnership initiatives through the provision of non-financial services and a comprehensive and efficient infrastructure
7. Encourage savings and more widespread use of digital financial services
8. Financial sustainability of institutions, ensuring continuity of service delivery, and improving the investment climate.

2- Financial inclusion and its developmental role in Iraq

Studies conducted by the World Bank Group indicate that there is a positive impact and a direct relationship between financial inclusion and sustainable development if the more the use of financial services increases, this leads to the movement of economic sectors in the country because it provides fast, low-cost and high-quality financial services to all members of society, such as transferring money electronically inside or outside the country (Ayaisha, 2020, 27), so financial inclusion indicators and GDP, one of the development indicators in Iraq, will be analyzed as follows:

2.1- Indicators of the level of access to financial services this indicator measures the spread of branches, ATMs, baht points and payment systems as follows

1. Electronic payment services: It is a quick way to access financial and banking services, saves time and effort, and contributes to reducing costs. This indicator is used to measure the level of spread of electronic payment services, as can be seen from Figure 1.

Fig.1.Prevalence of electronic payment services in Iraq

Source: Central Bank of Iraq, Financial Stability Report 2023, p. 41

In 2023, the Central Bank of Iraq introduced the electronic platform for foreign transfers, remittances and credits, as well as the introduction of the electronic platform for selling cash dollars to travelers (FITR) with an emphasis on the need to comply with the Anti-Money Laundering and Terrorist Financing Law No. 39 of 2015, and the platform achieved a good level of support to achieve monetary and financial stability for the banking sector and Figure 2 shows this.

Fig.2.Dollar sales through the electronic platform

Source: Central Bank of Iraq, Financial Stability Report 2023, p. 36

2. Banking Density and Banking Outreach Indicator: We can observe from the data of Table (1) which shows the index of banking density and banking and geographical spread in Iraq for the period (2011-2023), as the period (2011-2017) indicates that these two indicators are below the required level, and this may be due to the decrease in the number of bank branches from (990) in 2012 to (843) in 2017, with a decrease in the index of banking and geographical spread, from (2.27%) in 2017 after it was (2.89%).

Table 1. Banking Density Index and Banking Penetration Index and geographical spread in Iraq for the period (2012-2023)

Source: Central Bank of Iraq, Department of Statistics and Research, Financial Stability Report, Financial Stability Report for different years.

* Banking Penetration = Number of branches / Population (Population)

Table 2. Banking and geographical spread of ATMs in Iraq for the period (2011-2022)

Source: Central Bank of Iraq, Statistics and Research Department, Financial Stability Report 2011-2022

We note from Table 2 that the number of ATMs is increasing and is considered one of the main indicators of digital transformation, which leads to strengthening the electronic infrastructure and popularizing the culture of electronic payment to gradually move from dealing with cash to using electronic payment tools.

1. Financial Depth Indicator: This indicator measures the availability of banking services and their role in supporting economic growth and financing businesses and projects to measure the level of financial inclusion and the possibility of adults using financial and banking services, as this indicator depends on two variables, collectively called banking depth, namely:
2. The ratio of credit provided to the private sector to GDP.
3. The ratio of private sector deposits to GDP.

Table 3. Banking Depth Index in Iraq for the period 2011-2023

Source: Prepared by the researchers based on the Central Bank of Iraq, Department of Statistics and Research, Annual Statistical Bulletin (2011-2022)

We note from Table 3 that the banking depth indicator represented by the ratio of the volume of loans provided to the private sector is constantly increasing, and reached (5.8%) credit loans to the private sector (GDP) in 2011 to reach (9.2%) in 2016, and decreased for the period (2017_2019) and amounted in 2019 about (8.0%) to rise slightly for the years (2020 and 2021) to reach (8.9%) in 2021 and about (91.%) in 2021.(9.9%) in 2021 and about (9.1%) in 2022, and this increase is due to the increase in the volume of credit provided to the private sector, as the volume of credit provided to the private sector increased by 52% during the period (2017-2022) As for the indicator of the volume of private sector deposits to (GDP), it is generally similar to the indicator of loans provided to the private sector. The value of this indicator increased from (8.3%) in 2012 to (12.3%) in 2016, to decrease the value of this indicator during the period (2017_2019) to 11.7% in 2019 for the same reasons as before, as GDP growth rates were greater than private sector deposits for this period. It increased during the period (2020_2022) to (10.3%) in 2020 and then to 14.3% in 2022. The ratio of private sector deposits to GDP increased from (11.6%) in 2017 to 14.3% in 2022, as the ratio of deposits increased by (65%) for the period (2017-2023).

We note that the GDP during the research period is increasing, which indicates that the growth of financial inclusion indicators (ATMs, number of bank branches,

banking penetration, loans and banking depth) contribute to the increase in GDP per capita.

Fig.3. Banking Depth Index in Iraq for the period (2019-2023)

* Ratio of private sector deposits to GDP

* Ratio of private sector credit to GDP

Source: Central Bank of Iraq, Statistics and Research Department, Financial Stability Report 2019-2023

1. Financial Inclusion Aggregate Index in Iraq: The Iraq Financial Inclusion Aggregate Index is based on two main indicators, access and utilization, to know the progress in the level of financial inclusion. After this index, the tool that measures the extent of progress in the level of financial inclusion, the value of the index ranges between (0-1), as the closer the value of the index is to one, this means an improvement in the level of financial inclusion indicators or vice versa.

Table 4. Iraq’s aggregate financial inclusion index for the period (2015-2022)

Source: Central Bank of Iraq, Financial Stability Report for different years.

In Iraq, this indicator witnessed a decrease (0.10%) for 2015 and 2016, which led to increased efforts to support and enhance the level of financial inclusion indicators and continued to rise to (48.58%) in 2023, and this may be due to several reasons, including: –

• Supporting the digital transformation process through e-wallets, payment points and ATMs.
• The Central Bank of Iraq (CBI) launched the Financial Inclusion Project for a new economic and developmental start, which aimed to enhance access to financial services for the poor, women and youth.
• The nationalization of employees’ salaries at the beginning of 2016 until it reached (6.6) employees and retirees in 2022, which contributed to the increase in the number of bank accounts and electronic cards (Central Bank of Iraq, Financial Stability Report 2023: 40), and the increase in the number of banking branches and the expansion of the geographical area of their work, as can be seen from Figure 4).

Fig.4. Aggregate indicator of financial inclusion in Iraq for the period (2020-2023)

Source: Central Bank of Iraq, Financial Stability Report for different years.

1. Factors supporting the growth of financial inclusion and achieving the SDGs) In Iraq: Financial inclusion has become a cornerstone of international development policies, and this is due to the fact that six of the seventeen goals of the Sustainable Development Goals (SDGs) are related to financial inclusion, for example, the first goal is to alleviate poverty of all kinds and make financial services available to all individuals, especially the poor and low-income people, and the second goal is to promote inclusive and sustainable economic growth and support small and medium enterprises through financial services available to all and high quality (Clotteau, N. & Measho, B. (2016).

2.2- factors that help to promote and grow financial inclusion and achieve the SDGs:

First: Government policies

1. Providing loans and banking facilities for small and medium-sized enterprises.
2. Provide incentives to financial institutions that support and work with financial inclusion to develop the country’s economic development.
3. Promoting disclosure and transparency in financial transactions

Second : Infrastructure Development

1. Improving the quality of internet networks by relying on reliable companies in this field.
2. Opening new branches in remote and rural areas to provide and facilitate access to financial services.
3. Supporting and encouraging the development of innovative and low-cost financial products

Third: Financial Literacy

1. Work on introducing financial education in school curricula.
2. Spreading financial awareness and educating individuals by organizing seminars, especially for poor groups.
3. Protecting the financial consumer by informing them of their rights and duties.

Fourth: Adopting modern technology

1. Investing in the use of technology to optimize depleted and limited resources.
2. Enhancing the diversity of financial institutions.
3. Allow the use of low-cost distribution channels such as retail stores.
4. C. Combat money laundering and terrorist financing by using digital identity.

Therefore, we conclude from the above that all UN member states emphasize the role of financial inclusion in achieving the Sustainable Development Goals (SDGs) and seek to achieve them by 2030.

3- Conclusion

• Financial inclusion is a path to achieving sustainable development goals, the most important of which are providing a better life for individuals, providing services easily and with high quality, especially for the poor classes, and raising the standard of living.
• The weakness of the technological sector and infrastructure has weakened the financial capabilities of individuals and institutions in Iraq.
• The low values of the various financial inclusion indicators in Iraq, which emphasizes the real need to support and develop them
• The infrastructure of the financial and banking sector in Iraq, especially in rural and remote areas, is not qualified to provide financial and banking services
• Individuals lack financial literacy and the skill to choose financial and banking products, except to a limited extent.

4- Recommendations

• Work on raising awareness and spreading financial literacy in cooperation and participation with educational and academic institutions
• Supporting and promoting financial inclusion indicators by the Central Bank of Iraq by prioritizing investment projects in the productive sectors and coordinating between fiscal and monetary policies to achieve the desired goals.
• Expanding the work of the electronic payment services system and providing financial services via the Internet
• Increasing the number of ATMs and spreading them in different geographical areas of the country.
• Providing a safe environment that helps Arab and foreign banks to enter Iraq to provide high-quality financial services to all members of society.

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لائحة المراجع

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