Shafaq News- Baghdad
Exchange and money transfer offices have expanded significantly across Iraq in recent years, reflecting continued reliance by citizens and traders on non-bank financial services despite gradual improvements in financial inclusion.
According to Prime Minister’s financial adviser Mudher Mohammed Saleh, about 87% of Iraq’s money supply, roughly 95 trillion Iraqi dinars (about $72.5 billion) out of a total 109 trillion dinars (around $83.2 billion), remains outside the banking system. “The trend limits banks’ ability to channel funds into lending and investment and highlights the persistence of cash hoarding and weak integration into the formal financial sector.”
Although financial inclusion indicators have improved, a large segment of Iraq’s population remains outside the banking system or uses it only occasionally. The Central Bank of Iraq said financial inclusion surpassed 40% in 2025, up from around 20% in previous years. The figure includes bank accounts, electronic wallets, and digital payment tools rather than traditional bank accounts alone.
Economic estimates nevertheless suggest that many adults either do not have active bank accounts or rarely use them, underscoring the continued dominance of cash transactions in the local economy.
Iraq’s heavy dependence on imports has also contributed to demand for exchange offices. Traders often turn to these businesses for foreign currency and international transfers because of customs-related complications and difficulties some importers face in accessing US dollars through the Central Bank’s official channels.
This dynamic has increased demand for dollars in the local market, particularly among small and medium-sized traders who struggle to access formal transfer mechanisms. Regulatory estimates indicate that Iraq has thousands of exchange offices and currency companies nationwide, compared with roughly 900 branches operated by public and private banks.
The exchange sector plays an important role in maintaining liquidity flows, but the gap between the official dollar exchange rate and the parallel market rate, ranging from 15% to 20% during periods of market stress, has encouraged transactions outside the banking system and fueled currency speculation. The sector is also estimated to support more than 50,000 direct and indirect jobs in money transfers and liquidity management.
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In an interview with Shafaq News, economic expert Dirgham Mohammed Ali said some exchange companies have begun performing functions similar 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 some banks in extending credit to economic sectors and warned that such lending carries significant risks because of high interest rates and the absence of regulatory oversight governing loan issuance and repayment mechanisms.
“Lending activities are not part of the nature of exchange companies’ work or the licenses granted to them,” he said, adding that their legal role is limited to currency exchange and foreign transfers.
Financial expert Hilal al-Taan told Shafaq News that many Iraqis prefer exchange offices because they offer faster services, simpler procedures, and longer operating hours than government banks.
He added that weak confidence in the banking sector and the economy’s heavy reliance on cash have reinforced this preference. Exchange offices, he argued, facilitate domestic and international transfers and help provide dollars for trade and imports.
On the foreign exchange market, al-Taan stressed that exchange offices influence the dollar rate indirectly through supply and demand dynamics. Increased demand for foreign currency, speculation, and the gap between official and market rates contribute to exchange-rate fluctuations, while expectations of future price increases can also encourage citizens to buy dollars.
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