Iraq is to offer Islamic banking services at its two main state-owned banks under a $42 million plan that will start being implemented this month, the finance ministry and the central bank said on Sunday. In a website posting, the finance ministry said the work to introduce banking services compliant with Islamic Sharia law at the Rafidain and Rashid banks would begin in the next two weeks.
"This is a good thing and there is demand for it," senior central bank advisor Mudher Kasim told Reuters on Sunday. "Islamic banking is built on profits and losses, not built upon usury. It is considered modern banking," he added.
Iraq's banking sector is dominated by the two state-owned banks and the $42 million allocated in the 2011 budget for the Islamic banking project would be split equally between the two, Kasim said.
The OPEC oil producer has seven state-owned banks, 23 private banks, and eight Islamic private banks, according to the central bank website. Nine foreign banks also operate in the country. The share of Islamic banking activity in Iraq's private banking sector represented 20 to 25 percent of the country's total banking activity and with the state banks now starting Islamic services this could reach 40 percent, Kasim said.
The central bank had drawn up a draft law to regulate Islamic banking activity and this would be sent to the cabinet in a few days for approval, then on to parliament. Until the law takes effect the central bank had produced temporary regulations to oversee Islamic banking activity in the country and these are to be announced in the coming days.