Business LANDSCAPE Interview
The National Bank of Iraq (NBI) was established in Iraq in 1995. It is a private sector, publicly traded bank that offers extensive banking services to businesses, small and medium enterprises, and individuals. The Capital Bank of Jordan has acquired the majority of the shares of the bank in 2005, which led to the growth of the NBI and allowed it access to a large network and different markets that strengthened its position and enhanced its services. In this interview, we learn more about the Iraqi banking sector, its challenges and opportunities, its pillar role in the growth of our economy, and the NBI’s digital transformation plan and active participation in the entrepreneurial scene. We also learn more details about the launch of the Orange Corners Innovation Fund by the Kingdom of the Netherlands and KAPITA Business Hub and the NBI’s strategic partnership.
Can we start with a brief introduction about the NBI?
The National Bank of Iraq (NBI) was established 27 years ago in the Iraqi market. In 2005, the Capital Bank of Jordan bought a controlling interest and merged the management rules, and became a joint force that worked closely together. Over the past 25 years, we have been servicing the Iraqi market from the north to the south. We have established ourselves as the number one private bank in terms of our asset base, customer deposit growth rate, and profitability growth rate in the last four years. We have an aggressive growth plan for the next three years as Iraq is a key strategic market for the Group and one of the essential focal points that we concentrate on. We started implementing a massive digital transformation process for the bank. For example, we are implementing a new core banking system and different applications. We started a digital onboarding process for account opening, which is one of the first in Iraq, if not the first. Moreover, we have recently got the approval to expand the National Bank of Iraq into Saudi Arabia, and we are opening our first branch in Riyadh this year.
Can we know more about your digital transformation plan? And how are you trying to tackle the challenge of operating in a cash-based economy?
Since it is a cash-based economy, people are used to trading and dealing with cash. That stems from many factors and a lot of history that the Iraqi banking sector went through. We believe that the digital transformation for a bank is to make the process seamless for the customers and make the operations in the bank easier to conduct. With that, there needs to be a drive from the banking sector and the governing bodies, such as the Central Bank of Iraq, as enabling that infrastructure requires new regulations. The Central Bank of Iraq has been very accommodating and working very closely with a lot of the banks; they are trying to put a lot of initiatives in place; it just takes a bit of time for the transformation to take place. Iraq may still be behind different markets, but it is growing and moving towards a proper infrastructure.
Our digital plan utilizes the approach of working on a two-fold strategy; the first is enhancing our own capabilities. We are working with international suppliers, and vendors specialized in the financial sector. For example, our core banking system will be upgraded to one of the top core banking systems in use by banks across the world.
In addition, our digital onboarding platform enables opening an account through a business registered WhatsApp; that does not require going to the bank until the very last step after completing all the documentation, paperwork, and biometric verification. This will be resolved by the implementation of eKYC and e-signature very soon.
Second, we have structured strategic partnerships with entities working on e-payment solutions and e-wallet solutions. We have signed an agreement with Switch, ZainCash, and AsiaHawala, whereby we integrate the customer’s account with a wallet of one of the aforementioned companies, then the customer will have access to their network of agents, which is a combined workforce of around 15,000, as well as ATMs, so the customer does not need to look for a bank branch. We also run periodic campaigns to eliminate the fees for using ATMs of other banks. Our digital strategy is customer-centric, creating a hassle-free banking experience.
How do you evaluate the change in the banking sector, and what drove this progress?
The exposure to banking services made people realize that those services make daily transactions smoother and simpler. The situation is similar to anything new that is introduced; there is some reluctance in the beginning due to the fear factor, as people are not sure how it works or how it will help them. A few years ago, it was hard to find POS machines, but now they are penetrating the market, and people started realizing that diverting from cash can facilitate their daily transactions. Iraq has a healthy youth segment; over 50% of Iraqis are under 30, and the youth adapt quickly to the digital transformation. We have observed this in the startup scene, their usage of online platforms, and their adoption of e-commerce. These patterns show us that there is a change in the mindset.
What is the main challenge of the Iraqi banking sector in Iraq? How can we overcome it? And who are the stakeholders?
The main challenge is the lack of trust in the banks. To address this, we need to keep working on developing financial literacy education programs in collaboration with the Central Bank and other private banks. In addition, all stakeholders should work together and push to build trust with the Iraqi community. Therefore, we are consistently working on initiatives to increase society’s confidence in the banking sector as we believe it is the key factor in improving this sector and its services.
There is also a big responsibility on the banks themselves. Each bank needs to enhance and improve its infrastructure, accessibility, and touch points with the customers at the branch level, ATMs, and card levels. Even through marketing, we need to establish the message that the customer can trust us and the world has moved forward, and we want to help Iraq move forward as well. The message should not be blatant, but it definitely should be there.
How does the banking sector play a role in attracting foreign investment and international companies to the country?
The banking sector is a reflection of the economy. Hence, what the banks put out, reflects their performance and service to the customers, whether they are corporations, SMEs, or people.
It is very difficult to attract international investors and try to get them to operate in a cash-based economy because it is not the most comforting predicament for international companies.
The one barrier to entry is if that sector is not well established yet. Once we have clear rules and regulations and reduce red tape and bureaucracy, Investors will be more open to taking risks. We must show international investors that this new market has opportunities and is growing.
However, we are witnessing more and more companies venturing into Iraq recently due to the fact that the Central Bank is making great strides by striking deals with well-known entities like the World Bank, International Finance Corporation, International Monetary Fund, and others. This positive attribute gives confidence that there's a healthy institution in place that regulates the banking sector.
Furthermore, many banks are upgrading and modernizing their services and starting to offer more solutions as the system pivots away from being cash-based. Yet, it will take its time; there has been some turbulence, even in recent times. Nevertheless, thankfully, the country has passed that and is moving forward. The country only needs to maintain the momentum achieved through a collaborative effort by the public and private sector. The government also has a role to play through the Central Bank’s rules and regulations. Then it falls back on the private banks to go ahead and keep investing in themselves by offering more services and solutions to their local and international customer base.
How is the NBI trying to facilitate access to finance for SMEs, and what are the main obstacles?
The NBI strongly believes in supporting the growth of the Iraqi private sector and SMEs to strengthen our economy. For SMEs in any sector, the business has to adapt to the needs of the market and how the market works. For the past two or three decades, the Iraqi market has been based on the principle of a cash-based economy. The SME sector is a very fluctuating sector that was plagued with different types of turmoil that affected their business lines. This has made these businesses less attractive in the traditional sense. Many of them needed a bit of restructuring to make them bankable as they were still running their operations on a cash-based system without proper inventory management.
The Iraqi Central Bank undertook an important initiative to offer a special SME loan at a discounted rate, and this initiative is a great way to pass those issues. It provided them with the needed support and made sure that they got access to funding and finance. We are very proud that the NBI was the leading bank that utilized the Central Bank’s initiative. We onboarded many SMEs and provided a lot of financing for them. Our SMEs customers are always inquiring about online banking applications and what solutions can be done for them to utilize. They realized that banking solutions are benefiting their businesses, helping them grow and open up to new markets. It is all part of the evolution we can observe in the market.
What role is the NBI playing in supporting the entrepreneurial scene?
The NBI is extremely interested in the growth of the entrepreneurial ecosystem. We are trying our best to facilitate and make it as easy as possible for startups and entrepreneurs to access financing opportunities. We help them open bank accounts in simpler ways to more established companies. We have been implementing different financing, and lending programs for them to be able to obtain capital and fund their ideas.
However, the emerging startup scene, even on an international level, is considered a relatively new phenomenon. Banks have recently started taking an interest in the scene but have found it somewhat challenging to create banking products for startups since their business models are different from what banks traditionally deal with in the case of SMEs and corporate companies.
Startups are often cloud-based solutions, tech solutions, gateways, or a bridge between service providers and customers, not necessarily manufacturing tangible products.
In the case of Iraq, we are happy to see that there is an improvement in the available funding options for startups. There are funds like the Euphrates Ventures and the Iraqi Angels Investors Network, and even regional funds investing in Iraqi startups, hence, the growth in the scene. As a bank, we started exploring the scene by talking with different accelerators and startup programs to support them, whether through grants or sponsorships. For example, with KAPITA, we have started the Orange Corners Innovation Fund (OCIF), which is a unique model whereby we are the custodian of this fund, and we are onboarding these customers. Thus, making them bankable when they start to receive those funds to grow their businesses.
Moreover, we are planning to launch more products and investment solutions that will target and cater to entrepreneurs and startups.
What motivated the NBI to take part in the Orange Corner Innovation Fund? And how does this benefit the Iraqi ecosystem?
Our motivation to strategically take part in this Memorandum of Understanding has been driven by our strong belief in the startup scene in Iraq. It is an opportunistic ecosystem and there is huge room for growth and improvement. We saw this as a chance to become an active participant in its growth and supporter of its prosperity. There is potential for Iraqi entrepreneurs, and we want to be in a position to assist them in capitalizing on this potential. We wanted to get involved from the early stages to help entrepreneurs structure their business in a way that will make them down the line more attractive for receiving funds and investments. We hope that we and KAPITA could help entrepreneurs shape businesses and startups to attract more grants and raise seed funding. Consequently, they will grow faster and strengthen our ecosystem and help our economy flourish. When we plant the right seed, we will eventually grow the right product or outcome, and that is the whole purpose of why we got involved with this opportunity.
What can be done to improve access to finance for the entrepreneurial scene in Iraq and what is the responsibility of the entrepreneurs to make their businesses more investable?
The startup scene in Iraq is still in the very early stage of its evolution and is relatively new compared to the region and the rest of the world. The nature of the market involves many challenges, obstacles, red tapes, and risks.
When people think of startups, they want to jump the gun and obtain higher financing, especially when they hear about these big valuations and buyouts, which makes them start to have these aspirations of becoming a unicorn company. Entrepreneurs need to manage, mitigate and understand that they must go through the pain points first as they do not operate as a traditional business. There are certain things that entrepreneurs can benefit from doing, for example, proper bookkeeping, revenue tracking, and implementing inventory management systems.
It also boils down to education; we need more cohorts, incubators, and accelerators that teach basic skills to startup founders so they can manage and grow their businesses, and we need to run different modules like continuous tutorials and financial education programs catered toward the startups and the entrepreneurial mindset. This requires everyone in the ecosystem to work hand in hand, from banks to incubators, accelerators, angel networks, and funds, to develop the scene and make sure that entrepreneurs get the right tools and acquire the proper skills.
The market is about to evolve tremendously in the next few years. This is why we are trying our best to create products and facilitate things for entrepreneurs because we understand that it is not easy for them to navigate this scene. It is our job as the bank to provide the services that will help them remove the obstacles standing in the way of turning their ideas into actual companies and products to nourish the market with their talents.
What is the relation of the NBI to the Capital Bank of Jordan, and how does this reflect on NBI’s growth opportunities in Iraq?
The NBI is a standalone Iraqi bank that belongs to the Capital Bank Group, where the Capital Bank of Jordan owns approximately 64% of the shares of NBI and offers the full management and Group’s support to the entity. The opportunity gained from this setup is that NBI belongs to a larger banking conglomerate with operations in Jordan, Iraq, Saudi Arabia, and the UAE, through our Group’s network. The National Bank of Iraq and our investment banking arm, Capital Investments, also operate in Jordan, Iraq, and the UAE. That is how the relationship works.
The Iraqi market is much bigger than the Jordanian market, so the NBI functions in a little bit of a different way. However, it is a symbiotic relationship based on the concept of both benefiting from one another. Those benefits include being present in more than one market with exposure to more than one economy, which in turn helps us gain more growth and profitability. It can also help to scale and hedge our risks by working in different markets. In addition, it helps our customers and facilitates their transactions since many Jordanians and Iraqis in business work together, while many Iraqis are based in Jordan and vice versa. The Capital Bank of Jordan serves Iraqi businessmen in Jordan with access to Iraq through NBI, whereas the NBI can benefit Iraqi businessmen who are dealing with international companies through the corresponding banks that we deal with via our network as a Group. We are widening our exposure to the Saudi market, and we are offering opportunities to Saudi customers that want to do business in Iraq and Iraqi customers that want to do business in Saudi Arabia. Our investment arm offers our customers an opportunity to invest in various products, ranging from asset management to brokerage, stock trading, Forex, and others. That is the core of being one entity; it is that relationship that benefits everyone across the board. We have a strong growth pattern where we can scale in an easier manner and leverage on different opportunities quicker, and establish trust and credibility with our customers.
Operating in all these markets means that every central bank and regulatory authority has given their approval, which is a sign of strength that shows that we are able to abide and work in those different markets. This relationship is also the core of our customer-centric strategy, so we can better serve our customer base, whether they are corporations, SMEs, or individuals.
In the near future, with the program we have under development, even the entrepreneurs and startups will benefit and access different markets when they reach a growth point that makes them ready to explore and scale beyond the Iraqi market. Same goes for Jordanian startups that are seeking an opportunity to enter the Iraqi market because of its potential; they are able to scale through the NBI. We could even connect them with startups in Iraq for them to consider collaborative opportunities. This is the essence of this relationship between Capital Bank of Jordan and NBI.
How is the process of establishing your entity in Iraq, and is the market now more tolerant of foreign banks expansion?
The process has gotten better because we understand the markets better. In our case, we had a very pleasant experience. The regulatory authorities were always accommodating and worked very closely with us. We have been able to introduce new ideas without resistance and hesitation, much to the pleasant surprise of everyone. Now, again, setting up in any market, you have to abide by the regulations and the challenges of that market, and each market comes with its own challenges. However, nothing is a deterrent. On the contrary, if anything, we are seeing more and more interest from regional banks exploring the Iraqi market, whether through joining with other Iraqi banks or establishing their own branches here. So that on its own is an indication that the market presents an opportunity, and that the facilitation of doing business is definitely improving.