The Islamic Banks Law No. 43 of 2015 gives Iraq a dedicated legal framework for banks that operate according to Islamic Sharia. Before it, Islamic banks worked largely under rules written for conventional banking. Those rules did not fit products built on profit-sharing, trade and leasing rather than interest.
The law matters to anyone planning to establish or invest in an Islamic bank in Iraq. It also matters to conventional banks offering Sharia-compliant products, and to companies and developers looking for Islamic financing. It sets out how these banks are licensed, governed and supervised, and what they may do.
Licensing and supervision
An Islamic bank in Iraq is licensed and supervised by the Central Bank of Iraq. The Central Bank grants the licence, sets the prudential requirements a bank must meet, and monitors it on an ongoing basis, in the same way it oversees conventional banks.
Applicants must satisfy the Central Bank on matters such as:
- capital and ownership
- the fitness of directors and senior managers
- the bank’s governance and internal controls
Once licensed, an Islamic bank remains subject to the Central Bank’s reporting, inspection and enforcement powers.
Sharia supervisory board
The feature that most distinguishes an Islamic bank is its Sharia supervisory board. Every Islamic bank must have one, made up of qualified scholars and specialists.
The board reviews the bank’s contracts, products and operations to confirm they comply with Sharia principles. Its role gives customers and investors confidence that the bank’s business is genuinely Sharia-compliant. It works alongside the bank’s board of directors and the Central Bank’s supervision.
Islamic financing products
Islamic banks do not lend at interest. Instead, they use Sharia-compliant structures based on trade, leasing and partnership. The most common are:
- Murabaha: the bank buys an asset and sells it to the customer at an agreed profit, paid in instalments.
- Ijara: the bank leases an asset to the customer, sometimes with a path to ownership.
- Musharaka and mudaraba: partnership and profit-sharing arrangements in which the bank shares in a project’s results.
- Istisna’a: financing for an asset to be manufactured or built, often used in construction and real estate.
- Salam: payment in advance for goods delivered at a later date.
These structures make Islamic finance relevant well beyond retail banking, including for real estate developments, trade finance and larger projects.
How it fits with the wider banking framework
The Islamic Banks Law deals with matters specific to Islamic banking. The Banking Law No. 94 of 2004, the Central Bank of Iraq Law No. 56 of 2004 and the Central Bank’s regulations remain relevant for general banking matters. Investors and banks should read these frameworks together.
For investors, banks and borrowers alike, understanding this law is the starting point for entering Iraq’s growing Islamic finance market with confidence.