Digital Bank Application Process
Digital Bank Application Process Overview The application for a digital bank license in Iraq is a formal legal process conducted by the CBI’s banking supervision department. It involves the submission of a comprehensive application package, a structured assessment by the CBI against defined criteria, and the issuance or refusal of a preliminary approval decision. This article describes the application process from submission through to the preliminary approval decision, including the formal requirements for submission, the CBI’s assessment methodology, the powers the CBI exercises during the process, the grounds on which an application may be refused, and the legal status and conditions attached to a preliminary approval. 1. Who May Submit an Application An application for a digital bank license may be submitted by any individual or legal entity that wishes to establish a digital bank in Iraq. The applicant must be the proposed legal owner or founder of the bank, or a person legally authorized to act on their behalf. Corporate applicants must submit the application through their duly authorized representative. The application form prescribed by the CBI must be completed and signed by the founders. Where there are multiple founders, all must sign the application and the accompanying commitment and declaration document. Applicants who do not yet meet all pre-license conditions may not submit a complete application. The CBI will not assess incomplete applications, and the mere act of submission does not preserve any right to participate in the first assessment cycle if the application is materially deficient. 2. Application Package: Required Documentation The application must be submitted together with a comprehensive package of supporting documentation. The required documents include: 2.1 Corporate and Identity Documents Names, nationalities, and signatures of all proposed founders and shareholders or their authorized legal representatives Contact details including telephone numbers and electronic mail addresses The proposed administrative address of the bank A copy of the company’s articles of association and internal regulations (for entities already incorporated, or a draft for those in the process of incorporation) A document establishing the commercial name of the bank in both Arabic and English, confirmed by the relevant competent authority 2.2 Financial Documentation Evidence of the initial capital payment of IQD 30 billion A detailed economic feasibility study incorporating the business plan, strategic plans, budgets, financial projections, and financial indicators for the four-year period following the intended launch of services Proposed organizational chart for the bank and the expected number of employees 2.3 Technology Documentation A detailed technology plan including the proposed core banking system, online banking platform, and data infrastructure — including vendor names, software details, preliminary contracts, and all other relevant planning elements A technology plan and architecture document (Technology Plan and Architecture) in sufficient detail to demonstrate technical feasibility 2.4 Governance and Compliance Documentation Proposed organizational chart showing management hierarchy and principal management committees The governance handbook covering required internal policies Declaration of proposed board members including names and qualifications for the position Declaration of proposed senior management including names and qualifications for the position Evidence of QII status for the qualifying institutional investor in the ownership structure The shareholder agreement including all mandatory provisions required by the framework 2.5 The Commitment and Declaration All founders must sign a commitment and declaration document in which they confirm that they have read and understood the digital bank licensing regulations and all applicable laws and instructions in Iraq, that they commit to full compliance with all licensing conditions, that all information and documents submitted are accurate and complete, and that they accept personal legal liability for any inaccurate or untruthful information provided. 3. CBI’s Assessment Process Upon receipt of a complete application, the CBI’s banking supervision department commences a formal assessment. The assessment is conducted against the standards and criteria established in the licensing framework, including the Standards Booklet and the Detailed Assessment Guidelines described in Article 1 of this series. 3.1 Application Review Powers The CBI has broad powers during the application assessment process. These include: The right to request additional information or amendments to the application at any point during the assessment The right to conduct interviews with proposed board members, senior management, and significant shareholders The right to commission independent assessments of any aspect of the application The right to reject an application at any stage if it determines that the applicant does not meet the required conditions An absolute discretion to refuse any application, regardless of whether the formal criteria appear to be met 3.2 Assessment Timeline The deadline for submission of applications for the first assessment cycle is 30 June 2026. The CBI has indicated that preliminary approval decisions will be issued by 30 September 2026. These timelines are indicative for the assessment process — the application deadline is a binding cut-off. 3.3 Grounds for Refusal The CBI may refuse an application on any of the following grounds: The application is based on false, misleading, or incomplete information or documents The applicant does not satisfy the licensing conditions prescribed by the framework The proposed ownership structure does not comply with the ownership and eligibility requirements The proposed board or management does not satisfy the fit and proper requirements The CBI determines, in its absolute discretion, that granting the license would not be appropriate for any other reason Where an application is refused, the CBI issues a decision specifying the grounds for refusal. Applicants are notified in writing of the refusal and the reasons. There is no automatic right of appeal, though applicants may seek legal advice regarding their options. 4. Preliminary Approval: Legal Status and Conditions A preliminary approval is a conditional authorization, it is not a full license and does not grant the same rights as a full digital bank license. It authorizes the applicant to commence pilot operations subject to the specific conditions and restrictions that apply during the pilot phase. 4.1 What a Preliminary Approval Authorizes A preliminary approval authorizes the digital bank to: Commence operations as a digital bank on a pilot basis
Digital Bank – Pre-License Stage
Digital Bank – Pre-License Stage Overview Before any application for a digital bank license can be submitted to the CBI, a substantial body of legal, financial, governance, and technical work must be completed. The framework establishes a defined set of conditions precedent requirements that must be met, or meaningfully commenced, before the application will be assessed. This article sets out those pre-license conditions in legal terms, organized by category. It is intended to serve as a practical guide for founders, legal advisers, and compliance teams preparing for the application process. It is important to note that the pre-license conditions are assessed against a defined timeline. The deadline for submitting an application for preliminary approval together with the required documentation demonstrating compliance with initial conditions is 30 June 2026. Applications submitted after this date, or applications that are materially deficient in their supporting documentation, will not be processed in the first assessment cycle. 1. Capital The first and most fundamental pre-license condition is financial: the founding shareholders must have paid up the initial tranche of IQD 30 billion before the application is submitted. This is not a commitment or an undertaking to pay it is a requirement for actual payment. The application must be accompanied by evidence that this initial capital has been received and is available to the bank. The CBI will not process an application that does not demonstrate satisfaction of this condition. The full capital requirements including the phased payment schedule, capital composition, and adequacy ratios are examined in Article 3 of this series. 2. Legal Incorporatio A digital bank in Iraq must be established as a joint stock company under Iraqi company law. Before an application can be submitted, the founding entity must be legally constituted or be in an advanced stage of constitution in the required corporate form. The application must include a copy of the company’s articles of association and internal regulations. These documents must reflect the mandatory provisions required by the digital bank framework, including the shareholder agreement conditions relating to nominee arrangements, pledge prohibitions, tag-along rights, and rights of first refusal. The CBI will assess whether the corporate structure of the applicant is consistent with the licensing requirements. Any corporate structure that would result in non-compliance with ownership, governance, or related party rules will need to be restructured before the application can proceed. 3. Business Plan The application must include a comprehensive business plan. This is not an optional supporting document, it is a mandatory legal requirement. The business plan must cover the following elements: A detailed strategic analysis incorporating both short-term and long-term requirements, principal products and services with associated pricing, target customer demographics, and planned investment commitments A description of the operational model, including workforce planning, detailed organizational structure, remuneration and incentives policy, and job descriptions for critical roles A financial plan demonstrating a clear path to profitability, supported by five-year financial projections with full income statements, balance sheets, and cash flow statements A technology plan and architecture document identifying proposed core banking system providers and vendors, software to be used, preliminary contracts or agreements, and all other relevant planning elements A detailed risk management framework covering governance, risk appetite, identification and assessment methodologies, monitoring systems, and mitigation controls A compliance monitoring framework addressing the structure of the compliance function, risk identification and assessment, escalation procedures, reporting mechanisms, and training arrangements A comprehensive AML/CFT and sanctions programme aligned with requirements issued by Iraqi regulatory authorities 4. Governance: Pre-License Board and Management Requirements The application must demonstrate that the governance structure required by the framework has been established, or is in an advanced state of establishment. The key pre-license governance requirements are: 4.1 Board of Directors The proposed board of directors must be identified and its composition must comply with the framework’s requirements nine members, all non-executive except the CEO, at least six independent directors, with at least three board members having sufficient technical expertise in digital banking. At the pre-license stage, the application must declare the proposed board members including their names and qualifications for the position. An external assessment of board members’ fitness and propriety is required, but the full independent audit is completed at a later assessment cycle. 4.2 Senior Management Similarly, the proposed senior management team must be identified, with names and qualifications declared. Fit and proper assessments for senior management are required at the pre-license stage, with the same phased verification approach applying. 4.3 Required Committees The framework requires that the bank establish, in addition to the audit committee mandated by Iraqi banking legislation, the following board-level committees: a risk management committee, an ICT governance committee, an ESG and sustainability committee, and a nominations and remuneration committee. The existence and proper constitution of these committees must be demonstrated in the application. 5. Pre-License Planning Technology Requirements While full technology deployment and certification is assessed at later stages, the pre-license application must include detailed technology planning documentation. This must cover: A detailed technical plan for the proposed core banking system, including the names of proposed vendors and software, preliminary contracts or agreements, and all other relevant planning elements The proposed online banking and mobile banking platforms, with similar vendor and planning information The proposed data infrastructure and cybersecurity framework at a planning level The proposed payment systems integration approach The proposed business continuity and disaster recovery arrangements at a planning level The technology plan must demonstrate that the applicant has engaged with reputable, internationally recognized vendors and has a credible implementation roadmap. Vague or undeveloped technology plans will not satisfy the CBI’s requirements. 6.: Pre-License Policy Framework Documentation The application must include a governance handbook covering the bank’s internal policies and procedures as required by the framework. At the pre-license stage, the following policies must be in place: Information security policy Risk management policy Compliance policy Anti-money laundering and counter-terrorist financing policy Anti-fraud, corruption, and bribery policy Any other policies covering the activities and services to be launched These policies must
Digital Bank – Eligibility & Ownership
Digital Bank – Eligibility & Ownership Overview The ownership and eligibility rules governing Iraq’s digital banks are among the most legally significant aspects of the licensing framework. They determine who may establish a digital bank, what proportion of the institution each investor may own, what categories of investor are subject to enhanced requirements, and what legal consequences flow from non-compliance with ownership obligations. These rules are not merely administrative, they carry direct legal consequences, including the possibility of forced divestiture, restrictions on voting rights, and cancellation of the license itself. Any investor or founding group considering the establishment of a digital bank in Iraq must ensure that its proposed ownership structure is legally compliant before proceeding with any application. This article sets out the principal ownership and eligibility requirements under Iraq’s digital bank regulatory framework, with particular attention to the Qualified Institutional Investor (QII) requirement, the definition and treatment of related parties, the conditions under which ownership thresholds may be exceeded, and the legal obligations that attach to founders and institutional investors during the pilot operation phase. 1. General Ownership Cap: 9.99% Rule The foundational ownership rule under Iraq’s digital bank framework is that no individual or company including through interests held by related parties may hold a shareholding in a digital bank that exceeds 9.99% of the bank’s total shares. This cap applies to both direct and indirect holdings. Where a prospective investor holds shares through related parties, those related party holdings are aggregated with the investor’s direct holding for the purpose of calculating compliance with the 9.99% limit. The 9.99% threshold is therefore not assessed on an individual basis, it is assessed on a consolidated basis that encompasses the full network of related party interests. This aggregation rule has significant practical implications for corporate groups, family investors, and any structure involving multiple related entities or individuals. What Constitutes a Related Party Category Who Is Included Family Relationships Individuals connected by blood, marriage, or kinship up to the fourth degree including parents, children, siblings, grandparents, grandchildren, aunts, uncles, cousins, and their spouses Business Relationships Individuals or entities currently in a commercial partnership, holding shares in the same institution, serving together on the same board of directors, or where one party works for a company owned or controlled by the other Political Relationships Individuals or entities with family or business relationships with a person carrying political risk, or who are subject to the influence or control of any other party exercising power or influence The breadth of this definition means that investors with complex corporate structures, family groups with multiple members involved in the venture, or any party with political exposure must conduct a thorough related party analysis before determining their permissible ownership level. Legal advisers should note that the related party analysis is not limited to formal legal relationships, it extends to de facto control, influence, and shared economic interests. The substance of the relationship, not merely its legal form, governs the analysis. 2. Exceeding the 9.99% Threshold The framework provides a mechanism by which the 9.99% cap may be exceeded, subject to specific conditions and prior written approval from the CBI. This is not an automatic right, it is a discretionary approval that the CBI may grant or refuse. Two levels of permitted excess are established: Up to 20% General Investor Any investor other than a Qualified Institutional Investor may apply to the CBI for approval to hold up to 20% of a digital bank’s shares. The investor must submit a written application to the CBI and must satisfy the CBI that the proposed holding is appropriate in the context of the bank’s ownership structure and governance. A critical condition applies: the total aggregate shareholding of any single investor and their related parties must not exceed 20% at the time of submitting the application for increased ownership. This means that an investor who has already accumulated more than 20% through related party holdings cannot rely on this pathway. Up to 40% Qualified Institutional Investor A Qualified Institutional Investor (QII) may hold up to 40% of a digital bank’s shares. Where multiple QIIs are present in the ownership structure, and one seeks to exceed 20%, that QII’s shareholding must be larger than the shareholding of any other shareholder seeking the same exception. The 40% ceiling for QIIs is also subject to CBI approval on a case-by-case basis, and the CBI retains an absolute discretion to refuse any application regardless of whether the formal criteria are met. 3. Qualified Institutional Investor Requirement One of the most distinctive features of Iraq’s digital bank framework is the mandatory requirement for at least one Qualified Institutional Investor in the ownership structure of every digital bank. This is not optional, it is a condition of licensing. 3.1 The Mandatory QII Requirement Every digital bank in Iraq must have at least one shareholder that qualifies as a QII. That QII must hold no less than 9.999% of the bank’s shares. Failure to maintain a QII with the required minimum shareholding is a breach of the licensing conditions. 3.2 Who Qualifies as a Qualified Institutional Investor The framework sets out two categories of entity that may qualify as a QII, each subject to specific criteria: Category A: Financial Institution A financial institution qualifies as a QII if it satisfies all of the following conditions: It is licensed and not subject to any penalties, restrictions, or prohibitions, and is supervised by a financial regulatory authority in a jurisdiction that is not on the FATF grey list or black list It has operated as a financial technology company dealing directly with customers for a minimum of three years It has achieved annual revenues of not less than IQD 30 billion (or equivalent) in each of the three preceding financial years It has a minimum of 100,000 active users or customers Category B: Investment Fund An investment fund qualifies as a QII if it satisfies all of the following conditions: It manages an investment portfolio of not less
What Is a Digital Bank in Iraq?
What Is a Digital Bank in Iraq? Overview Iraqi regulatory authorities have introduced a new licensing category specifically for digital banks, a development that represents the most significant structural change to Iraq’s banking framework in recent years. For investors, founders, and their legal advisers, understanding precisely what this new category means in legal terms is the essential starting point. This article sets out the legal definition of a digital bank under Iraq’s regulatory framework, the scope of activities that a digital bank is and is not authorized to perform, the regulatory basis on which this new category was created, and the key legal implications that flow from these definitions. This is the first article in Etihad Law Firm’s 12-part legal guide to establishing a digital bank in Iraq. Subsequent articles address eligibility, capital obligations, the licensing process, permitted activities during the pilot phase, governance requirements, and the legal conditions that must be satisfied at each stage of the licensing journey. 1. Legal Definition of a Digital Bank Under Iraq’s banking regulatory framework, a digital bank is legally defined as a bank that provides its services exclusively through modern digital channels primarily internet-based platforms and mobile applications and that operates under the full supervisory authority of the Central Bank of Iraq (CBI). Full Banking Authorization A digital bank is not a payment institution, an electronic money issuer, or a fintech company. It is a bank in the full legal sense authorized to accept deposits, extend credit, and provide payment services subject to the same regulatory obligations as any other licensed bank in Iraq. This means that a digital bank must meet the same foundational legal requirements that apply to all banks operating under Iraqi banking legislation: minimum capital, governance standards, fit and proper requirements, anti-money laundering obligations, and ongoing supervisory obligations to the CBI. The digital nature of the institution does not reduce or modify these core banking obligations. It adds to them, digital banks carry additional specific obligations relating to technology infrastructure, cybersecurity, digital onboarding, and data protection that go beyond what is required of traditional banks. No-Branch Requirement The legal requirement that a digital bank provide its services exclusively through digital channels is absolute. A digital bank in Iraq is prohibited from opening branches whether inside Iraq or abroad that are accessible to the public for the provision of banking services. The only physical presence permitted is a single administrative headquarters located within Iraqi territory. This headquarters is restricted to internal administrative functions and may not be used to provide banking services to members of the public. This prohibition is a defining legal characteristic of the digital bank license. Any institution wishing to operate a branch network must seek a different category of license, the digital bank framework is not available to hybrid models. Regulatory Oversight A digital bank operates under the complete supervisory jurisdiction of the Central Bank of Iraq. This is not qualified or partial oversight, the CBI has full authority to set requirements, conduct examinations, issue instructions, impose conditions, and revoke licenses. The supervisory relationship with the CBI is continuous and begins from the point of preliminary approval, not from the point at which a full license is granted. Founders and investors should be aware that the CBI’s oversight applies throughout the pilot phase, and that non-compliance at any stage of the licensing journey carries legal consequences up to and including cancellation of the authorization. 2. Legal Basis for Licensing Framework The digital bank licensing framework has been issued by the Central Bank of Iraq in exercise of its statutory authority under Iraqi banking legislation. This legislation grants the CBI the authority to license and supervise banking activity in Iraq, to prescribe the conditions for the grant of licenses, and to issue binding regulatory instruments governing the conduct of licensed institutions. The framework does not create a new legal entity type, a digital bank is constituted as a joint stock company under Iraqi company law, in the same manner as a conventional bank. What the framework creates is a new licensing category, with its own specific conditions, authorized scope of activity, and regulatory obligations. This legal architecture has important practical implications: The digital bank must be incorporated as a joint stock company under Iraqi law before a full license can be granted All provisions of Iraqi banking legislation that apply to banks generally also apply to digital banks, unless expressly modified by the digital bank framework Where the digital bank framework imposes requirements that differ from or are additional to the general banking legislation, the more specific digital bank requirements take precedence The framework does not override or modify existing Iraqi law, it operates as a layer of specific requirements that sit on top of the existing legal architecture Regulatory Instruments That Govern a Digital Bank A digital bank in Iraq is governed by a suite of regulatory instruments issued by the CBI. Understanding the relationship between these instruments is important for legal advisers working on licensing applications and compliance programmes. The primary regulatory instrument sets out the conditions for the grant of a digital bank license, the requirements that must be met before and during the pilot phase, the authorized scope of activities, the governance requirements, and the grounds on which a license may be suspended or revoked. This is the foundational legal document for any digital bank licensing exercise. The Standards Booklet sets out all quantitative and qualitative standards that a digital bank must meet covering ownership structure, governance, technology and infrastructure, financial metrics, and compliance obligations. Each standard is numbered and forms part of the formal assessment framework that the CBI applies when evaluating compliance. The Assessment Guidelines explain, standard by standard, precisely how the CBI will assess compliance. They set out what evidence is required, what tests will be applied, and what the CBI expects to see in terms of documentation, policies, systems, and practices. For legal advisers preparing a licensing application, these guidelines are the primary technical reference. The Timeline
Iraq Requires Health Ministry Approval Before Registering Medical Companies
Iraq Requires Health Ministry Approval Before Registering Medical Companies The Registrar of Companies has announced that any company intending to conduct medical, pharmaceutical, or healthcare activities in Iraq must obtain prior written approval from the Ministry of Health’s Technical Affairs Department Pharmacy Division before submitting a registration application. Medical and healthcare companies cannot register without a Ministry of Health pre-approval letter. Registrations submitted without this document will be invalidated. WHAT COMPANIES MUST DO Approval must be obtained from the Medical Supplies Branch of the Pharmacy Division. The requirement applies to pharmaceutical, clinical, and health-supply businesses. Failure to obtain prior approval renders the company registration void. The circular was issued directly by the Director General of the Companies Registry.
Iraqi Banks Must Record Founder Name in Capital Deposit Documents
Iraqi Banks Must Record Founder Name in Capital Deposit Documents The Registrar of Companies has announced a new Anti-Money Laundering measure requiring all Iraqi banks to record the founding shareholder’s name in both the capital deposit slip and the bank account statement at the point of company formation. Banks must now link the founder’s identity to the capital deposit record. This applies to all new company formations and directly affects the incorporation process. WHAT COMPANIES MUST DO Both the deposit voucher and bank statement must carry the founder’s name alongside the company name. The requirement applies from the moment of company formation. The measure supports Iraq’s compliance with international AML frameworks. Banks failing to implement this requirement face regulatory consequences.
New Accountant Signature Model Requirement
New Accountant Signature Model Requirement The Registrar of Companies has announced that all limited companies are now required to submit the name and specimen signature of the accountant responsible for preparing their financial statements, as part of measures to combat fraudulent financial reporting. Companies must provide an accountant specimen signature to the registry. The signature will be cross-referenced against all submitted accounts to verify authenticity. WHAT COMPANIES MUST DO The accountant’s name and specimen signature must be filed with the Companies Registry. Signatures will be verified against all future account submissions. Companies that previously submitted accounts with endorsement letters must also comply. The measure directly targets falsified financial reporting.
Iraq Requires Auditor Union Membership for Final Account Acceptance
Iraq Requires Auditor Union Membership for Final Account Acceptance The Registrar of Companies has announced, based on Federal Court of Cassation ruling No. 323/297 and the Auditing and Accounting Profession Council directive, that final accounts will only be accepted when the submitting auditor presents a valid Association membership card. All company final accounts must be accompanied by the auditor’s union membership verification. Submissions without this documentation will be rejected at the registry. WHAT COMPANIES MUST DO Final accounts must bear the endorsement of the Auditing and Accounting Profession Council. Presenting the auditor’s union membership card is now a mandatory submission requirement. The rule applies to all companies regardless of size or sector. Non-compliant submissions face automatic rejection.
Supply Chain Finance in Iraq
Supply Chain Finance in Iraq Supply chain finance (SCF) encompassing a range of financial instruments and techniques that optimise cash flow across supply chains is an area of growing importance in Iraq’s evolving financial sector. From reverse factoring programmes that allow suppliers to receive early payment on approved invoices, to receivables financing that converts trade receivables into immediate cash, SCF techniques address the working capital challenges faced by businesses throughout Iraq’s commercial ecosystem. As the CBI develops its fintech and payment system infrastructure, the regulatory framework for SCF in Iraq is evolving. This article examines the legal and regulatory considerations for supply chain finance in Iraq. What is Supply Chain Finance? Supply chain finance refers to a set of technology-based solutions and financing techniques that link buyers, sellers, and financing institutions along a supply chain to optimise working capital. The principal SCF techniques include: reverse factoring (approved payables financing), a buyer-led programme in which the buyer’s bank or a specialised financier pays the supplier early at a discounted rate, in exchange for the buyer’s confirmed payment obligation; factoring the supplier sells its receivables to a factor (a bank or specialist financier) in exchange for immediate cash, with the factor collecting payment from the buyers; invoice discounting the supplier raises finance against its outstanding invoices while retaining responsibility for collection; and dynamic discounting, a buyer-funded programme in which the buyer pays suppliers early in exchange for a discount, funded from the buyer’s own cash resources. The Iraqi Legal Framework for Receivables Financing The legal framework for receivables financing in Iraq draws primarily on the Iraqi Civil Code’s provisions on assignment of rights. Under Articles 347 to 358 of the Civil Code, a creditor (assignor) may assign its rights against a debtor (obligor) to a third party (assignee), subject to notification of the debtor. For supply chain finance purposes, this means a supplier may assign its right to payment under a commercial contract to a bank or financier, subject to: the assigned rights being assignable under the underlying contract, many contracts contain anti-assignment provisions that must be checked; the debtor (buyer) being notified of the assignment; and the assignment not being contrary to Iraqi public policy. The Iraqi legal framework does not yet include modern receivables financing legislation equivalent to UNCITRAL’s Convention on the Assignment of Receivables. CBI Electronic Payment and Fintech Framework The CBI has been developing its regulatory framework for electronic payments and fintech, a development with significant implications for supply chain finance platforms that require electronic invoice confirmation, payment processing, and financing mechanisms. CBI instructions on electronic payment services and payment system oversight are evolving and companies developing SCF platforms in Iraq should monitor regulatory developments carefully. The CBI’s strategic plan for financial sector development includes goals for expanding digital financial services, a supportive backdrop for SCF product development. AML Considerations in Supply Chain Finance Supply chain finance transactions particularly invoice financing and factoring carry specific AML risks that Iraqi banks and financiers must manage. Key AML risks in SCF include: invoice fraud fictitious or inflated invoices used to obtain financing for non-existent goods or services; duplicate financing the same invoice presented to multiple financiers simultaneously; and supply chain manipulation misrepresentation of the buyer-supplier relationship to obtain more favourable financing terms. AML Law No. 39 of 2015 and CBI AML instructions require banks providing SCF products to implement appropriate transaction monitoring and due diligence on both buyers and suppliers in SCF programmes. Structuring SCF Programmes for Iraqi Companies Companies seeking to establish supply chain finance programmes in Iraq should address the following legal and operational considerations: assignment validity ensuring that the underlying supply contracts permit assignment of payment rights to the financing institution; debtor notification establishing a clear mechanism for notifying debtors of assignments, which is required under Iraqi civil law for an effective assignment; confirmation process establishing a mechanism for buyers to confirm invoice amounts and payment obligations as the basis for supplier financing; and dispute resolution addressing the treatment of invoices subject to commercial dispute between buyer and supplier, including whether disputed invoices are excluded from the SCF programme. International Standards and Iraqi SCF The Global Supply Chain Finance Forum (GSCFF) has published standard definitions and market practice guidelines for SCF techniques that are increasingly adopted by banks and corporates internationally. Iraqi banks developing SCF products should refer to GSCFF standards to ensure their programmes meet international market practice. The ICC has also published guidance on supply chain finance in the trade finance context. As Iraq’s SCF market develops, alignment with international standards will be important for attracting international bank participation in domestic SCF programmes. How Etihad Law Firm Assists Etihad advises Iraqi banks and corporate clients on the legal structuring of supply chain finance programmes, reviews the legal basis for receivables assignment under Iraqi law, advises on CBI regulatory requirements for SCF products, and assists in drafting SCF documentation including master receivables purchase agreements and programme documentation.
Islamic Trade Finance in Iraq
Islamic Trade Finance in Iraq Islamic finance has grown significantly in Iraq since the enactment of Islamic Banking Law No. 43 of 2015, which provided the legal foundation for Sharia-compliant banking. In the trade finance context, Islamic structures offer alternatives to conventional letters of credit and documentary collections that are compliant with the prohibition on riba (interest) a requirement that is of fundamental importance to a significant portion of Iraq’s business community and banking sector. This article examines the legal structures used in Islamic trade finance in Iraq, the regulatory framework under Islamic Banking Law No. 43, and how AAOIFI standards shape Islamic trade finance practice. The Legal Foundation — Islamic Banking Law No. 43 of 2015 Islamic Banking Law No. 43 of 2015 established the comprehensive legal framework for Islamic banking in Iraq. The law: defines Islamic banking as banking activity conducted in accordance with Islamic Sharia principles that prohibit riba, gharar (excessive uncertainty), and maysir (speculation); authorises the CBI to license banks to conduct Islamic banking either as dedicated Islamic banks or through Islamic banking windows within conventional banks; requires Islamic banks to establish a Sharia Supervisory Board composed of qualified Islamic scholars to oversee Sharia compliance; and empowers the CBI to issue instructions governing Islamic banking operations. The CBI has issued implementing instructions under Islamic Banking Law No. 43 covering licensing, capital adequacy, liquidity management, and product governance for Islamic banks. Key Islamic Trade Finance Structures The primary Islamic trade finance structures used by Iraqi banks include: Murabaha, a cost-plus sale arrangement where the bank purchases goods from the supplier and resells them to the customer at a marked-up price, with deferred payment. The bank’s profit is the mark-up rather than interest. Murabaha is the most widely used Islamic trade finance structure globally and in Iraq. Wakala, an agency arrangement where the bank acts as agent for the customer in purchasing goods, receiving a fixed agency fee rather than interest. Murabaha bi-l-wakala, a hybrid structure where the bank appoints the customer as its agent to purchase goods on its behalf, then sells the goods to the customer on a murabaha basis. This hybrid is widely used in trade finance due to its operational flexibility. Salam, a forward sale contract where the bank pays the full price in advance for goods to be delivered at a future date; used in agricultural finance. Islamic Letters of Credit Islamic banks in Iraq issue letters of credit that are structured to comply with Sharia principles. An Islamic letter of credit operates similarly to a conventional LC in its trade finance function providing payment assurance to the exporter but the underlying financing arrangement between the bank and the importer is structured as a murabaha rather than a conventional loan with interest. The bank opens the LC using its own funds, pays the exporter upon compliant document presentation, and then sells the goods to the importer on deferred murabaha terms recovering its cost plus a profit margin over the agreed payment period. AAOIFI Sharia Standard No. 14 provides guidance on the Sharia requirements for letters of credit. AAOIFI Standards in Iraqi Islamic Banking The Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) publishes Sharia standards that are widely adopted by Islamic financial institutions globally. In Iraq, Islamic banks are expected to align with AAOIFI standards as part of their Sharia compliance obligations under Islamic Banking Law No. 43 and CBI instructions. Key AAOIFI standards relevant to Islamic trade finance include: Standard No. 1 (Trading in Currencies) governing foreign exchange transactions; Standard No. 8 (Murabaha) governing murabaha transactions; Standard No. 10 (Salam and Parallel Salam); Standard No. 14 (Documentary Credits) governing Islamic letters of credit; and Standard No. 27 (Investment Agencies/Wakala). The Sharia Supervisory Board Every Islamic bank in Iraq is required by Islamic Banking Law No. 43 to maintain a Sharia Supervisory Board composed of qualified Islamic scholars. The Sharia Supervisory Board’s role in the trade finance context includes: reviewing and approving new Islamic trade finance products before launch; issuing fatwa (Sharia opinions) on the permissibility of specific transactions or structures; reviewing bank operations periodically to ensure ongoing Sharia compliance; and issuing annual Sharia compliance reports. For trade finance transactions, the Sharia Supervisory Board’s approval of the relevant product structure (e.g. murabaha LC) is essential for the transaction to be considered Sharia-compliant. Practical Differences from Conventional Trade Finance Islamic trade finance in Iraq differs from conventional trade finance in several practical respects: documentation is more complex Islamic trade finance transactions require Sharia-specific documents including offer and acceptance forms, murabaha agreements, and Sharia board approvals; the bank must actually purchase the goods in a Murabaha, the bank’s ownership of the goods, even briefly, is a Sharia requirement that must be documented; the profit rate is fixed at inception unlike conventional interest rates that may be floating, murabaha profit is fixed and cannot be increased if the customer is late in payment; and late payment charges require Sharia approval conventional late payment interest is not Sharia-compliant; AAOIFI standards permit charitable late payment arrangements as an alternative. How Etihad Law Firm Assists Etihad advises Islamic banks and corporate clients on Islamic trade finance structuring and documentation compliant with Islamic Banking Law No. 43, CBI instructions, and AAOIFI standards. We assist in drafting murabaha agreements, wakala arrangements, and Islamic LC documentation, and advise on Sharia compliance issues arising in complex trade transactions.