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3.4 Fintech, Crypto and Sanctions in Iraq and Iran
203 Plays8 months ago
Iraq’s engagement with fintech is new but rapidly developing, amidst a contemporary economic history that has struggled with foreign intervention and internal corruption, while Iranians have been engaging with a form of fintech - alternative digital currencies - for some time, to evade and work around sanctions and a crippled economy.
In this episode we speak to Ali Al-Hilli and Shayan Eskandari, who are working at the intersection of technology and finance, to improve the livelihoods and prosperity in their home countries.
Ali Al-Hilli is a tech entrepeneur from Iraq with over 14 years of experience in business development, telecommunications, and fintech. He is currently Marketing and Communications Director at Miswag, the largest and oldest homegrown e-commerce startup in Iraq.
Shayan Eskandari is a PhD candidate at Concordia University. Originally from Iran, he has a background in blockchain engineering. Shayan is actively involved in creating and supporting open-source projects related to cryptocurrencies. He has been working on nonprofit educational content in Farsi on the topic of blockchain and cryptocurrencies for over a decade.
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Transcript
Exploration of Regional Technology Developments
00:00:03
Speaker
Welcome to season three of Instant Coffee. I'm Nadine Almanasvi. And I'm Sima Shehad. And this latest season is an exploration of technology and its development in the region. Beyond the emergence of Czech GPT and Sofia the robot, we wanted to speak with people who are applying, adapting, and reimagining technology in their fields. We will be exposed to medieval Islamic hospitals, failed Gulf techno cities, emerging Iraqi fintech startups, inclusive artificial intelligence, and much more.
Capacity Building in Iraq and Iran: Key Figures
00:00:32
Speaker
In this episode, we speak to two individuals engaging in capacity building in Iraq and Iran, specifically in relation to fintech. Ali Al-Hilleh is a tech entrepreneur from Iraq with over 14 years of experience in business development, telecommunications and fintech. Shayana Skandari is a PhD candidate from Iran with a background in blockchain engineering. He is actively involved in creating and supporting open source projects related to cryptocurrencies.
00:00:58
Speaker
Their different approaches to utilizing technologies in the quest for financial sovereignty and giving back to their home countries provides a really expansive definition of fintech itself. Hi Ali, thanks for taking the time to speak with us. Can you tell us a bit more about yourself and your work background in relation to Iraq's startup and fintech scene?
00:01:19
Speaker
Okay, so my name is Ali Khali. I'm heading the marketing communications at Miswag, the oldest homegrown and largest homegrown startup in the country. It is focused on e-commerce in general. It was recently got invested by one of the major fintech companies in Iraq. I've been in
00:01:40
Speaker
working with tech and entrepreneurial ecosystem for the past eight years in the country, in Iraq. In the beginning, I was part of developing the communities that will be working on picking up this kind of ecosystem from telecom to fintech. And then I landed at MSWAG. I helped MSWAG go into the next phase that is raising Series A investment.
00:02:05
Speaker
With my own expertise, network and communications, I would be part of the team to do the investment raising.
Challenges and Developments in Iraq's Fintech Scene
00:02:15
Speaker
So when did FinTech really start to emerge and develop in Iraq? Basically, there was no FinTech scene previously in the country. Iraq was under Article 7 from the United Nations. Can you explain what Article 7 is briefly?
00:02:33
Speaker
Article 7 is some sort of a sanction from the Security Council due to the invasion of Kuwait in 1991. Iraq has a lot of debts due to the international community and especially Kuwait, the invaded country.
00:02:52
Speaker
there was some sort of oversee and monetary over Iraq's financial transaction. So there was no activity for companies like MasterCard and Visa in the country. They started operating in Iraq like seven or six years ago. MasterCard was introduced to the Iraqi market first and then Visa followed. Prior to that, and even to this day, most of Iraq's economy is a cash economy.
00:03:19
Speaker
It is not so well advanced or well equipped in terms of ePayment. Back then, some companies tried to find local solutions to print and distribute cars, do some kind of points of cash. We call them points of cash because this is a Iraqi invention to substitute ATMs. Today, Iraq's network of cash out is 99% is a cash out agents rather than ATMs. We don't have a lot of ATMs in the country.
00:03:49
Speaker
By 2016 and 2017, the scene has changed, MasterCard and Visa entered the country and financial inclusion was very much supported by the government and the international community. And things started moving forward from that all. And what can we see now in terms of FinTech activity? I'm thinking particularly from the younger generation in Iraq.
00:04:13
Speaker
We have started seeing a vibrant entrepreneurial ecosystem that is basically growing toward creating more founders, startups, SMEs, and even a skilled force to go to even the financial institutions and work there. It is not only a startup and a new venture and a new service, it's even the current old-fashioned private sector that we have. For instance, if you look for an AML expert, anti-money laundry expert,
00:04:42
Speaker
they don't have enough experience in the market because the market is new. So how many banks have been working on decent training for their employees about AML and a lot of other skills and activities. Past COVID, we've started seeing trends expanding in digital commerce in terms of e-commerce, quick commerce and social commerce. And what do these increased trends in digital commerce look like on the ground?
Growth in Digital Commerce and Investment
00:05:11
Speaker
If I talk about the digital commerce in general, we are growing, the market is growing by 27% on an annual basis. A lot of growth is happening into the grocery and beverages and food delivery services. And the market is growing more than the growth is happening in the user base. That means the users are doing more transactions.
00:05:32
Speaker
throughout these kind of apps. Since 2017, Karim entered the market and then followed by, recently by, Talabad. So that means the market is currently being overseen by regional players, regional companies, and definitely regional investors and VCs who will be coming to see the potential of a 42 million Iraqi market
00:05:56
Speaker
Even if I look at the financial sector in the Pacific, I would see more than 16 million issued cards in the country between retirees, government sector employees, private sector employees, and the younger generation. That means a lot of business cases to be created.
00:06:15
Speaker
on the supply side of this equation. And this is taking place this year by even the government is focusing on distributing point of sales and public institutions. We started seeing restaurants adopting this kind of e-payment. And it is still very slow on the whole vertical value chain of, let's say, the hospitality and restaurants industry. But it is being adopted in a good pace.
00:06:42
Speaker
And so you mentioned the regional element, which is something that we did want to discuss. Where is investment going in the region more broadly?
00:06:49
Speaker
When you look at the whole region's FinTech growth of 36%, you would see, even in terms of investment, you see in 2020, the investment in FinTech was around $200 million across the region, while today it's almost $900 million. How much money, what is the percentage of that was invested in Iraq? Maybe less than 5% or 4%.
00:07:16
Speaker
The Emirates have 25%, Saudi Arabia around 15%, you see Egypt 20%, you see even Pakistan with 5%. But Iraq does not need a lot of investments right now because it is starting from zero. You know, when you start from zero and then after a very small period of time, you see your growth rate, it's in hundreds of percents because you are starting from zero. This situation you've described of Iraq being a cash-only economy,
00:07:46
Speaker
It's a bit difficult to grasp considering our complete reliance on cards and e-payments, but could you describe what it really means for a country to be cash only? I mean, what kind of effect would this have and what effect is it still having on Iraq? You know, okay, the thing is when people are afraid to put their cash anywhere, this cash is never traced and recorded. Thus, there is no credit lines and credit histories for these people to get some kind of loans and
00:08:15
Speaker
and other financial products and this would cripple the economy cycle to get these kind of cash streams back into the economy. At the same time, when people don't give banks
00:08:30
Speaker
enough deposits, banks will definitely be crippled in learning or even investing in different bonds and other stuff. So having the critical cash mass under the floor in my house would mean there is no healthy economic cycle.
00:08:50
Speaker
on both individuals and SMEs. And by definition, this would cripple the GDP, so it will cripple a lot of the government's efforts to enhance its economy. Ahaly talked us through Iraq's contemporary economic history briefly, highlighting where the cash mistrust came from.
Cultural and Economic Barriers in Iraq's Banking
00:09:10
Speaker
The 70s and the beginning of the 80s were the prosperous periods of the Iraqi economy and the Iraqi even political scene. So the people had a lot of savings in their bank accounts and then hyper devaluation happened and a lot of people lost so much money in the bank. So they started detrusting banks, putting their money in.
00:09:30
Speaker
Later on in the early 2000s, the new central bank was formed in 2004 with its new regulations, a new passed law by the government at that time. And it did not work on getting back the trust of the population, rather than a lot of different incidents that was accompanied by some sort of a civil war in Iraq in 2005, 2006 and 2007, led to robberies in banks, a lot of bad deeds, bad things happened by bankers.
00:10:00
Speaker
that led to a second distrust in the banking sector. So people started moving toward exchange offices and transfer companies. So there was this kind of a company licensing in Iraq that was not there in the world. There were banks and there were transfer companies. It is not there anymore. They will have banks and we have non-banks institutions or financial institutions.
00:10:25
Speaker
doing a different kind of role in the country. So people have started putting their money in the exchange offices and these transfer companies because they always have cash, they open throughout the weekend, they open until very late at night. So it has started becoming a more trustworthy institution.
00:10:47
Speaker
In the past 15 years, maybe, or 20 years, Iraq was not stable politically. You know, we have seen the American invasion in 2003, followed by two and a half years of civil war, followed by some political unrest, and then ISIS. And this deal was an uprising of 2019. All of these were walls against regional and foreign investment to the country.
00:11:13
Speaker
in addition to some old-fashioned legislations that don't protect these kind of investors in the country.
00:11:20
Speaker
But since last year, things are moving forward in a different direction, like when the Saudis, the Emirates and Qatari governments are pledging investments to the country that would need less tights, regulations to protect the interests of these investors, in general, in terms of government sovereign funds and the individual investors.
Cryptocurrency's Rise in the MENA Region
00:11:44
Speaker
So it is the natural progress that we are reaching this phase and we are reaching this phase actually quickly. Four years ago or five years ago we were still fighting ISIS. When I talk about after five years I can see these numbers in terms of growth, in terms of adaptability to e-payment, in terms of more applications being used, in terms of
00:12:06
Speaker
digital transactions, different regulations, changes in the ePayment system, and in general in the investment scene. And we have welcomed VCs like Classics Labs, who have visited in Mars. This is a regional VC. And ABX, Arab Bank Accelerator, is entering and investigating the fintech realm of the startup ecosystem. That means we are on the radar now.
00:12:34
Speaker
Ali speaks passionately about this rapid development of the startup and fintech ecosystem in Iraq. It's clear that the interests of both individual Iraqis and the thriving of the state of Iraq are important to the support, work, and mentorship he provides. We wanted to explore another way that individuals in the region are trying to regain financial sovereignty through technology. Something that sits both within and outside the realm of fintech is the world of cryptocurrencies.
00:13:00
Speaker
These alternative currencies in the innovative technological system it's created are becoming increasingly popular in the region, with MENA becoming the world's fastest-growing crypto market in 2022, according to a study from blockchain researcher Chain Analysis. Egypt, Saudi, Lebanon, Morocco, and UAE top the list in terms of crypto transaction volume. But Iran is an interesting country to look at considering the reason why cryptocurrencies have emerged and are used by its citizens.
00:13:28
Speaker
So that's the beauty of it. We spoke to Cheyenne Iskandari, who is a PhD candidate at Concordia University. He founded the NGO Iran Unchained and has been working on nonprofit educational content in Farsi on the topic of blockchain and cryptocurrencies for over a decade. We started first by asking him about this unique position cryptocurrency has in relation to FinTech. On FinTech, there should be a startup, there should be entrepreneurs, they should get like regulatory banking system, they need all the approvals.
00:13:58
Speaker
On the cryptocurrency side, it's just anyone can start a service or a coin or whatever they want to do. And as long as they get network support, they get people in, they can basically use that service. On my end, in around 2012, 2013, I was reading about Bitcoin, and it was like, it's too good to be true. It doesn't work. It can't work. So I spent around six months trying to break it, and I was like, no, it wouldn't work. And I joke around, it broke me, and I switched my topic of thesis
00:14:28
Speaker
Bitcoin usability and all my words changed to like working on cryptocurrencies. And the main difference is like the way to describe what Bitcoin is in a simple term is imagine a permissionless system of money that you don't need to ask anyone's permission to use. And no one can come to you and be like, you can't use the service for any reason. Even you can be a machine, you can be a computer that can use the service without any identity.
00:14:57
Speaker
And how did you get into crypto, Shayan? As someone that grew up in Iran inside the sanctions, I had a lot of these questions sometimes that like, I want to do something and I couldn't. And I was like, why?
00:15:08
Speaker
I don't know why I can't use the service. And Bitcoin was too beautiful early on when I learned about this. What happened was that in Iran, there was a shoe company in Isfahan that was selling leather shoes internationally using Bitcoin. There was a rapper in Mashhad that was selling his songs online using Bitcoin. These are 2012, 2013, really early on.
00:15:29
Speaker
If your exchanges started and then they kind of went down, it was like a battle between a lot of the government side and these exchanges, because especially governments like Iran, they don't want another monetary service system to be unparalleled inside the country. It's funny to say.
00:15:44
Speaker
Iran government, Russia, China, they have like love and hate relationship with Bitcoin things. Because Bitcoin can solve a lot of their problem, but they don't want the people to bypass them. In Iran, Bitcoin mining became kind of illegal for a while. And then they were like, no, you can ask for permission of it to get the licenses. But one interesting thing that you can search online, see almost the videos, people started saying that at their local mosques, they're hearing this like voo sound.
00:16:13
Speaker
It was because mosques get free electricity. And people were mining in mosques because the electricity was free. But it both grew. There was a group called Coin Iran, which started in nonprofit educational websites. I joined them to create a podcast on this end. And it's interesting that we ended up having a fan base that we're not even aware of because they were learning about the technology. They were learning about this. And they started doing their own things.
00:16:42
Speaker
A lot of universities started having a research group on this. It kind of grew, like a lot of people started using this as money, but something happened around like three, four years ago, three years ago, called airdrops, which was one of the main reasons a lot of people got into crypto. And what airdrops was, was like still happening, is like a lot of people that were using a protocol or using a service that didn't have a coin itself.
00:17:05
Speaker
We're like using it and after a while the service was like, here we're going to have our own coin. And to all the users that have been using our protocol, here's some coin. Okay. Airdrop like getting, giving everyone some coin. And one of the first is an exchange, decentralized exchange called Uniswap.
00:17:22
Speaker
Because it was like around $10,000 like airdrop and it was like it's a life-changing money So a lot of people a job kind of came out of this called airdrop hunting which people are influencers They give like information to other signal and what protocol might have a next airdrop. So let's use it It's fascinating me that like we spend like so much time like five years trying to educate people about this technology how to have a wallet how to use it What are the protocols?
00:17:48
Speaker
And we got a few people in, a lot of like more masters and PhD levels. But aDrive hunting, because it became a job, people started using different wallets, different protocols, trying different things. And it was fascinating to see that volume coming from Iran. And a lot of people made a lot of money. A lot of people learned how to use this. A lot of people also end up having wallets. That's really fascinating.
00:18:13
Speaker
I mean, this idea of total control and privacy seems like it would appeal to a larger segment of the population. Did you see anyone beyond doctoral students wanting to engage with this training you're providing? It's interesting, like, so I used to have this company in Iran, which was like Apple, like Apple support fixing iPhones.
00:18:31
Speaker
And one of the early customers that we start to seeing Bitcoin wallets on were mostly young women. And we kind of was wondering, how is that possible? We've seen really geeky nerds having it and young women. And we realized that some of them are sex workers or some other thing that because when they get arrested, everything they have are seized. But if they have Bitcoin, they can just easily delete the app, have the backup somewhere, and no one can take their money.
00:19:02
Speaker
I have my Bitcoin address, but if I don't tell anyone my Bitcoin address, no one knows I have Bitcoin. That is me. And usually for the backup is like you can get 12 words. Like if you write down the 12 words, you can always restore access to your address. And the same, if you lose it, no one can restore your account. You lost their mind. So it's like, it's all on you.
00:19:22
Speaker
The other thing we're seeing is like, like I know a lot of freelance workers early on, especially like designers, which were there were a lot of women, like girls were doing online designs, freelance work and getting paid with Bitcoin or other cryptocurrencies because just no one could pay them if outside Iran, right? Like some people start using like PayPal, but PayPal, as soon as you, there is a leakage of RP. There is a sign that you're from Iran. Your account is suspended without any, any way to get it back.
00:19:51
Speaker
And you've done a lot of outreach and support work in Iran. What kind of crypto work are you engaging with at the moment?
Empowering Women Through Blockchain Initiatives
00:19:57
Speaker
A few years ago, we started this group called Women in Blockchain Farsi, which like seven Iranian women started that. I was basically mentoring them. I usually say, I'm the guy in Women in Blockchain Farsi. One thing I love is like they started as they were asking me these questions like, if you learn this programming language, if you learn this technology,
00:20:17
Speaker
Would anyone hire us? What degrees we should get? These kind of questions. And basically, I was telling them, learn about this and find what part you're passionate about. And just continue there. You'll find something that you've never knew existed before. That was three years ago. We did an online course. They helped me instruct the whole course online. They did that two years ago. And we did it again this summer. We got more than 2,000 students. Imagine Farsi, programming on blockchain, 2,000 students.
00:20:46
Speaker
which is kind of overwhelming as you've got a lot more work there. But one thing I love that I see is they have these women in blockchain Farsi. They have these weekly meetings. They do code auditing. One of them from a rural areas in Iran. And she was saying that her husband, after work, when he comes home, they sit together, read code, and discuss and find bugs. And it's fascinating to see that dynamic emerge from just technology.
00:21:16
Speaker
It changed the family dynamics because they have something that they're passionate about, both of them, and they can talk about it, right? That is a really nice outcome of, yeah, a positive use of technology. Can you talk to us a bit more about Iran Unchained? Last year, when this Women, Life, Freedom movement started with Masa Amini, there was a lot of people inside Iran trying to do pro-democracy work or internet freedom work.
00:21:45
Speaker
And one thing that US Treasury did was remove sanctions from a bunch of specific items. One like anything for internet freedom, anything for secure communication. Like if you're providing like free internet or VPNs or education for fighting digital illiteracy or like things like adding exceptions to like US entities that they can offer this to Iranians now and they're not sanctioned.
00:22:12
Speaker
But what happened was banks still over comply. We couldn't still send money to Iran. And me and a few other diasporas were like, all right, now legally it's OK. So if we get a good lawyer to figure this out, we can use crypto and cryptocurrencies to help these entities. So that's where we started this NGO called Iran Unchained, which the goal was kind of a grand platform, but all focused on this women like freedom movement.
00:22:41
Speaker
One of the main things we helped a lot was humanitarian aid, sending the food packages around Iran, or VPN access. That's one of the bigger things. And it's been working. It's spent a lot of money on the legal side, but it's working. And that's one of the ways. So it's not necessarily evading sanctions. It's complying with sanctions by sending the money in the right way, like legal way. Because banks over comply.
00:23:09
Speaker
Even if you say you're talking about Iran, they might close your account. What's clear from our conversation with Shayan is that citizens will and have been finding novel ways of circumventing sanctions to support causes they care about in their home countries. And financial technologies are providing useful means of support. Our conversation with Haile took place in September 2023. At that time,
00:23:33
Speaker
Iraq was facing new financial regulations from the US Treasury.
Impact of US Treasury Regulations on Iraq's Innovation
00:23:36
Speaker
Alistair spoke to us about the effect of these regulations, which he was also looking at enthusiastically. With the current last few months sanctions or new regulations by the Federal Reserve and the Treasury Department toward some bands, the financial sector is being a little bit more regulated. And with this more regulation and monetary, it would
00:24:02
Speaker
produce the right products, well calculated, well presented products, financial products to the market. With this comes more maybe innovation and innovation would attract investment. Innovation means investment. So are you saying that the sanctions are actually helping? Why is that? Because
00:24:23
Speaker
If we go back to the story in 2013, 2014, when these transfer companies were transformed into banks, their functions was not banks. And what happened in Iraq for the past 10 years was either payroll and inclusion for the payroll from the public and private side and retirees toward having cards and using the points of cash network.
00:24:47
Speaker
Or the dollar auction, that is the mechanism that Iraq uses to exchange the dollars Iraq gets from oil exports with Iraqi dinars out in the market so Iraq's government can pay the salaries. In between, there was no well-structured corporate banking, retail banking, investment banking. We were missing a lot. A lot of our banks were either working on
00:25:14
Speaker
the payroll or working on the dollar auction. So with sanctions to access the dollar through the dollar auction means banks either have to follow the regulations more to not to be sanctioned, one, and two, to start diversifying their portfolio for other services, corporate banking, retail banking, and this would help
00:25:37
Speaker
Startups would help SMEs would help even big corporations to get better banking services and definitely would help through retail banking. It would help individuals get some products that can increase the level of life quality in these cities. So I just wanted to come back to this idea of rapid development because as you said, Iraq has really gone through so much in the past few years.
Potential and Challenges of Iraq's Digital Transformation
00:26:03
Speaker
Can you not see a case of uneven development in all of this?
00:26:07
Speaker
I am part of the WSA, the World Summit Award community that is an award under the patronage of the United Nations. My counterparts from India have been talking about the same issue that the more we go digitize, the more we are creating segregation between digitized people and un-digitized people. And this will create a vacuum in the middle.
00:26:31
Speaker
The same thing definitely happens in Iraq. You see a lot of cities. The capital, Baghdad, is inhabited by 25%, almost 25% of the population. You will see a northern capital, that is Erbil, the capital of Kurdistan region.
00:26:46
Speaker
And then you would see Basra, that is the main exporter for oil, it's the port, it's the lung of Iraq. Then you would say you would see cities like Mosul that was heavily destroyed by ISIS and the liberation activities. And you see cities like Muthinna, slash Samawed, the government, the main city, they have more than 70% unemployment rate in the young generations.
00:27:13
Speaker
definitely would see this indifference between the country. But there was this kind of issue with the cash economy in Iraq. Iraq has for the past 20 years, it was scoring record scores in terms of
00:27:28
Speaker
corruption scale, digitizing the e-payment would make it more transparent to the government, make it more understandable to the government where the payment patterns, the amounts, and then this would help the government reduce corruption in general. So by reducing corruption, every single city in Iraq would be benefited, even if it's not 100% digitized. So yes, there are the pros and cons, but I do believe that the pros are more than the cons.
00:27:56
Speaker
And so what are your thoughts on the future of startups and of FinTech in Iraq? Are you excited?
00:28:02
Speaker
numbers are very promising. We are seeing not only solutions by big corporations are being adopted by the market but even for startups very small startups who are providing solutions for social commerce in general. What is social commerce is actually selling products through social media and since Iraq was introduced to the internet by 2003 and 2004 in a wider range and then 2005 the social media revolution started and then
00:28:30
Speaker
We only had 4G for the past two years. All of these elements made people leapfrog e-commerce towards social commerce and 99% of the digital commerce market today happens on social media, specifically Facebook and Instagram. And they need this kind of tools
00:28:48
Speaker
to get their e-payments, how a Facebook page would sell on e-payments. And you would say digital wallets are flourishing in this area. You would say a lot of entrepreneurial and small startups are flourishing in this area. And they are opening up to banks and financial institutions for some kind of licensing support. So it's already there. The numbers are moving positively, quickly.
00:29:13
Speaker
Thank you so much for speaking to us, Ali, and for sharing with us this small but vibrant startup ecosystem in Iraq. And it's really great to hear from someone so passionate about helping their country. So we really wish you all the best with your work in the future.
Reconstruction Efforts Amid Climate Change in Iraq
00:29:28
Speaker
It is marvelous. What's happening in the country right now is marvelous. We are witnessing a whole build up to the country. Now we have the issues of the climate change because Iraq is one of the top five countries that are affected by that. We don't produce climate change increase in the south and in the temperature, but we are only affected. And with this started coming solutions for renewable energy solutions that was
00:29:52
Speaker
cascaded down for e-payment, cascaded down for e-commerce, cascaded down for a lot of areas. So it is very interesting times to be living and working in Iraq. You don't tend to have this window of opportunity to see a country being reconstructed digitally and non-digitally at the same time in your lifetime.
00:30:13
Speaker
Thank you for listening to Incident Coffee, a podcast brought to you by the LSE Middle East Centre. Join us every other Tuesday for a new episode. To learn more about Hailei Shayan and their work, follow the links in the podcast description. And don't forget to follow us on your favourite streaming platforms.