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Are reforms in Arab banking sector key to fighting terrorism?

The latest Union of Arab Banks conference discussed ways to integrate all citizens in the banking sector’s database, to be able to fight money laundering and terrorism.

SHARM EL-SHEIKH, Egypt — The issue of terrorism is present in any public activity or event in the Middle East. This was the case during the conference that the Union of Arab Banks called for in Sharm el-Sheikh in Egypt, Sept. 17-19, attended by Al-Monitor.

The conference was held in the general absence of the media and under the direct auspices and participation of the Egyptian authorities, represented by the governor of the Central Bank of Egypt, Hisham Ramez Abdel Hafez. About 50 figures from the Middle East, specialized in banking and finance, economy, politics and security, were also present.

The conference’s main goal was discussing the relationship between financial inclusion and the stability in the Arab countries. However, the discussions soon focused on the issue of money laundering, and more particularly on the issue of financing terrorism.

Secretary-General of the Union of Arab Banks Wissam Fattouh told Al-Monitor that the transition from the issue of financial inclusion to money laundering and financing illegal activities is understandable in the Arab banking sector, as it is deploying great efforts to cooperate with different concerned bodies in the West, international institutions and UN agencies working in the field of fighting terrorism.

In the context of this cooperation, Fattouh noted that the parties in the Arab banking sector have realized that the major obstacle standing in the way of having a large enough database on the movement of funds in Arab countries is that many Arab citizens still do not deal with banks.

Fattouh said that around a quarter or half of the Arab countries’ populations still rely on the parallel or direct financial system, which means dealing in cash, transferring and exchanging money in daily life transactions without resorting to a bank. This means that a large number of the Arab population is not monitored by the banking system and the sector has no information on these citizens as clients or traders.

According to Fattouh, this is a major issue for the banking sector in terms of not being able to expand the banks’ business base so as to reach the largest possible number of people and increase their client list and their work figures, and thus raise their income ratios.

However, the same system has become a necessity in recent years, in order to expand the financial and banking database of the population and residents, so as to decrease the movement of invisible money, making it possible to monitor any larger financial transactions. This is vital in terms of security for any state and society in the context of combating illegal activities, especially illegal money laundering as well as financing terrorism and illegal acts.

An Egyptian banker who participated in the conference told Al-Monitor on condition of anonymity that for Egypt, this system is a priority that needs to be followed up and resolved by the official and government administrations. Studies and investigations showed that money laundering and terrorism funding could be accomplished using small amounts of money, going through the parallel system without resorting to banks. 

The Egyptian authorities are thus seeking to introduce the largest number of Egyptians and people living in Egypt possible to the banking system, to more easily monitor and keep tabs on their incomes, expenses and their money’s activity, according to the Egyptian official.

The same Egyptian banking official revealed that there is cooperation in terms of information and research between Cairo and concerned international institutions. According to him, the International Monetary Fund (IMF) conducted a detailed study on the reasons why part of the population of the Middle East and North Africa remains outside the banking system and depends on the direct parallel system.

The IMF study provided detailed data indicating that the reasons for “nonfinancial inclusion” could be summed up by the following: First, the lack of funds deposited by the citizen in a certain bank. Second, the high cost of dealing with banks. Third, the existence of a single bank account for a family member, which could be enough so that the rest of the family does not consider opening other accounts. Fourth, avoiding the complexities of opening an account due to the large number of documents required, especially in light of extreme measures in dealing with banks. Fifth, the great geographical distances in some Arab countries between the citizens’ residences and the nearest banks, and finally, religious beliefs, especially among some extremist Islamists who consider dealing with banks to be against Islamic Sharia.

The Egyptian official said financial institutions in Arab countries have started working on how to integrate the conclusions of the IMF study into their financial and banking sectors. This step is aimed at tackling the above-mentioned reasons to mitigate their impact on people’s reluctance to deal with the official banking system.

The official said government policies of Arab countries are trying to meet the challenges posed by these issues. Government policies should consist of public development so that each citizen has a certain amount of money that pushes him to go to the bank. They should also be based on backing the banking sector in a bid to decrease its cost, which is borne by the citizen, and thus to encourage each citizen to deal with banks. In addition, it is important to relax banking procedures to attract citizens instead of repelling them. The policies would also work on developing the banking sector in order for it to reach all rural areas in each country and be close to every possible client, and on creating a balance between Islamic banks and the ordinary banking sector. 

These steps aim at overcoming all the obstacles that prevent the people in the region from joining the banks’ general database, and thus, at facilitating citizen integration into a system that would be more capable of monitoring and abiding by the law.

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