Reaching for his wallet, an Iraqi student extracts a shiny new MasterCard, enters his payment details into a website and downloads the latest episode of his favourite programme.

“I can buy so many things, such as Prison Break, which I download every week,” says Muhammad al-Zubeidi, 18, one of the Iraqis discovering how useful it is to be able to shop online.

Insecurity in Iraq and the lack of a reliable legal system to bring bad debtors to justice have stunted the spread of normal credit or debit cards since the 2003 invasion.

A Baghdad-based financial services company is offering a solution: a prepaid MasterCard that enables holders to buy goods online as well as extract money from machines overseas, provided that they top up their plastic with cash at banks in Iraq.

Wissam al-Rashied is the operations director of SFS Aman for central and southern Iraq. The firm has been providing pay-as-you-go MasterCards since 2004, although business started to pick up only over the past year as the country became more secure.

“Iraqis are good shoppers. They want what is new and best but there is no way to shop on the web unless they have a card,” Mr Rashied said.

Card ownership is also a safer way of taking money abroad than carrying large bundles of cash in the car. “In addition, some of our clients simply like to own a MasterCard because it makes them feel like a VIP,” Mr Rashied told The Times, speaking in fluent English at his office in an affluent neighbourhood of the capital.

The company, owned by a group of Iraqi-Americans living in Michigan, pays an issuing bank in Lebanon for the right to issue MasterCard in Iraq.

At first, customers were offered a standard credit card or a debit card. But five big clients realised that they could clock up vast amounts of credit and scarper without paying their fees, because there was no legal redress. “Unfortunately, we did not notice [the loophole],” said Mr Rashied, whose predecessor was fired for the bungle.

SFS Aman froze its operations for two months and reopened in December 2004, this time offering two types of prepaid card – a MasterCard that can be used online and at cash machines or banks around the world, and another that is just for web shopping.

“We now have 12,000 clients all over Iraq,” Mr Rashied said, adding that 65 per cent had signed up over the past 12 months. He hopes to add another 18,000 clients this year.

The Visa credit card is also available in Iraq through three local banks; users are required to deposit an amount of money as a guarantee. “The banks are being prudent as they take their first steps into retail banking . . . it is not surprising that the majority of Visa cards in Iraq are debit cards,” a spokesman for Visa said.

MasterCard itself is also being cautious. Credit card use in Iraq was suspended after the 1991 Gulf War. The company said in an e-mail that MasterCard was “encouraged by the growing interest in the country. We are in discussions with banks and organisations that are looking at building payment systems in Iraq.”

Mr Rashied said that his firm had lost about $2 million (£1 million) paying the Lebanese issuer for the right to issue MasterCard but was confident that the investment would pay off.

“We are the pioneers,” he said. SFS Aman is hoping to build cash dispensers around the country once it is safe enough. They are now only available in the Kurdish north. Another idea is to set up chip-and-PIN sale points at shops; Iraq currently still lacks a good communications infrastructure.

Abdullah Yusef manages a popular DVD shop in Baghdad. A cardholder, he has agreed to work as a subagent for SFS Aman, encouraging his customers to buy a MasterCard as well. “MasterCard creates a bridge between the Iraqi people and the world,” Mr Yusef said. He used to have to wait until video games and DVDs became available in the region so that they could be brought to Iraq. “But with MasterCard, I buy online from the United States. My customers are happy.”

A suicide bomber killed at least nine people on a bus outside an Iraqi army check-point in northern Iraq yesterday, the Iraqi military said. US commanders believe that al-Qaeda insurgents have been pushed north by the “surge” of troops in the Baghdad area.

Change on the cards

— Only about a quarter of Iraqis hold bank accounts. Poverty, the risk of transporting money to and from branches and a lack of trust in financial institutions deter some

— The bureaucratic challenge of opening an account, complicated by the reality of life in the country, puts off many more

— First, four forms of official documentation have to be collected. In theory all Iraqis should possess a Jenseya, or identification card, a national card, a residential card and a ration card

— In practice, many do not and are left unable to open an account

— Next, good-quality copies need to be made of all four and presented – along with two recent photographs – to the bank. Again, this can be tricky in a country of shortages where travel is difficult

— Completing these tasks wins the potential account-holder access to the application forms, which take at least an hour to fill in

Source: Times research

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