MICROFINANCE PAPER WRAP-UP: The State of Iraq’s Microfinance Industry by The Louis Berger Group Incorporated, Produced for the US Agency for International Development (USAID)

By The Louis Berger Group Incorporated, produced for the US Agency for International Development (USAID), June 2010, 56 pages, available at: http://www.imfi.org/files/StateOfIMFI_USAID_en.pdf

The authors of this paper report that Iraq’s microfinance industry was established in 2003 and is now comprised of 14 microfinance institutions (MFIs) spread out over Iraq’s 18 provinces. As of April 2010, Iraq’s microfinance industry has disbursed approximately USD 453 million, has an outstanding loan portfolio of approximately USD 86 million and serves 63,000 active borrowers. Loans are made at an interest rate of 12 to 18 percent, and 15 percent of loans are made to women. The repayment rate on these loans is reportedly 99 percent. Iraq’s microfinance industry employs 780 people in 100 offices.

The growth rate for MFIs in Iraq was approximately 31 percent for the year ending in April 2010. According to Donal Cotter, author of the report’s preface and Chief of Party for The US Agency for International Development (USAID)-Tijara, his organization was largely responsible for this rapid growth in microfinance in the region. USAID-Tijara is an economic growth organization with a five-year mandate to promote private sector growth and employment in Iraq.

According to the report, recent legal changes that have helped Iraq’s microfinance industry include: The issuance of a new NGO law which enables MFIs to continue as quality financial service providers for low-income people in Iraq because of the “Central Bank of Iraq’s (CBI’s) recognition of microfinance as an effective intermediary for small and medium-scale enterprises (SMEs).” Additionally, CBI has recently drafted regulations for enabling NGO-MFIs to transform into non-banking financial institutions (NBFIs) which – if passed later this year – would promote greater accountability.

Despite positive changes, Iraq’s “post-conflict environment” makes the growth of a microfinance industry difficult in many ways:

1) Many people are dependent on public-sector employment and are therefore reluctant to start private income-generating activities.

2) Security and violence are still problems.

3) Because many displaced persons exist within the region, the authors argue that lending laws need to be changed so loans can be issued to people who have not lived in the same place for two years.

4) Iraq’s cash-based economy increases the risk of fraud.

5) There is a shortage of trained staff.

According to the authors, the US military has played a key role in developing Iraq’s microfinance sector. Provincial reconstruction teams (PRTs), small civil-military units, serve as intermediaries with local MFIs in conflict-prone areas to promote microfinance services in local communities. According to the report, at an undisclosed future date, Iraqi MFIs will attempt to expand financial inclusion to poorer people by issuing loans of less than USD 500. Finally, Iraqi MFIs, supported by USAID-Tijara, have adopted the “Microfinance Code of Conduct and Ethics” which promotes principles of client protection such as transparent pricing, appropriate collection behavior, ethical staff behavior and privacy of client data.

For a suite of tools intended to improve the impact of USAID microenterprise programs, you may visit http://www.microLINKS.org.

By Julia Korn, Research Associate

Sources and Additional Resources:

[1] http://www.imfi.org/

MicroCapital. “MICROCAPITAL BRIEF: The United States Agency for International Development (USAID)-Tijara Commences “Provincial Economic Growth Program,” Targeting Youth Employment in Iraq” by Julia Korn on July 12, 2010.
https://www.microcapital.org/microcapital-brief-the-united-states-agency-

MicroCapital. “MICROCAPITAL BRIEF: USAID-Tijara Announces Opening of Iraq’s 100th Microfinance Branch Location” by Julia Korn on June 9, 2010. https://www.microcapital.org/microcapital-brief-usaid-tijara-announces-op..

MicroCapital. “MICROFINANCE EVENT: Mobile Finance for the Unbanked to Be Hosted in London July 12-13, 2010” by Matthew Castner on May 4, 2010. https://www.microcapital.org/microfinance-event-mobile-finance-for-the-un

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