“SME and Microfinance in Iraq not well developed”

By T. Keyzom Ngodup, co-founder and Executive Director at Ideas sYnergy www.ideas-sYnergy.net, a local multiple bottom line advisory enterprise, driving innovation for social impact.

According to the recently released World Bank Report The Republic of Iraq: Financial Sector Review, “SME and microfinance is not well developed in Iraq”.

Over 85% of lending to Iraq SMEs is conducted through NGOs: the 12 NGO-MFIs (see www.imfi.org; supported by USAID grants) and Iraq Middle Market Development Foundation (IMMDF). The remaining is facilited through bank lending supported by USAID grants and technical assistance through NBFI vehicles (part funded through USAID start-up grants) Iraqi Company for Financing SMEs (ICF-SME) and Iraqi Company for Bank Guarantee (ICBG).  The above developments were indeed important milestones, but some say have become obsolete, with many aspects leaning towards something resembling ‘oligarchy’ and part of the fault lies with donors’ complacency and not the implementing partners, i.e. contractors or local impementers (they are just carrying out their contractual agreements).

The Report rightly points out that under Banking Law article 4(2), CBI has the power to regulate lending institutions, microfinance institutions and any other non-bank financial institution not otherwise regulated under Iraqi law. Within this context, Iraq Insights October issue had reported that CHF Iraq’s, an NGO MFI, application for an NBFI license was rejected by CBI based on the NGO Office’s ‘discomfort’ with an NGO owning shares in the newly created entity as well as the transfer of NGO assets and loan portfolio to a for-profit company despite the earlier verbal go-ahead received from the NGO Office.

There are two troubling factors that are true for development initiatives addressing access to finance in Iraq:

  1. There is tremendous willingness from GoI to scale-up financing (of different types and through different vehicles) SMEs as a means to support economic diversification, private sector development and employment generation, however weak institutional capacities, minimal exposure to global best practices, and lack of inter-agency coordination/collaboration serve as critical impediments for doing what is in Iraq’s best interest. External and supportive stakeholders are cautioned to address this challenge (both directly and indirectly in the form of one voice and meaningful consensus building) as critical to their goals’ success.
  2. Donor coordination, albeit improving, and support of innovation outside usual methodology of programme implementation warrants review. Ideas sYnergy has spoken to many young entrepreneurs/aspiring entrepreneurs, and over and over again, what we have come to conclude that Iraq’s needs something like an ‘innovation lab’ where innovation can be supported through access to consolidated and strategic resources, replicated, and used as inspiration for the eager youth. Ideas/initiatives such as creating an Iraqi tea brand through direct linkages with Sri Lanka or supporting the successful initiative of a young Iraqi entrepreneur’s start-up business to disburse government pension (and some salaries) through a technology driven ‘key’ card (more about these entrepreneurs in Iraq Insights’ upcoming November issue).

T. Keyzom Ngodup is co-founder and Executive Director at Ideas sYnergy www.ideas-sYnergy.net, an Iraq based multiple bottom line advisory enterprise committed to economic and social development through market-based solutions that help build and scale innovative businesses for sustainable and inclusive private sector development.

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