The Iraqi Company for Bank Guarantees (ICBG) is a privately-owned non-banking financial institution that guarantees repayment of up to 75% of loans, ranging from $5,000 up to $250,000, that private commercial banks extend to small and medium enterprises (SMEs) in Iraq. Early this year, the company reached a significant milestone when it surpassed $50 million of loan guarantees on loans disbursed to SMEs.
$50 million may not seem like a lot of money in big financial circles. But for the 4,000 entrepreneurs who have started or expanded their businesses thanks to timely, guarantee-assisted bank financing, $50 million has made all the difference for success.
Back in 2006, when the U.S. Agency for International Development started ICBG, private commercial banks rarely disbursed SME loans of any size. Accustomed to a centralized, state-managed economy, bankers were reluctant to loan money to private sector entrepreneurs, often lacking the credit histories or real property sufficient to provide sufficient loan collateral. ICBG’s willingness to absorb up to 75% of loan risk relieved lenders of much of the worry from venturing into SME lending. In the process, some 3,800 new permanent, private sector jobs opened up at these SMEs.
ICBG today is a joint stock company with 34 corporate and private shareholders. It is used by eight private banks, which in return pay a 2% fee for the 75% portion of the guaranteed loan – a cost that is normally passed on to the borrower.
When the USAID-Tijara Provincial Economic Growth Program began in 2008, virtually all partner bank SME loans depended on ICBG support. By 2011 only 38% of the loans facilitated by USAID-Tijara’s SME Bank Lending component were guaranteed. Lenders’ growing confidence in risk assessment had gradually reduced dependency.
“The presence of the Iraqi Company for Bank Guarantees has introduced stability in Iraq’s private sector and has facilitated hundreds of businesses to startup or to expand, 11% headed by women,” says ICBG’s Managing Director, Mr. Ameen Abdul Sattar Ameen. “2011’s results represent a 33% increase over the previous year thanks to lender overall SME loan portfolio expansion, primarily in Iraq’s, small scale manufacturing, commercial trade, and service sectors.”