Iraq’s rapidly growing microfinance industry reached a major milestone this month when the Al-Tadhamun (TDMN) microfinance organization opened its third branch office in the Northern Province of Ninawa. The opening brings the total number of microfinance branches and satellite offices across Iraq to 100 and underscores the success Iraq’s MFI sector has achieved in its drive to provide wider access to inclusive, quality financial services across the country.
Assisted by the U.S. Agency for International Development and its implementing partner, the USAID-Tijara Provincial Economic Growth Program (Tijara means trade in Arabic), the Iraqi microfinance sector encompasses 14 microfinance institutions (MFIs), two of which are international while the remaining 12 are indigenous.
Located in all of Iraq’s 18 Provinces, the industry currently serves over 62,000 clients with an outstanding portfolio of $84 million. MFIs are the primary providers of financial services and technical assistance for impoverished Iraqis previously excluded from the country’s financial sector. Iraqi microfinance institutions have disbursed more than $420 million in loans since the industry’s inception in late 2003.
Hiwa Salih Mahmud started Barin Aluminum in Sulaymaniyah with a $2,500 loan from the Al-Thiqa Small Business Loan Fund. Two subsequent microfinance loans, each for $2,500, enabled him to become a recognized manufacturer of residential aluminum doors and window frames. Today, his company is large enough to qualify for an SME bank loan but he continues to do business with Al-Thiqa. “I feel comfortable with microfinance loan officers,” says Hiwa, “because they really care about the working poor.”
Al-Tadhamun was established in 2008 with assistance from USAID and other U.S. Government sources as part of its strategy to support the development of indigenous MFIs in Iraq. As the security situation improved in 2009, TDMN began lending operations. It is now providing loans to agri-businesses and micro, small and medium scale enterprises (MSMEs). It recently began offering Islamic finance products based on the Al-Murabaha system. These Islamic products meet the need for Shariah-compliant financial products in the Sunni communities where TDMN predominantly operates.
TDMN and three other MFIs - Al-Aman, Al-Thiqa and the Talafar Economic Development Center (TEDC) - provide financial services to low-income people in conflict-prone provinces located between Iraq’s Kurdistan Region and the central part of the country. Together, these four MFIs have 5,639 clients and a cumulative outstanding portfolio of U.S. $7.1 million. Despite their impoverished circumstances, Iraqis receiving loans are remarkably responsible clients. Indeed, as of June 2010 the portfolio of at-risk loans amounted to less than one percent of the total portfolio.
MFIs are the most rapidly growing providers of finance in Iraq. Between 2004 and 2010, the industry had a cumulative annual growth rate of nearly 32%. By early 2009, this growth changed the dynamics of the Iraqi microfinance sector. MFIs gained increased independence as demand-driven financial service institutions. Today, they are increasingly recognized by the Iraqi NGO Assistance Office and the Central Bank of Iraq (CBI) for reaching out to the poor with unprecedented ability to scale-up impact.
The biggest driver for the Iraqi microfinance sector remains the vast, unmet demand for quality microfinance services. Twenty-three percent of the country’s 7.1 million people live on $2.20 per day or less. With less than one percent market penetration, the emerging Iraqi microfinance industry continues to face significant challenges of operating in a post-conflict environment.
As MFIs mature and the sector establishes itself as a sustainable provider of financial services, their access to growth and investment capital will determine their ability to remain sustainable. Already, MFIs such as Al-Bashaer, Al-Thiqa, Al-Aman, Amalkom, Izdiharona, Relief International and CHF International are profiled on the Microfinance Information Exchange, the global data gathering and analysis platform.
USAID-Tijara's support of Iraq’s microfinance industry reflects the importance the Barack Obama administration places on helping poor people build productive lives. President Obama’s mother, Ann Dunham, played a key role in building the microfinance industry in Indonesia. Today, Indonesia’s microfinance industry is No. 1 in the world in terms of savers with 31 million members.
“I think it’s fair to say that her work in international development, the care and concern she showed for women and for poor people around the world, mattered greatly to her son, and certainly has informed his views and his vision,” says U.S. Secretary of State Hillary Clinton.