The Struggles of Small Businesses – The Broken Links

MSMEs need a range of banking services, focused on ease and pace of transactions
MSMEs buy and sell goods, and these transactions are often done on a cash basis (Iraq’s total supply of cash in economy is well above regional peer, signifying low financial sector development). MSMEs have to travel long distances and/or overcome security fear for simple things such as balance inquiry. MSMEs that are more technology/e-commerce oriented face difficulty generating revenue because it does not have a online payment facility (even though payment infrastructure is available in Iraq since 2005-6, its usage, among less than 2% of Iraq’s population that has a credit card, is associated with high costs and poor capability).

MSMEs face challenges in meeting the current types of collateral required by banks
The financing sector in Iraq needs to depart from its traditional requirement of securing debt against assets. Moreover, banks reject many requests for financing of viable projects. They resort to credit rationing – allocating credit based on quantitative criteria – rather than credit risk analysis. The banking sector needs to show more commitment to cash-flow-based approach to lending, however there are serious concerns with respect to reliability of business and financial data due to immature accountancy profession.

MSMEs need business advisory support coupled with financing
Besides credit, MSMEs can also benefit tremendously from venture capital financing (both equity and debt). Traditionally, venture capital funding is coupled with business advisory support, helping MSMEs during various growth stages and mentoring high-potential young and small businesses.

MSMEs need access to supply chain infrastructures and access to the broader domestic market and sometimes regional/global markets
The concept of cluster development can offer new insights into the potential role of MSMEs. A cluster may be defined as a local agglomeration of enterprises (mainly MSMEs) which produce and sell a range of related and complementary products and services. An example can be a localized leather industry, including leather tanning units, leather finishing units, leather goods producers, leather garment manufacturers, designers, sub-contractors, merchant buyers and exporters. Cluster Initiatives help strengthen value-chain of specific goods/services, and will enable Iraq to develop regional and/or global competency in specific sectors.

T. Keyzom Ngodup is co-founder and Executive Director at Ideas sYnergy (, an Iraq based development consulting company 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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