Iraq’s Microfinance Sector: A Survey

Oct 2006
Washington, United States , October, 23 2006 - Since the Baath Party government fell in 2003, Iraq’s economy has been in turmoil. One of the key problems that has plagued the country in recent years is unemployment resulting from the change in government as well as the near-civil war conditions raging on the ground.

One of the ways in which outsiders, including international NGOs and the US government, have tried to help the recovery and fix the problem of high unemployment is by assisting in the creation of local microfinance institutions. Prior to the US invasion, no microfinance activity existed in Iraq, outside of local moneylenders and rotating credit organizations. The large state-owned banks required collateral for loans, thereby excluding 95% of Iraqis from the financial system. In 2003, the Coalition Provisional Authority (CPA) provided a $10 million grant to the development of microfinance programs. This money was managed by ACDI/VOCA, a Washington-based NGO which provides technical assistance to microfinance institutions (MFIs). According to the United Nations Capital development Fund (UNCDF), the majority of the funds were used up by March 2004. By May, the CPA allocated another $10 million to developing microfinance and in the south of the country. There is very little public information as to how this money was disbursed.

It is known that some of it was used to fund Izdihar, a three year program designed to encourage the growth of Iraq’s private sector. One of the organization’s main projects is encouraging the growth of microfinance by providing grants and zero-interest loans to local MFIs, offering them technical assistance, and providing their employees with training. Last month, Izidihar provided a $250,000 grant  and technical assistance to an unnamed Baghdad MFI. In August it financed a trip to Jordan by several MFI managers in order to learn about new lending methods.

In addition to funding local MFIs, Izihihar has also recently provided 3 unnamed international NGOs with grants of $3 million each to start microfinance programs in Iraq. One possible recipient is Community, Habitat and Finance (CHF International) which runs a micro-lending program entitled the Access to Credit Services Initiative (ACSI). As of May 31, 2006 ACSI disbursed $43 million in loans “with a 99% repayment rate” and is the largest MFI in Iraq.

In general, there is very little public information on Iraq’s microfinance sector. There are no MFIs listed on the Mix Market, the microfinance information clearinghouse, but there are 10 “suppliers” of capital to Iraqi MFIs.


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