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Credit Constraints Plague Iraqi Small and Medium-Sized Enterprises

Iraq’s credit registry coverage has achieved a dismal 1.3% of the adult population, with limited data on just three types of credit products: consumer loans, credit cards, and vehicle loans.

A recent report by the German Development Institute (GIZ) highlights the pressing needs of Iraqi Small and Medium-Sized Enterprises (SMEs). The study surveyed 257 enterprises across 10 governorates in Iraq, revealing the significant challenges they face in accessing finance.

Key Findings

  • Over half of SMEs were established after 2017, with many struggling to survive due to a hostile economic and political environment.
  • Most equipment and machinery worth less than USD 15,000, making it difficult for banks to accept as collateral.
  • Only 16% of SMEs can provide suitable salary-based guarantees, further limiting access to finance.
  • Businesses rely heavily on personal and family resources, with only 6% having a bank loan due to distrust in the banking system.

Credit Demand

The report found that SMEs require short- to medium-term financing for working capital, equipment purchases, and land acquisition. However, the market lacks products for shorter-term financing needs.

  • 22% of SME owners needed short-term financing to purchase raw materials.
  • 24% required short-term financing to increase production capacity.
  • 16% sought long-term financing to acquire land and real estate.
  • 25% requested medium-term financing to purchase equipment.

Recommendations

To address these credit constraints, the report suggests:

  • Simplifying documentary and procedural requirements for opening bank accounts and applying for loans.
  • Providing appropriate loan products with shorter-term financing options.
  • Improving communication and training campaigns to increase awareness of available financial products.
  • Focusing on SME loan products with a loan size of less than USD 50,000.

The study also highlights the potential demand for revolving credit products among SMEs that sell on credit or purchase equipment and materials on credit. This lack of suitable financing options is a significant obstacle to SME growth in Iraq.

Conclusion

Iraq’s SME sector faces significant challenges in accessing finance due to limited credit registry coverage, inadequate loan products, and poor communication between banks and businesses. Addressing these issues will be crucial for promoting economic recovery and development in the country.