Financial Crime World

Credit Gaps Widen for Iraqi Small and Medium-Sized Enterprises

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Despite a growing economy, small and medium-sized enterprises (SMEs) in Iraq are struggling to access credit. A recent report by the German International Cooperation (GIZ) sheds light on the dire need for credit among Iraqi SMEs.

Challenges Faced by Iraqi SMEs

  • Only 1.3% of the adult population has credit registry data as of 2019.
  • 55% of SMEs were established after 2017 and many close within five years due to the challenging economic and political environment.
  • Most SME owners rely on personal and family resources to establish and run their businesses, with only 6% having a bank loan.

Barriers to Accessing Credit

  • Lack of trust in banks’ liquidity
  • Excessive documentary requirements

Credit Needs of Iraqi SMEs

  • Short- to medium-term loan products are needed for working capital and equipment purchases.
  • Most SMEs require financing amounts below USD 15,000, which does not qualify as credible collateral.

Priorities for Iraqi SMEs in Terms of Credit

  • Short-term financing to purchase raw materials and increase the quantity of goods sold
  • Medium-term financing to purchase equipment
  • Long-term financing to acquire land and real estate

Recommendations to Address Credit Gaps

  • Improve access to finance by providing appropriate loan products and credit guarantees.
  • Simplify documentary requirements.
  • Increase awareness about available financing options through training campaigns.

The Role of Banks in Closing the Gap

  • Banks must simplify and streamline documentary and procedural requirements to overcome the reluctance of SME owners to open bank accounts and apply for loans.

Conclusion

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The Iraqi government has acknowledged the need to strengthen public finances and financial markets in Iraq, and initiatives are underway to improve access to credit for SMEs. However, more needs to be done to address the significant credit gaps faced by these enterprises.

Source: GIZ Report: Priority Financing Needs of Iraqi SMEs (May 2023)