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Financial Inclusion in Iraq: Opportunities and Challenges

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The report highlights the potential for financial inclusion in Iraq, particularly among Displaced Persons (Dohuk and Nineveh), Host communities, Refugees/FBR, and other segments. The key findings and recommendations are discussed below.

Market Scope and Demand Estimation

Significant Market Scope for Financial Services

There appears to be a significant market scope for financial services among these segments, with an estimated 134,000 households in Dohuk and 130,000 households in Nineveh intending to stay, having legal ID/residency, and being economically active.

Potential Demand for MSME Finance

Based on the adjusted demand estimate, there is a potential demand for MSME finance, with a small share of SMEs interested in additional credit and replacing informal credit with formal financing products.

Recommendations

  • Conduct and publish a competitiveness study on available financial services in Iraq to promote dialogue with the Central Bank of Iraq on better integration of financial inclusion strategy and banking regulations.
  • Support the development of stronger banking regulations and supervision, clarity from authorities on core enablers for private sector development, and national financial literacy strategy.
  • Formal FSPs need to segment and appraise prospective clients based on income generated, total existing debt levels, and economic participation to understand the new market and deal with competition.
  • Allocate resources to strategize, conduct market/segment research, communicate internally with staff and externally with clients and partners, and monitor performance for improved management and operations.
  • Recognize the high level of mistrust of formal financial services providers in general and banks in particular and craft a marketing approach ensuring that FSPs transmit an easily understood message about their services and benefits.

Key Takeaways

  1. Iraq’s financial inclusion landscape is characterized by a large number of unbanked and underbanked individuals, particularly among displaced persons and host communities.
  2. There is a significant potential for financial inclusion in Iraq, with an estimated 134,000 households in Dohuk and 130,000 households in Nineveh intending to stay, having legal ID/residency, and being economically active.
  3. Formal FSPs need to carefully segment and appraise prospective clients based on income generated, total existing debt levels, and economic participation to understand the new market and deal with competition.
  4. A national financial literacy strategy can help enhance the general population’s financial knowledge and awareness, which is essential for financial inclusion.

Future Directions

  1. Conduct further research to better understand the needs and preferences of potential clients in Iraq.
  2. Develop targeted financial products and services that cater to the specific needs of displaced persons, host communities, refugees/FBR, and other segments.
  3. Enhance financial literacy among the population through a national financial literacy strategy.
  4. Strengthen banking regulations and supervision to promote a stable and secure financial environment.