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Iraq’s Central Bank Issues New Regulation for Financial Institutions Financing Medium, Small, and Micro Enterprises

The Central Bank of Iraq has officially issued and approved a new regulation on financing medium, small, and micro enterprises by companies, effective as of April 28, 2024.

Overview

The newly enacted “Regulation on Financing Medium, Small, and Micro Enterprises by Companies” replaces the previous instructions governing the operations of small and medium enterprise financing companies.

Key Changes

  • Only joint-stock companies are permitted to engage in financing medium, small, and micro enterprises, explicitly barring limited companies from this activity.
  • The required capital for joint-stock companies has been raised to IQD 100,000,000,000 (one hundred billion Iraqi dinars), up from the former IQD 2,000,000,000 (two billion Iraqi dinars) and IQD 1,000,000,000 (one billion Iraqi dinars) for limited companies.
  • Companies can make an initial payment of IQD 40,000,000,000 (forty billion Iraqi dinars) and settle the remainder in three equal annual installments, starting from the date of license issuance.

Approval Stages

The regulation outlines the approval stages issued by the Central Bank of Iraq, stressing that initial approval does not guarantee final approval. The bank has the authority to audit and supervise these companies’ activities, and requires regulated companies to establish specific administrative departments overseeing their operations.

Mandatory Requirements

  • Concluding loan contracts with clients
  • Submitting periodic financial statements
  • Establishing an online system for registering loan applications
  • Allocating funds to mitigate risks
  • Appointing an auditor

Loan Contract Requirements

The regulation specifies requirements for loan contracts, including:

  • Client details
  • Loan duration and payment method
  • Interest amounts
  • Client-provided insurances
  • The loan’s purpose

Transition Period

Companies licensed before the issuance of these regulations have a three-year grace period from the regulations’ issuance date to align their operations with the new requirements. The Central Bank of Iraq has given licensed companies until April 28, 2027, to comply with the new regulation.

Al Tamimi & Company, one of the leading law firms in Iraq, is committed to helping financial institutions navigate these changes effectively. Our team of experienced lawyers is dedicated to providing accurate and timely legal advice to ensure compliance with the new regulation.