Credit Gap Hinders Small and Medium-Size Enterprises (SMEs) in Iraq

A Significant Credit Gap

A recent report by the German International Cooperation (GIZ) has highlighted the significant credit gap faced by small and medium-sized enterprises (SMEs) in Iraq. The study found that only 1.3% of the adult population is covered by credit registries, with limited data on three types of credit products: consumer loans, credit cards, and vehicle loans.

SMEs Face Major Challenges

• According to the report, 55% of SMEs in Iraq were established after 2017, but many close within five years due to the hostile economic and political environment.
• The majority of equipment and machinery is worth less than USD 15,000, making it difficult for SMEs to provide suitable collateral.
• Only 6% of SME owners have a bank loan, and businesses often refuse to open bank accounts due to distrust about the liquidity of banks and excessive documentary requirements.

Credit Guarantee Facility Needed

• The report recommends the establishment of a credit guarantee facility to alleviate concerns about the creditworthiness of SMEs.
• Reducing reliance on security and simplifying documentary and procedural requirements could help unlock finance for SMEs.

Improving Access to Finance

• To improve access to finance for SMEs, improved communication and training campaigns are needed, alongside appropriate products and credit guarantees.
• Revolving credit products could be offered to SMEs, particularly those that sell on credit or purchase materials for their businesses.
• The report suggests that short- to medium-term loan products for working capital and equipment purchases would also be beneficial.

Conclusion

The findings of the GIZ report underscore the need for policymakers and financial institutions in Iraq to address the significant credit gap faced by SMEs. By providing access to finance and promoting a supportive business environment, it is hoped that Iraqi SMEs can thrive and contribute to the country’s economic growth.