Financial Crime World

New Regulations for Financing Medium, Small, and Micro Enterprises in Iraq

The Central Bank of Iraq has issued a new regulation governing financing medium, small, and micro enterprises by companies, effective April 28, 2024. This article outlines the key changes and highlights of the new regulation.

Key Changes and Highlights

Eligibility and Capital Requirements

  • Only joint-stock companies are allowed to engage in financing medium, small, and micro enterprises.
  • The required capital for joint-stock companies has been raised to IQD 100 billion (one hundred billion Iraqi dinars), up from IQD 2 billion (two billion Iraqi dinars) previously.

Payment Structure

  • Companies can make an initial payment of IQD 40 billion (forty billion Iraqi dinars) and settle the remainder in three equal annual installments, starting from the date of license issuance.
  • The regulation outlines the approval stages issued by the Central Bank of Iraq, stressing that initial approval does not guarantee final approval.

Supervision and Audit

  • The Central Bank of Iraq has been granted the authority to audit and supervise these companies’ activities.
  • Companies must establish specific administrative departments overseeing their operations.

Requirements for Licensed Companies

Loan Contracts

  • Companies must conclude loan contracts with clients, submit periodic financial statements, and establish an online system for registering loan applications.
  • The regulation specifies requirements for loan contracts, including:
    • Client details
    • Loan duration and payment method
    • Interest amounts
    • Client-provided insurances
    • Purpose of the loan

Risk Mitigation

  • Companies must allocate funds to mitigate risks.

Auditing Requirements

  • Companies must appoint an auditor.

Transition Period for Existing Licenses

Companies licensed before the issuance of these regulations have a three-year grace period from April 28, 2024 to align their operations with the new requirements. The Central Bank has already begun enforcing the new regulation, which will be effective until further notice.

Seeking Guidance on Navigating the New Regulation

For companies seeking guidance on navigating this significant change, Al Tamimi & Company’s Iraq office is available to provide accurate and timely legal advice to ensure compliance with the new regulation.