IRAQ: CENTRAL BANK ISSUES NEW REGULATION FOR SMALL AND MEDIUM ENTERPRISE FINANCING COMPANIES

Baghdad, April 30, 2024 - A New Era for SME Financing in Iraq

The Central Bank of Iraq has officially approved a new regulation aimed at governing the operations of small and medium enterprise financing companies in the country. Effective from April 28, 2024, the Regulation on Financing Medium, Small, and Micro Enterprises by Companies replaces previous instructions and sets out new requirements for companies involved in this sector.

Key Changes under the New Regulation

Ban on Limited Liability Companies: Only joint-stock companies are permitted to engage in small and medium enterprise financing. Limited liability companies are no longer allowed.
Increased Capital Requirement: The required capital for joint-stock companies has been increased from IQD 2 billion to IQD 100 billion.

Company Requirements under the New Regulation

Initial Payment and Installments: Companies can make an initial payment of IQD 40 billion and settle the remainder in three equal annual installments starting from the date of license issuance.
Approval Stages: The Central Bank will issue a series of approval stages, emphasizing that initial approval does not guarantee final approval.

Supervision and Audit

The regulation grants the Central Bank authority to audit and supervise the activities of licensed companies. Licensed companies are required to establish specific administrative departments to oversee their operations, covering areas such as:

Financial management
Risk management
Compliance monitoring
Credit management
Anti-money laundering
Counter-terrorism financing
Internal audit
Financial awareness
Public protection
Complaint processing
Information technology
Legal management

Additional Requirements for Licensed Companies

Loan Contracts: Conclude loan contracts with clients, including client details, loan duration and payment method, interest amounts, client-provided insurances, and the loan’s purpose.
Periodic Financial Statements: Submit periodic financial statements.
Online System for Registering Loan Applications: Establish an online system for registering loan applications.
Risk Mitigation: Allocate funds to mitigate risks.
Auditor Appointment: Appoint an auditor.

Transition Period for Licensed Companies

Companies licensed before the issuance of this regulation have a three-year grace period from April 28, 2024 to align their operations with the new requirements. With the new regulation now in force, Al Tamimi & Company urges companies to seek guidance on how to comply with the changes and avoid potential penalties.