Financial Crime World

Iraq’s Small and Medium-Sized Enterprises Face Major Financing Challenges

Struggling with Access to Financing Despite Economic Recovery

Baghdad, Iraq - A recent report by the German International Cooperation (GIZ) has highlighted the significant challenges faced by Iraqi small and medium-sized enterprises (SMEs) in accessing financing. Despite the country’s economic recovery, SMEs continue to struggle with limited access to credit information, lack of trust in the banking system, and excessive documentary requirements.

Limited Credit Information Availability

  • Only 1.3% of the adult population in Iraq is covered by credit registry data, making it difficult for lenders and investors to assess the creditworthiness of SMEs.
  • This limited availability of credit information forces many SMEs to rely on personal and family resources to establish and run their businesses.

Lack of Trust in Banking System

  • Only 6% of SMEs have a bank loan, due in part to the lack of trust in the banking system.
  • Excessive documentary and procedural requirements also hinder access to financing for SMEs.

Limited Knowledge of Financing Options

  • SME owners have limited knowledge of financing products beyond traditional loans.
  • Many are unaware of the options available to them, making it difficult for them to access financing.

Recommendations for Improvement

  • Simplify and streamline the process for opening a bank account and applying for a loan.
  • Banks must do more to advertise and market their products to increase awareness among SME owners.
  • Develop short- to medium-term loan products that meet the needs of SMEs, such as working capital and equipment purchase loans.

Key Findings

  • 22% of SME owners need short-term financing to purchase raw materials.
  • 24% require short-term financing to increase the quantity of goods they have to sell.
  • 55% of SMEs sell on credit, while 47.8% purchase materials on credit.

Conclusion

The report’s findings emphasize the need for policymakers and financial institutions in Iraq to improve access to finance for SMEs through a range of measures. By simplifying loan application processes, improving communication and training campaigns, and developing new loan products, it is possible to support the growth and development of Iraqi SMEs.