Microfinance Loans Help Entrepreneurs Start Businesses and Create New Jobs

Dec. 23, 2009 - Executives from ten microfinance organizations gathered in the city of Dohuk recently for a Microfinance Partners’ Conference sponsored by the USAID-Tijara Provincial Economic Growth Program. Part of the discussion at the three-day event centered on regulatory and technical issues. But the bulk of the time was spent studying new ways to extend micro credit to Iraqis hoping to start or expand their first business.

“Microfinance began as a revolution to eradicate poverty by providing loans and financial services to the poor,” said USAID-Tijara microfinance team leader Mohammed Junaid in his opening speech at the conference. “Today, we know that poor people are just as credit-worthy as the rich. Low income Iraqis don’t want charity. Microfinance institutions are businesses that benefit society.” There was no microfinance industry in Iraq six years ago. State banks gave loans to state enterprises and a small number of businessmen loyal to Saddam Hussein’s Baath Party. Those without political connections had recourse only to loan sharks, who charged in excess of 50% interest. Today, there are ten microfinance institutions (MFIs) operating in all of Iraq’s 18 governorates that lend to micro and small business enterprises. Loans range from $500 to $25,000 in size and must be repaid in 12 months. Interest varies depending on the size of the loan and the area where it is obtained, but the rate invariably drops when a credit-worthy borrower applies for a second loan. Since they work in different parts of the country, Iraq’s ten MFIs adapt their financial services to local borrowers’ requirements. After potential clients objected to interest being charged on loans, Al-Takadum, an Al-Anbar MFI with offices in Ramadi, Falluja and Qaim, and Al Mosaned, an MFI serving the governorate of Salah ad Din, responded by offering murahaba Islamic loans, which levy a service charge instead of interest. Today, those two microfinance organizations have overcome initial resistance and together have made 8,340 loans totaling $16,325,867. Small loans make a difference over time. Since July 2003, when the first MFI working with the U.S. Agency for International Development began operation, some 200,000 loans worth more than $370.7 million have been made. Of that amount, 13% have gone to female borrowers like Dohuk’s Adla Saleh Azez. She used three microfinance loans from Al-Thiqa Small Business Loan Fund to establish the Havel Academy of Sewing. Adla’s academy teaches professional sewing skills to ten women a month, many of whom are widows with dependent children. “These women come to me to learn how to make a living sewing,” explains Adla. “Most return to their villages to set up their own business. Next month I plan to apply for a fourth loan that I will use to go to Turkey to buy patterns and special sewing equipment to make wedding dresses,” she adds. “The loans from Al-Thiqa have made a real difference in the lives of dozens of women, myself included.” To ensure repayment, MFIs require borrowers to provide a guarantor, who usually is a government employee. This safeguard, however, excludes the poorest of the poor who don’t have friends working for the Iraqi government. So, earlier this year, MFIs working with USAID-Tijara began offering group loans. These loans are structured so that a person in an impoverished neighborhood can receive a small loan (typically $650) by forming a group, each member of which serves as a guarantor for the others. Over the past four months, 8,345 Iraqis - 17% of them women - have received group loans collectively totaling $8.9 million. Prior to the start of the conference, the MFIs participated in a colorful marketplace attended by Dohuk Deputy Governor Kurdo Asaad. The event allowed conference participants to compare best practices and display financial service packages tailored to their specific communities. A January 2009 United Nations study found that men between the ages of 15 to 29 face 28% unemployment. By helping entrepreneurs to start and grow their businesses, microfinance loans are instrumental in creating jobs and improving livelihoods. Microfinance loans from MFIs working with USAID-Tijara resulted in more than 129,886 jobs being sustained or created. People with jobs do not join militias. Many of the group loans disbursed in Najaf and Karbala are held by former members of the Mahdi army who are earning more money as traders than they did serving religious extremists. “Micro, small and medium enterprise loans are the most efficient way to create jobs,” said Ahmad Abdul Kareem, director of operations for the Izdiharouna microfinance organization in southern Iraq. “Over 1.8 million Iraqi families have an income because of revenue generated by a small, privately-owned business. I send loan officers out into the community every day to let poor people know that they have as much right to financial services as the rich.” The conference materials are :

• Overview

  1. MFI Partners Conference Agenda.
  2. Status Report on Microfinance in Iraq.
  3. Participant List of MFI Partners Conference.
• Presentations
  1. Microfinance: From Microfinance Revolution to Inclusive Finance Evolution.
  2. Microfinance in the Middle East North America Region.
  3. A Case Study of Best Practices in MFI Transformation.
  4. Commercial Banking Presentation CHF.
  5. Inclusive Financial Sector.
  6. Group Lending.
  7. The Client Protection Principles in Microfinance.
  8. Transparency.
  9. Governance of Microfinance Institutions.
  10. Microfinance Grants Management.
  11. Microfinance Training: A Briefing.
  12. Reporting Requirements.
  13. An Introduction to IMFI.org.
  14. Hands On www.IMFI.org.
  15. Blacklist Subsystem Presentation
  16. IMFI Blacklist User Guide.
  17. An Introduction to ICT Policies and Procedures Presentation.
  18. An Introduction to ICT Policies and Procedures Handout.
  19. Information Technology Policies and Procedures A Template Prepared by MASSCAP's Information Technology Committee.
  20. Business Continuity Disaster Recovery Planning Introduction and Workshop Presentation.
  21. Business Continuity Disaster Recovery Planning Introduction and Workshop Handout.
  22. ICT Asset Inventory Sample