Iraq Reconstructs Thanks to Microfinance Industry

10 August 2009 - Governing board members and executives from 12 microfinance organizations along with financing specialists from the U.S. Agency for International Development’s Tijara Provincial Economic Growth Program recently gathered in the Kurdish mountain town of Shaqlawa to assess the state of the microfinance industry and the vital role it plays in business creation and economic growth in Iraq.

Started in 2003, the modern microfinance industry provides investment capital to poor and low-income Iraqis seeking to start or expand businesses. Working capital and interest-free Islamic loan products are the main services available. Loan amounts range from $500 to $3,000 and usually repayable within 12 months. Currently, more than 46,000 Iraqis have loans collectively worth nearly $72 million. More than 14 percent of the loan clients are women. Al-Takadum is a microfinance institution born out of surge and stabilization efforts in Al Anbar Province. Started in AIraq Reconstructs Thanks to Microfinance Industryugust 2007, it serves the people of the province with offices in Al Qaim, Falluja and Ramadi. It specializes in Al Murabaha (Islamic) lending and works closely with the province’s tribal sheiks. “Our company helps people rebuild homes and offices that were destroyed in military actions,” said Ramadi Mayor Latif Obed, board chairman of Al Takadum, at an MFI conference seminar on working in challenging environments. “Most of our Islamic loans go for home improvement.” Almost 78 percent of the microfinance loans made in Iraq by the 12 institutions supported by USAID-Tijara are used to start or improve businesses such as production, services, trading and agribusiness. The remaining 22 percent goes for home improvement. Many of the homes are renovated in order to start a cottage industry. A sizeable percentage of Iraqi’s neighborhood barbers, cosmetologists and seamstresses work out of rooms in their private residence.
The major difference between a conventional loan and an Islamic loan, is that a conventional bank charges interest while an Islamic lender does not. An Islamic lender makes a “profit” on the use of his money without charging “interest.” Instead of lending a home builder $5,000 at 12 percent interest to purchase lumber, the Islamic lender will buy $5,000 worth of it from the local market for the home builder and then sell him the wood for $5,600. The lender earns a 12 percent profit on the transaction. The final result is the same in both conventional and Murabaha loans. The latter differs only in that it follows the Koran’s prohibition against charging interest. The primary goal of the microfinance industry is to provide quality financial services, mostly loans that will stimulate economic growth and create new and higher-paying jobs. In order to help the very poor, microfinance institutions in Iraq now are offering solidarity group loans to eight people or less. The group’s collective promise that every person will repay his or her loan serves as the collateral for it. Al-Thiqa (the Trust) approved five group loans to 15 people during the first month the new loan program was available. Individual loans within the groups average $680 in size. “This type of loan serves the poor people we are trying to help,” says Abbas Al-Saedy, Al-Thiqa’s general manager. Based in Kirkuk, Al-Thiqa plans to offer group loans to women’s groups, handicraft associations and people referred from Iraq’s 10 small business development centers that are supported by USAID-Tijara and Provincial Reconstruction Teams. The most important of USAID-Tijara's economic stimulus efforts is microfinance. It provides poor but aspiring entrepreneurs development capital not available elsewhere. Thousands of small microfinance loans certainly have made a difference in the Province of Salah ad Din where cities like Tikrit and Samarra are rebuilding in an environment of relative safety thanks, in part, to shops, markets and homes reconstructed with loans from Al Mosaned (the Supporter), a Tikrit-based microfinance institution. “We make around 220 loans a month that are collectively worth about $228,000,” says Al Mosaned Executive Director Wakkas Younis Noori. “Our loans keep widows in their homes and allow young men to turn their dreams into businesses.” But the biggest difference between microfinance and banking, Wakkas observes, is one of social responsibility. “Banking is all about money,” says Wakkas. “Microfinance is about people.” The conference materials are:

• Overview

  1. MFI Partners Conference Agenda.
  2. MFI Partners Conference Participant List 28-29 July, 2009.
  3. Status Report on Microfinance in Iraq.
• Presentations
  1. Building Internal Human Resource Capacity to Manage Growth.
  2. Business Continuity / Disaster Recovery Planning handout.
  3. Deepening Outreach Group Lending.
  4. Effective Portfolio Management Practices - A Key Pillar to Microfinance Mainstreaming.
  5. Financial Reports.
  6. IMFI.org and the Blacklist Subsystem.
  7. Institutional Transformation and Rapid Growth 29 July 2009.
  8. Microfinance & Its Expansion in Challenging Environments; Security, Murabaha Lending: The Case of Al Anbar.
  9. MFI Operational Assessments: Purpose, Findings, Future Plans.
  10. Microfinance Grants Management.
  11. Microfinance Training Of Trainers Program.
  12. The Performance Monitoring Tool (PMT).
  13. Transparency in Microfinance: The AL-THIQA Experience.