Prepared by PhD Student / Asst. Lecturer Abbas Abdul-Ali Karim

Microfinance in Iraq is viewed as a practical tool to bridge the clear gap between the needs of thousands of micro and small enterprises and what traditional banking channels can actually provide. The importance of this role increases when we consider that small and medium-sized enterprises (SMEs) are among the key pillars for stimulating the Iraqi economy, given their capacity to create jobs, activate local markets, and support production and services across various sectors.
However, indicators show that access to finance for these projects remains limited. The obstacles are not purely financial; they also include collateral requirements, weak credit information, the structure of the financial sector, limited banking culture, administrative complexities, low product diversification, and insufficient coordination among relevant stakeholders. Hence, there is a need for an integrated national program aimed at improving the financing environment in Iraq through developing appropriate financial instruments, simplifying procedures, and strengthening partnerships between the state, the private sector, and financing institutions. This would help direct funding toward the most viable projects and contribute to more stable and inclusive economic development.

The table below presents a group of institutions operating in microfinance in Iraq, classified by type and activity. It includes microfinance institutions and organizations that provide loans and services to low-income groups and small projects, in addition to licensed SME finance companies listed by the Central Bank of Iraq. The website column provides official links for verification and use in studies and reports.

Table (1): Microfinance Institutions in Iraq

Institution	Type	Website
Vitas Iraq	Microfinance institution	https://vitasiraq.com
Al-Thiqa	Microfinance institution/organization	https://al-thiqa.org/
Amalkom for Economic Development	Microfinance institution	https://amalkom.org/
Izdiharona for Economic Development	Microfinance-related organization	https://new.izdiharona.com/
Al-Aman Iraqi Center	NGO providing loans to small projects and low-income groups	https://amanfinance.com/
Iraqi Company for SME Finance (ICFSME)	Licensed non-bank SME finance company listed by the CBI	https://cbi.iq/page/25
Al-Oula for SME Finance	Licensed non-bank SME finance company listed by the CBI	https://cbi.iq/page/25

Source: Prepared by the author.

The Iraqi Company for SME Finance represents a non-bank financial institution that enhances access to funding by offering financial products tailored to entrepreneurs and project owners. It acts as a complementary link to the banking sector in an environment where projects face difficulties obtaining loans due to collateral requirements, procedures, or limited specialized financing services. The company finances multiple sectors—commercial, agricultural, industrial, service, and health—thereby stimulating the local market and supporting production and services. Its vision focuses on supporting the private sector and improving living standards through effective project financing and capacity development, while its objectives center on sustainable development and reducing poverty and unemployment through direct lending that benefits both individuals and society.

Financial indicators for the period 2009–2024 show the evolution of three main variables: loan portfolio, owned capital, and total assets.
Between 2009–2011, lending was the main driver of the balance sheet, with loans in 2009 reaching IQD 7.056 billion against assets of IQD 7.387 billion (about 95%). Owned capital rose significantly from IQD 317.5 million in 2009 to IQD 2.76 billion in 2011, alongside capital increases that strengthened risk-bearing capacity and supported the loan portfolio.
In 2012, loans jumped to IQD 20.017 billion and assets to IQD 23.216 billion, supported by capital increases including shareholder contributions and a U.S. grant.
In 2014, there was a strong capital reinforcement, with owned capital reaching IQD 17.077 billion and assets IQD 27.928 billion, reflecting a focus on strengthening equity rather than expanding lending.
During 2015–2017, indicators were relatively stable with a more conservative credit policy.
From 2018–2021, loans declined gradually while assets increased, indicating a shift toward liquidity management through deposits and investments rather than relying solely on lending.
In 2022, loans dropped to IQD 11.036 billion despite stable assets, coinciding with the transition to a direct lending model approved by the Central Bank and operationalized in February 2022, including allocating 20% of accumulated surplus to loan system development.
In 2024, a relative recovery appeared, with loans rising to IQD 12.218 billion, short-term project loans increasing significantly, the number of loans growing by 150%, and the client base by 79% compared to 2023.
Nevertheless, the external auditor recommended 100% loss provisions for long-term loans granted through some local banks due to non-repayment, representing 82% of the total credit portfolio. This explains the greater reliance on lower-risk income sources, as investment interest accounted for 77% of total revenues in 2024.

Conclusions

Microfinance in Iraq operates within an environment characterized by strong demand from SMEs alongside constraints that limit credit expansion and sustainability. Financing needs are often operational and productive, requiring fast, flexible funding, yet access is hindered by collateral issues, weak credit data, complex procedures, and limited financial literacy. Non-bank financial institutions can play an important role in closing part of the financing gap, but their effectiveness depends on risk management and portfolio diversification. Thus, the core issue is not merely the availability of funds but the quality of the regulatory environment, risk-mitigation mechanisms, and accessibility of transparent financial services.

Recommendations

• Develop targeted SME financing programs with flexible products and simplified procedures while maintaining financial sustainability.
• Activate effective credit guarantee schemes for borrowers lacking traditional collateral.
• Improve credit assessment using cash-flow-based data rather than relying solely on real estate collateral or guarantors.
• Support digital transformation in lending operations to reduce costs, accelerate approvals, and enhance monitoring.
• Promote financial literacy among entrepreneurs to reduce default risk and build trust between borrowers and lenders.
• Strengthen coordination between government, private sector, and financial institutions to improve the business environment and reduce bureaucracy and corruption.
• Integrate microfinance within a broader economic policy aimed at private-sector development and diversification, linking finance with capacity-building, training, and business support to ensure that loans translate into real growth, production, and employment.

Sources

• Iraqi Company for SME Finance reports (2009–2024).
• Central Bank of Iraq (2025), Non-Bank Financial Institutions Report (Chapter Four – 2024), Statistics and Research Department, Monetary and Financial Stability Division.