Iraq – Access to Credit Project

Stimulating Business Investment & Creating Employment in the Private Sector

Iraq continues to face exceptional political and economic uncertainty despite efforts to stabilize the country and build mechanisms for democratic governance. Signs of progress and improved security are evident in many parts of the country. However, the challenges of rebuilding damaged infrastructure, restoring civil society and revitalizing the economy remain, and the danger of violent insurgency destabilizing daily life is all too real. Widening access to credit at the micro, small and medium enterprise and individual levels has the potential to stimulate Iraq’s grassroots economy and encourage entrepreneurial ventures that generate employment for economically displaced Iraqis.

Under a $3 million grant from the U.S. State Department’s Targeted Development Program, ACDI/VOCA implements the Access to Credit in Northern Governorates of Iraq project (ACNI). The project supports the evolution and sustainability of an Iraqi nongovernmental organization (NGO) that is engaged in small and medium-sized enterprise (SME) lending in the northern governorates of Iraq. ACDI/VOCA created a locally registered financial institution named Al-Thiqa in early 2004 and began providing technical assistance under a grant from the Coalition Provisional Authority. From early 2006 through mid-2008, ACDI/VOCA continued providing technical assistance and funding to Al-Thiqa under the USAID-funded Izdihar project. The focus of ACDI/VOCA’s activities for the past four years has been to build the institution’s capacity to become financially sustainable—that is to have the ability to cover not only expenses but also the cost of capital, either real or imputed, and keep up with inflation—by 2011. Al-Thiqa has already become operationally self-sustainable, and thus able to cover costs through its revenue, but achieving financial sustainability is more difficult, especially in Iraq’s highly inflationary environment.

Capacity building and continued expansion, both in scale and outreach, will continue under a recent award where Al-Thiqa serves as the prime implementer and ACDI/VOCA as its subrecipient. Since its inception, Al-Thiqa has disbursed 32,069 loans valued at over $84 million. As of July 31, the institution had an outstanding loan portfolio of $19.2 million extended to 10,837 borrowers, of whom 16 percent are women. Loan products include taxi loans, agricultural loans, housing loans, and small and medium enterprise loans. Loan sizes range from $500 to $25,000, with the average being about $2,933.

One of the challenges of working in Iraq has been offering conventional loans because of the prohibition in Islam against charging interest. To respect Islamic traditions, Al-Thiqa charges fees on all loans up front and thus has received fatwas—which are legal pronouncements made by muftis (Islamic scholars or expounders on Islamic law)—officially condoning the institution’s work. There has been a growing demand in some areas for truly Islamic products, and the institution is planning to introduce Islamic products specifically designed to adhere to Islamic law.

The institution has had all-Iraqi management since January 2006. Empowering local staff from early on is central to ACDI/VOCA’s philosophy and our commitment to sustainability. In the short term, this presents the enormous challenge of engaging staff in democratic and transparent decision making for the benefit of the institution. However, in the long term, all-Iraqi management leads to the creation of viable local institutions and a sense of ownership by staff, which is key to ensuring its continuation.

For more information contact Nadia Namken at nnamken@acdivoca.org

Updated: 8/09

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