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Note From Iraq: Investment in Microfinance Paying Dividends for a Growing Class of Entrepreneurs

USAID-Tijara Program
June 6, 2012

In 2004, Susan Abdul-Razak Aziz was well on her way to becoming one of the most successful women in Kirkuk. The frozen pizza, beef burgers, and shish kabobs produced by her Yasmn food company were family favorites due to their quality and convenience. She owned 2 delivery trucks, 3 freezers, 4 meat grinders, and employed 63 people. Supermarkets throughout Central Iraq kept demanding more products, so she invested all her savings in a larger processing facility.

Then one day the call came.

“It was al-Qaeda,” she remembers. “The man said to give him money or get out of town. I told him I supported 63 families and couldn’t afford to pay him anything. He said he didn’t care about the families, he just wanted the money.”

With all her resources committed to a now useless building, Aziz had no choice but to abandon her business and flee to Sulaymaniyah, a relatively peaceful city in Northern Iraq administered by the semi-autonomous Kurdish Regional Government.

Building a microfinance sector despite obstacles

While Aziz lived in agonized self-exile, USAID/Iraq, working with the Louis Berger Group, began crafting a US$140 million private sector economic development program called Izdihar (“prosperity” in Arabic). The program focused on the creation of an indigenous microfinance industry using western benchmarks to measure success.

But success was hardly assured. There was no indigenous microfinance industry to build upon. Two international NGOs operated microfinance institutions, but their outreach was limited. There was no private sector economy of which to speak. Charging interest for the use of borrowed money was prohibited by the Quran. Adding to these economic woes was the rising tide of sectarian violence that made travel difficult and put USAID staff at risk.

Mindful of these obstacles, the project began building an industry that would provide credit and financing to poor but striving Iraqis. In April 2005, USAID began following coalition forces into the heart of the Sunni Triangle looking for people equipped to rebuild communities, revive souks (“marketplaces”), and create credible microfinance institutions. Iraqis selected to lead this effort worked, often at personal risk, with tribal sheiks to devise Sharia-compliant microfinance loans. Their efforts resulted in religious leaders in Al-Anbar province issuing a fatwa, a juristic ruling in Islamic law, stating that the microfinance institutions supported by the USAID-Izdihar program were religiously acceptable.

Rebuilding Yasmn Foods

One of the first indigenous microfinance institutions created was called the Iraqi Al-Aman Center, headquartered in Kirkuk. But news of available credit had yet not reached Sulaymaniyah where Susan Abdul-Razak Aziz lived. When she returned home to Kirkuk in 2005 following an improvement in local security, her employees had scattered, the factory was destroyed, and her trucks and equipment were gone. It was not until 2006 that she noticed Al-Aman had started giving microfinance loans to struggling entrepreneurs.  Al-Aman’s microloans helped small companies grow into larger ones that might then qualify for a small and medium enterprise (SME) loan from a commercial bank.

Al-Aman loan officer Mohammad Taha Hassan had his eye on Yasmn Foods. Like many young professionals who had no time for daily trips to the market, his family often dined on Yasmn frozen entrees. So, when Aziz approached him requesting a US$2,400 microfinance loan he knew this client had potential. “Susan needed the money to advertise her products outside of Kirkuk,” Hassan explained. “She knew that colorful packaging and advertising would make Yasmn Foods grow even faster.”

Aziz used her microloan to hire a graphic designer to decorate the sides of her delivery truck. Money left over went towards in-store display advertising and branded plastic bags that would prevent Yasmn frozen food items from melting too quickly.

Microfinance industry takes root

As Aziz’s business began to grow, so did Iraq’s microfinance industry. Al-Aman in Kirkuk was quickly followed by the Al-Bashaer Iraqi Microfinance Organization in Baghdad. By early 2008, microfinance institutions were firmly established in the provinces of Baghdad, Tameem, Al-Anbar, Salah-ad-Din, Ninawa, Babil and throughout all of the Kurdish Region of Northern Iraq.

These early efforts by USAID-Izdihar to build a solid foundation resulted in an industry prepared for rapid growth when the USAID-Tijara (“trade”) program began in April 2008. “Iraq’s microfinance industry is a model for the region because it was built by individuals with character and commitment to improving their communities,” said Baljit Vohra, a senior Tijara advisor and vice president of Louis Berger’s Integrated Development Group in Dubai.

Iraq’s microfinance industry today has 12 independently operated institutions that employ more than 1,000 Iraqis. Supported with grants and technical assistance by USAID-Tijara, these microfinance institutions serve all 18 of Iraq’s provinces.  Iraq’s microfinance industry has made 377,000 microloans since inception with a total disbursed value of US$1 billion, and these loans have produced or saved 310,000 jobs. As the result of rigorous management, the default rate on loan repayment is just 1.4 percent. There currently are 88,958 active clients with an outstanding loan portfolio of US$135 million. Many are disadvantaged men and women with incomes close to the national US$2.20 a day poverty line who operate businesses, farms, or cottage industries. Small but strategic business loans range from US$500 to $5,000 in size.

Specialized products and services

A variety of financing products are available. Three years ago, microfinance institutions began making group or solidarity loans to small market and neighborhood vendors who guaranteed each other’s repayment. The average size of a loan to an individual in a group is US$800. Today more than 56,642 people – people who couldn’t qualify for a loan in the past – have received nearly US$56.6 million to start or expand a business.

Last year, the Al-Aman Center in Kirkuk began providing Murabaha financing, a mechanism by which an intermediary purchases and delivers goods to a borrower in exchange for a service fee rather than charging interest on a loan the borrower would use to obtain the goods himself. These loans supported young couples that wanted to start a family but lacked the money to furnish homes of their own. Now, thanks to Al-Aman’s “marriage loans,” being poor doesn’t prevent newlyweds from starting a new life together. About 14 percent of all microfinance loans outstanding in Iraq are based on Islamic Murabaha financing.

According to Abbas Saedy, general manager of the Al-Thiqa Organization for Microfinance and chairman of the Iraqi Microfinance Network, in 2011 Iraq’s microfinance industry began providing loans to Iraqi youth hoping to start their first businesses. The industry also increased the number of agricultural loans with flexible alternative collateral options and longer repayment periods linked to seasonal harvests and holiday sales of farm animals. More than 3,800 farmers presently have microfinance loans collectively worth close to US$6.1 million that allow them to improve their land and diversify crops.

“Microfinance gives Iraq’s disadvantaged people the opportunity to become entrepreneurs,” noted Muhammed Junaid, USAID-Tijara’s team leader for sustainable microfinance. “Iraq’s microfinance network will continue to serve this segment of society while maintaining its commitment to financial sustainability and social responsibility.”

Thanks to timely financial assistance from USAID-Tijara and Al-Aman, Aziz’s business is thriving. Over the past six months, revenues have soared 30 percent. Supermarkets in Tikrit, Baji, Mosul, Erbil and Samara now stock her dinner selections. Aziz’s workforce has grown to 27 employees, 70 percent of them women. Today she’s seeking a second loan to buy a US$30,000 meat grinder. “I can increase production 80 percent with better machinery,” she smiles. “I think I’m ready for an SME loan,” she laughs.

You can also watch USAID-Tijara's video series to meet a few of the many Iraqi men and women benefitting from access to microfinance loans.

About Notes From the Field
Notes From the Field are brief stories, usually contributed by field-based staff and practitioners, relating experiences and lessons learned through their microenterprise development and financial inclusion work. Notes From the Field are an excellent way for practitioners to share stories with others and contribute to continuous learning in the microenterprise development field. 


This publication was produced for review by the U.S. Agency for International Development. It was prepared by David DeVoss of the USAID-Tijara Provincial Economic Growth Program.

The views expressed in this publication do not necessarily reflect the views of the U.S. Agency for International Development or the U.S. Government.

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