Iraq historically has an active informal finance sector that has operated for centuries. These mostly include family- or village-based rotating savings and credit societies. Microfinance based on international best-practice standards only began in 2003. It started as a supply-driven initiative promoted by Provincial Reconstruction Teams. This approach well served short-term military stabilization needs and the surge through 2007. Iraqis quickly got employed or started gainful businesses. The opportunity and potential of microfinance to become institutionalized and mainstreamed into the financial sector on a long-term basis was not as well recognized then as it is in 2010.

Growth in outreach to clients was as high as 78% per annum through December 2007. Into 2010, annual growth has stablized at 39%. While dynamic, the industry continues to face problems including, among others, lack of capital and institutional capacity to meet the significant demand for quality financial services. It is estimated that the industry only serves at most 6% of the potential demand in terms of clientele and their families1. The industry also is not well supported at the macro level in promoting an enabling environment that has a legal and regulatory framework that serves licensing and regulatory needs, credit bureau services, performance monitoring systems, etc. Poor public security in Iraq also continues to adversely affect the industry’s potential for greater growth.

Activity Levels of the Iraqi Micro Finance

The support provided to IMFI partners and for the industry as a whole is comprehensive. It is provided in the context of a global approach for building inclusive financial systems, or microfinance: from the macro through the meso down to the micro levels.

• Macro Level
• Meso Level
• Micro Level

The macro approach fosters a conducive enabling environment framework that defines how the government can support the microfinance industry. There is an international consensus that governments should enable the building of inclusive financial systems, and not provide them directly. MFI partners started macro-level work in Iraq in 2009. There will be increased effort on the macro approach in 2010 and beyond.

The meso approach develops an institutional and human resource infrastructure that supports MFIs collectively. It is an approach that is more economical and effective than working with MFIs on an individual basis in a wide variety of areas.

The micro approach continues to focus on assisting MFIs individually and will continue to be a priority work area. The micro approach will focus on the delivery to MFIs those things developed at the meso level such as on-site advice, continued training, and transparency and performance assitance.