Turmoil tends to devastate and frighten investment. This is the unsurprising case in Iraq where unemployment, not counting underemployment, has run as high as 46 percent in just the southern provinces. Small business development will be and is critical in stabilizing the country, so what room is there for microfinance?
After Saddam’s government fell, Iraq’s financial sector was left bankrupt by failed state projects and unsustainable levels of foreign debt. Notwithstanding this collapse, the banking system had been based upon collateralized loans, and so had excluded roughly 95 percent of the population. Outside of family and other intimate networks, moneylenders and rotating savings and credit associations (ROSCAs) dominated the micromoney sphere. There is room for microfinance, but it requires fostering.
Since 2003, the U.S. Agency for International Development (USAID) has given about $18 million in loans to Iraq’s small business sector. Some of this has fallen under the scope of the agency’s IZDIHAR project, a three-year attempt to promote economic growth in the country. So far, five microfinance organizations have moved in and opened twenty-eight offices around the country. The U.S. State Department has reported that since January of last year, 16,455 Iraqis have taken out USAID loans with an average size of $1,140 and a repayment rate of 98 percent. It is a feeble comparison with the civilian casualty count of 22,586 to 24,159 for the year, but is noteworthy nevertheless.
Microfinance lacks an established history in the country, but undoubtedly holds potential for mobilizing community and national development. We can only hope that policy makers and investors alike capitalize on its promise.