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New Sector, Familiar Challenges: Microfinance in Iraq

Already facing challenges such as a restrictive legal and regulatory environment and limited products and services offered by Iraqi microfinance institutions (MFIs), Iraq’s microfinance industry is now dealing with intensified conflict and instability. In addition, there is a large unmet demand for microfinance products and services. According to the Global Findex Report, only eight percent of Iraqis 15 years and older received a loan from a financial institution in 2011, while five percent saved at a financial institution, and Iraq’s MFIs were only serving 1.3 percent of Iraq’s poor population in 2012. The industry’s experience working under conflict conditions from its inception in 2003 may, however, help the industry weather new challenges and continue to grow.

The Iraqi microfinance industry as a whole faces challenges familiar to other such sectors around the globe, such as:

  • A lack of experienced MFI staff,
  • A limited range of products and services,
  • The need for a more favorable legal and regulatory environment, and
  • A lack of funding to allow the industry to expand

There has also been a significant decline in portfolio quality, largely as a result of Iraq’s deteriorating security situation. Furthermore, all MFIs are currently registered as NGOs under Iraq’s NGO Law of 2010, which prevents MFIs from accessing important sources of capital for expansion. Despite the sector’s achievements, donor funding, which is the primary source of capital for NGO MFIs, is becoming scarce. NGOs in Iraq cannot raise equity or take deposits, and only a limited number of local investors and banks are willing to lend to MFIs (although a few MFIs have approached banks to obtain loans). While NGOs are not legally prohibited from borrowing, local banks are reluctant to lend without any collateral or legally liable owners.1

The SEEP Network recently had the opportunity to work with the national microfinance association, the Iraqi Microfinance Network (IMFN), and some of their members while conducting a capacity assessment utilizing SEEP’s Network Capacity Assessment Tool (NCAT). The various interviews conducted with external stakeholders demonstrated that IMFN has become a key actor in the microfinance sector in Iraq. Although IMFN was registered with the Iraqi government in 2012, it only became fully operational in March 2013. IMFN currently has 11 MFI members—90% of the market players.

Despite the sector’s many frustrations, IMFN has been making strides to address and overcome these obstacles. SEEP’s assessment found that IMFN has built a solid institutional structure with relatively sound governance and good external relations within Iraq—a significant accomplishment given the continued civil conflict in the country, the nascent microfinance industry, and the limited donor involvement in Iraq.

To promote a positive image of microfinance, IMFN organized a national conference in January that helped to mobilize stakeholders, to raise the profile of needed sectoral reforms, and to strengthen IMFN’s credibility domestically. One of IMFN’s primary initiatives, in cooperation with The World Bank and the Iraqi public sector authorities, is a legal and regulatory reform effort to allow Iraqi MFIs to obtain a new legal status. This status would enable them to more easily access the capital needed for growth, while also strengthening Iraqi government oversight of the sector.

IMFN and its members are pursuing several promising initiatives to enable IMFN to implement the recent NCAT recommendations, including finalizing a strategic and business plan, and hiring staff to oversee reporting and financial management.

Hopefully the political situation will stabilize soon, allowing the IMFN to move forward on their important agenda of bringing financial services and economic development to low-income Iraqis.


Patrick Connors is a consultant working with The SEEP Network on the Responsible Finance through Local Leadership in Sub-Saharan African Program. Patrick facilitated this NCAT.


1. "The Legal and Regulatory Framework for Microfinance in Iraq," June 2014. World Bank & Consultative Group to Assist the Poor.

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