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Rebuild Iraq by Iraqi Hands Conference July 23-25, 2007 Al Rasheed Hotel, Baghdad

Rebuild Iraq by Iraqi Hands Conference July 23-25, 2007 Al Rasheed Hotel, Baghdad. Presented by: Cliff Ruder Laila Kuznezov Tim Shumaker. What is Microfinance?. Step 1: Client interview and loan application is submitted. Loan officer makes customer contact. Loan Officer conducts

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Rebuild Iraq by Iraqi Hands Conference July 23-25, 2007 Al Rasheed Hotel, Baghdad

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  1. Rebuild Iraq by Iraqi Hands ConferenceJuly 23-25, 2007Al Rasheed Hotel, Baghdad Presented by: Cliff Ruder Laila Kuznezov Tim Shumaker

  2. What is Microfinance? Step 1: Client interview and loan application is submitted Loan officer makes customer contact Loan Officer conducts Client interview Customer fills out loan application Step 2: Loan Application processed and loan is disbursed Loan Committee makes credit decision: Approved, Declined or Additional information is needed If loan is approved, customer fills loan agreement and provides Collateral (personal guaranty or R/E) A check is disbursed for loan amount. Borrower collects his cash from bank less any interest and fees (all paid upfront). Step 3: Loan repayment Borrower applies for a second loan. If he/she has paid as agreed, loan is approved for a higher loan amount. Customer makes monthly loan payments at bank or the MFI branch Loan is fully paid.

  3. There are six microfinance institutions (MFIs) operating in Iraq that lend to micro and small business enterprises. Loans range from US $500 - $25,000 and up to a 12-month term. 1.CHF: With headquarters in Hilla, Babel, the organization has 11 offices in Iraq. 2. AL-THIQA: With headquarters in Kirkuk, the organization has nine offices covering the North.3. RELIEF INTERNATIONAL: With headquarters in Suleimianiya, the organization has three main offices and three satellite offices in Suleimaniya, Wassit and Missan. 4. AL-AMAN*: With headquarters in Kirkuk, the organization has two offices covering Kirkuk. 5. AL-BASHAIR*: With headquarters in Mansour, Baghdad, the organization has one office in Mansour (Izdihar compound) and covering all of Baghdad. 6. NINEWAH BUSINESS CENTER (NBC): MosulPlanned Institutions:MADINAT AL-TAKADUM: Al-Qaim (August 2007)FALLUJAH and RAMADI (Fall 2007)Al-INTILAQ Tikrit, SalahAldin (Fall 2007)

  4. MFI Offices by Province As of April, there are twenty-seven offices of five MFIs in sixteen Provinces.

  5. Snapshot of MF Industry in Iraq (June 2007) Loan Disbursement By number By Value Loans disbursed since inception 52,768 $109,471.162 Women Percentage 12.8% 10.3% Loans Outstanding 19,019 $26,765.351 Women Percentage 13.63% 11.2% Total Employees = 425 Total Loan Officers = 130

  6. Why Microfinance and SME Lending? • Large number and huge market potential: 90% of Iraqi businesses are in the MSME sector • Responsive to market needs • Provide jobs and “downstream” economic and social benefits • Less price sensitive compared to large-sized enterprises • Greater customer loyalty • Greater cross-selling potential • Better repayment performance as they do not want to endanger access to financial services

  7. Impediments to Finance in Iraq • Start-up lending and Non-Established Businesses • Currently, MFIs do not offer a product designed for start-ups, only for expansion of existing businesses, this impedes growth of new businesses. Banks are reluctant to lend to SMEs. • “Mezzofinance” • There is a gap between microlending to MSMEs and traditional bank lending which makes restarting a damaged business difficult. This problem is especially relevant in the current unstable environment. • Bankable Businesses • There exists little knowledge of modern business planning. An appropriate business plan is necessary parts of an acceptable loan application. • Policy, Legal, and Regulatory Hurdles • Microfinance is new. There are organizational difficulties under NGO Law and Company Law, and lack of comprehensive oversight scheme. Interest rate/usury issues exist.

  8. What is Being Done About It? ICBG: SME Loan Guarantee Fund for Private Banks • ICBG guarantees an amount up to maximum of 75% of the loan provided through a participating bank, accrued interest is guaranteed for a period not exceeding 180 days (6 months). • ICBG will guarantee loans with volumes ranging between the ID equivalent of $5,000 and $250,000. • A 2% Guarantee Fee is charged per annum on the guaranteed portion of the loan and accrued interest. The fee is calculated and payable on the reducing balance. • Loans with terms of up to 5 years can be guaranteed to any business that is not “excluded”.

  9. What is Being Done About It? • SBDCs • Izdihar sponsors the course How to Start-up or Improve a Businessat 5 SBDCs across Iraq. This course provides training on business planning, management, and marketing, thus providing participants with the necessary skills to access finance. • SBDCs work together with MFIs and local banks to provide loan referrals for trainees with potentially bankable business ideas.

  10. What is Being Done About It? • Policy, Legal, and Regulatory • Microfinance regulation to allow MFIs to register and receive a lending permit through the CBI. • Establishment of a microfinance network to provide advocacy for legal and regulatory reforms. • Secured transactions law to make lending more viable.

  11. What can the GOI Do About It? • A key issue is the role of the government, which is to enable financial services: • National governments should set policies that stimulate financial services for businesses and borrowers while at the same time protect depositors. • Governments need to maintain macroeconomic stability, avoid interest rate caps, and refrain from distorting markets with subsidized, high-default loan programs that compete with banks and MFIs and that prevent the financial sector from developing. • Governments should also clamp down on corruption and improve the business environment, including access to markets and infrastructure.

  12. Microfinance Frequently Asked Questions • Can I contact the MFI’s directly? • For security and management purposes, we would prefer that communication be channeled through Izdihar. Please email loan@izdihar-iraq.com if you have a specific question about an MFI in Iraq or if you have information about a small business seeking access to credit. • Can I contact the SBDCs? • SBDC information is available at www.sbdc-iraq.com • For more specific information regarding SBDC services, contact Susanne Jalbert, Izdihar’s Business Development Services Component Director, at sjalbert@izdihar-iraq.com • Where can I find more information about microfinance in general? • These websites are good resources: www.microlinks.org, www.seepnetwork.org, and www.microfinancegateway.org

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