Building an Inclusive Financial Sector in Iraq

Building an Inclusive Financial Sector in Iraq
By Iftin Fatah, Investment Officer, Overseas Private Investment Corporation (OPIC)  |  This article originally appeared on the Center for Financial Inclusion Blog.

Adaweya struggled to support her family after her husband became disabled. With financing for Vitas Iraq, she was able to expand her sewing business, increase her income and provide a better life for her children.

Limited access to credit in the developing world is often exacerbated by conflict, which presents a strong demand for microfinance. In Iraq, for example, only 11 percent of adults hold an account at a formal financial institution, according to the 2014 Global Findex. The Overseas Private Investment Corporation (OPIC), the U.S. Government’s development finance institution, is helping to build a more inclusive financial sector in Iraq through its partnership with Vitas Iraq, a subsidiary of Global Communities, which is a non-profit development organization that partners with local stakeholders across a range of topic areas. Vitas Iraq established Al Tamweel Al Saree LLC (ATAS) as the financing vehicle to support expansion of its operations. In 2012, OPIC provided ATAS with a direct loan to enable the expansion of Vitas Iraq’s portfolio of loans to individuals and to micro, small and medium-sized enterprises (MSME), thereby expanding financial access in Iraq.

The loan, which supports inclusive economic growth in Iraq, also underscores OPIC’s commitment to investing in development in regions affected by conflict. About one-third of OPIC’s global portfolio is in conflict affected regions. By country, Iraq represents OPIC’s second-largest microfinance exposure. OPIC’s commitment to investment in conflict affected regions is based on the understanding that economic stability can help promote political stability. With the support of the OPIC loan, Vitas Iraq has contributed to different facets of Iraq’s economic growth. This includes an estimated 107,500 loans disbursed since 2012, including 26,500 to women and 61,560 to first-time borrowers.

Vitas Iraq lends to Iraqi individuals and small businesses who do not otherwise have access to sufficient capital. It is the largest microfinance institution (MFI) in the country, with a market share of nearly 40 percent and a network of 14 branch offices in 11 governorates across the country. The bulk of Vitas’ operations are in central and southern Iraq – areas that have been less directly impacted by conflict.

Performance and Social Impact
Vitas Iraq offers a wide array of financial products and services from individual loans tailored to MSMEs to home improvement, group, and youth lending. It provides loans up to $25,000 under flexible terms ranging between 8 and 24 months. As of December 2016, ATAS has a gross loan portfolio of $69.8 million which reflects an average annual growth rate of 12 percent since 2013. As of December 2016, Vitas Iraq has maintained PAR30 below 2 percent, despite the uncertain political, security and economic climate in Iraq.

Vitas Iraq and OPIC place a great emphasis on the importance of balancing financial and social impact. Both institutions have endorsed the Smart Campaign, a global effort to integrate client protection into MFIs’ due diligence, investee selection and loan covenants.

Client Focus
“With the support of Vitas Iraq, I was able to overcome the painful ordeal that befell me and provide my family with a decent life.”    – Houssam

Adaweya (pictured above) has been sewing curtains and clothing for several years at her home. Life hit her hard when her husband had an accident at work which left him disabled, leaving her as the sole breadwinner for the family. With the support of three Vitas Iraq business loans, she was able to expand her sewing business, increase her income, and provide education to her three daughters and treatment to her husband. The family was able to move to a better place where Adaweya became a member of a charity distributing clothes to orphans. She hopes to continue to expand her business to cover the whole city and other provinces.

At 26 years old, Houssam, received an incorrect diagnosis and medical treatment that led to complications and paralysis in both legs. Obtaining a loan from Vitas Iraq enabled Houssam to open up a spare parts shop. This was essential in helping Houssam provide a living for his family, as the sole breadwinner.

As these stories highlight, access to finance can be transformative, particularly in post-conflict countries such as Iraq. The work of Vitas Iraq has helped to build an inclusive financial sector in Iraq. Financial products as well as the offering of education and training of entrepreneurs to better manage their loans and business paths has proven impactful to Iraqis as they work to rebuild their society and revitalize their economy.