February 6, 2023by GroFinNews and Events

Why do Iraqi entrepreneurs struggle to access finance?

Access to finance is an almost universal challenge for SMEs, regardless of where they are located. However, Iraq’s financial system presents unique challenges that place even greater obstacles in the way of entrepreneurs trying to start or grow a business.

The greatest obstacle Iraqi entrepreneurs face in accessing finance is the surprisingly low banking penetration rate in the country. According to the Global Findex Database, only around 19% of adults in Iraq held a bank account in 2021. Furthermore, only around 4% of adult Iraqis borrowed money from a financial institution or used mobile money in that year.

Abdal Ghany Al Hassani, Senior Investment Manager at GroFin Iraq, explains that for historical reasons, Iraqis have very little trust in banks.

In 1990, Iraq faced an international sanction issued by the United Nations Security Council and many countries banned financial and trade relations with us. This seriously affected the economy and people started withdrawing their money from banks. In response to this crisis, the Central Bank of Iraq instructed banks to refuse money withdrawals, and this created the mistrust that remains entrenched today.”

Al Hassani says this historical mistrust has created a banking system that remains underdeveloped and presents a range of operational challenges for businesses. For example, Iraq has a comparatively low number of banks operating in the country with a limited number of branches serving the population. On top of that, most of these branches only operate until 12:00 or 13:00 every day. The number of ATMs in the country is also very low, which means that people have to go through lengthy procedures to withdraw money.

Despite the country’s tech-savvy population, electronic banking in Iraq is underdeveloped and Iraqi entrepreneurs are deprived of the ease of transacting that their counterparts in other parts of the world take for granted.”

According to a research report released in September 2021 by the Institute for Regional & International Studies, these challenges mean that most SMEs in Iraq operate “off the grid” and outside of the global banking system. For those businesses that do want to open a bank account, the process is also far from simple. All companies are required to be registered with their provincial Chamber of Commerce before they can open a corporate bank account. This registration, in turn, requires them to occupy a brick-and-mortar office (that is not a home) and have a documented attorney and accountant on retainer.

In this environment, the value of a programme like the Orange Corners Innovation Fund (OCIF) that can guide and assist entrepreneurs in developing their start-up businesses is immense. Iraqi entrepreneurs need support not only in developing their business plans and ideas but also in navigating a very challenging environment for young businesses,” Al Hassani says.

Under OCIF, GroFin Iraq is offering workshops and one-on-one coaching sessions to nearly 100 entrepreneurs, participating in the Orange Corners’ incubation programme in Erbil. The programme will provide additional financial assistance and support to a selected group of incubatees. It aims to equip all participants with the skills they need to turn their ideas into successful startups that can be presented to other potential financiers.

Access to finance is not only crucial to enabling startups to grow to ensure the success of the entrepreneurs behind them. Small businesses are responsible for creating the vast majority of Iraq’s private-sector jobs. As such, ensuring that these businesses can access finance – or the tools they need to acquire this access – is crucial in fostering economic growth and boosting employment in Iraq,” Al Hassani concludes.

September 20, 2021by GroFinNews and Events

GroFin’s COVID-19 SME Support Programme helps to save jobs in northern Iraq

GroFin, with the support of USAID through a gift from the American people, has helped to save 386 jobs that were at risk due to the impact of COVID-19 on small businesses in northern Iraq.

GroFin’s Northern Iraq Investments (NII) adapted its existing investment mandate in the region to create a COVID-19 SME Support Programme to respond to the crippling impact the pandemic and associated restrictions were having on small businesses. The Programme provided qualifying SMEs with loans that are interest-free for the first 12 months, after which a concessionary interest rate is applied to the outstanding balance.

The Programme extended a total of $1.5m in financing to 23 businesses during the past year. These businesses operate in a range of sectors and employ a total of 386 people. The jobs sustained included 116 held by women, 106 held by unskilled or semi-skilled workers, and 323 held by young people (younger than 35). The Programme also supported entrepreneurs from several minority groups in Iraq, with nine of the investee businesses owned by a member of a minority group.

In 2019, GroFin launched the Northern Iraq Investments (NII) to help rebuild the local SME sector after the severe damage inflicted on the region’s infrastructure and economy. Ashraf Esmael, Chief Investment Officer, MENA at GroFin, says the COVID-19 SME Support Programme allowed NII to continue its efforts to help rebuild the SME sector in northern Iraq even as the pandemic presented new challenges.

Entrepreneurs in northern Iraq already had to show incredible resilience in trying to rebuild their business after ISIS was expelled from the region and were already in great need of support. NII was created to grow and develop sustainable small businesses to create jobs. But during the pandemic, just preserving jobs became critical.”

The Programme’s beneficiaries included four businesses that had to be rebuilt after they were destroyed or looted by ISIS. When ISIS invaded the city of Mosul, Mohammed lost everything he had invested in his restaurant, Café A1. Mohammed managed to reopen Café A1 but feared his business, which employs nine people, would not survive when COVID-19 measures forced it shut from mid-March to June 2020.

My biggest fear was that I would not be able to sustain my family financially. The loan helped my business survive,” says Mohammed.

The Programme’s investees also included four women-owned businesses. Shilan, the owner of Mia Bella Beauty Lounge in Erbil, says her business was set to open a second branch in 2020 before COVID-19 restrictions forced her to close for over three months. Unable to generate any income during this period, Shilan feared her business and the nine jobs it supports would not survive.

My fears forced me to imagine closing my business and sending my staff home. What would happen to all these people making a living from this business? GroFin’s loan relief was the oxygen that saved Mia Bella from suffocation,” she says.

Impact of NII and NIF in Iraq

$10m

Investments in Iraqi SMEs

1310

Direct jobs sustained

6550

Livelihoods sustained

GroFin’s Nomou Iraq Fund (NIF) has been operating in the south of Iraq since 2013. Together, NII and NIF have invested nearly $10m in Iraqi SMEs, helping these businesses to sustain 1310 direct jobs and 6550 livelihoods.

As the pandemic drags on, economic conditions in Iraq will remain challenging for some time. This outlook only reinforces the need for the finance and support NII and NIF provide to SMEs, as well as the socio-economic impact these Funds have on the lives of Iraqis,” concludes Esmael.

July 2, 2020by GroFinNews and Events

GroFin launches COVID-19 SME Support Fund in Northern Iraq

GroFin, with the support of USAID through a gift from the American people, is extending $1.5 million in financing to help small businesses in northern Iraq overcome the crippling impact of the COVID-19 pandemic.

Ashraf Esmael, GroFin Chief Investment Officer: Middle East, says the pandemic has placed economies under immense pressure and has hit SMEs especially hard. “The sudden halt in trading caused by strict lockdown measures has left many small businesses in Iraq’s Nineveh governate struggling to cover their expenses. We are providing them with the working capital they need to survive and to preserve jobs and livelihoods.”

The Fund offers loans of between $10,000 and $100,000 to existing businesses. The loan tenor is between 12 and 48 months, where the first 12 months is interest free and a concessionary interest rate of 5% is levied for the remaining term.

Esmael says GroFin has moved quickly to adapt its existing programme in northern Iraq to respond to the urgent financing need created by the COVID-19 crisis. In 2019, GroFin launched Northern Iraq Investments (NII) to help rebuild the local SME sector after the severe damage inflicted on the region’s infrastructure and economy when it was invaded by ISIS.

“Our work in northern Iraq has shown us that access to financing is a major obstacle for local entrepreneurs who are trying to rebuild their businesses in a very difficult environment. We knew that we had to adapt our approach in the wake of COVID-19 for NII to fulfil its goal to help grow sustainable small businesses that create jobs,” Esmael explains.

USAID has committed a total of $7.5 million to NII to support business activities and SMEs in northern Iraq as part of its Middle East and North Africa Investment Initiative. This amount includes the $1.5 million set aside for the COVID-19 SME Support Fund.

“USAID is happy to support northern Iraq businesses recover from the economic shock caused by this pandemic,” says USAID Mission Director Dana Mansuri. “This flexible small business loan program is another example of the longstanding U.S. commitment to the people of Iraq. Small businesses are an important driver of growth and recovery, and thus, our ongoing support to private enterprise and entrepreneurship in Iraq is important in helping Iraqis grow, prosper, and build their futures,” Mansuri concludes.

GroFin has been operating in Iraq since 2013 and its funds have already invested $7.5 million in SMEs in the country, helping these businesses to sustain 658 jobs. Its staff in Iraq have also provided technical assistance to over 100 Iraqi entrepreneurs, assisting them in setting up and formalising their businesses to contribute to economic growth and stability. GroFin Iraq currently has offices in both Basra and Erbil, with plans to open a third in Baghdad.

About GroFin

GroFin is a specialist, impact-driven SME financier. We help entrepreneurs succeed by providing them expert advice, continuous guidance, and financing to grow their businesses. We believe that growing small businesses to create sustainable jobs is the most powerful driver of social and economic development that truly improves people’s lives.

Since its inception in 2004, GroFin has invested in over 700 SMEs and sustained nearly 90 000 jobs. Headquartered in Mauritius, we offer financing and support to SMEs in 14 countries in Africa and the Middle East. GroFin is supported by 34 international finance institutions, development organisations, and private funders who have committed nearly $535 million in capital & grants to our funds.