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.