Iraq’s aspiring entrepreneurs are being held back by the unwillingness of the country’s banks to lend to small companies.
Although the US-led Coalition Provisional Authority encouraged Iraq’s private companies by awarding reconstruction contracts after the end of the 2003 war, a weak banking sector has starved new businesses of credit.
Just 36 largely undercapitalised banks operate in the country, and in June average local currency interest rates for loans of up to five years in length were a prohibitive 16.4 per cent.
The most prominent local lender is Trade Bank of Iraq (TBI), which was established by the Finance Ministry to facilitate Iraq’s international trade and the reconstruction of the country after 2003.
Established in partnership with a foreign consortium led by US investment bank JP Morgan, TBI introduced Iraq’s first international credit card in 2005 and built relationships with an international network of 120 prime banks covering 60 cities in 37 countries.
In 2008, it issued $9.1bn worth of letters of credit and guarantees. But this multi-billion-dollar loan book only focuses on extending credit to Iraq’s large companies; it is not proving easy for local small and medium-sized enterprises to avail themselves of credit.
Foreign-owned banks, such as Bank of Baghdad, part of Kuwait’s Kipco, Credit Bank of Iraq, part of National Bank of Kuwait, and Al-Mansour Bank, owned by Qatar National Bank, enjoy the benefits of their parent companies’ deeper pockets to invest in new technology and offer more diverse products, including lines of credit for small and medium-sized enterprises. Until more of these businesses can get ready access to credit, the Iraqi economy as a whole will fail to live up to its potential.