Small and medium enterprises (SMEs) are the engine of economic growth worldwide, and provide many if not most of the jobs outside of the public sector. Iraq is no exception. SME access to credit is essential to provide sustainable employment opportunities and improve the living of Iraqi people.

Unfortunately, SMEs in Iraq have a low level of access to finance. Less than 5 percent of Iraqi SMEs have received a bank loan. Indeed, less than 10 percent of SMEs even have a bank account.

The USAID-Tijara program is focused on increasing SME access to bank loans, which is the most important outside source of finance for SMEs.

The USAID-Tijara SME Banking strategy has three pillars:

• Risk Reduction: Guarantees of up to 75 percent on SME loans are offered through the Iraqi Company for Bank Guarantees (ICBG), www.icbg-iq.com. Capitalized by USAID and 15 Iraqi private banks, ICBG has guaranteed over $20 million in bank loans to SMEs since its founding in 2006.
• Funding: The Iraqi Company for Financing SMEs (ICF-SME), www.icfsme.com provides attractively-priced finance to Iraqi private banks for on-lending to SMEs. Capitalized by USAID and nine private Iraqi banks, ICF-SME has funded over $10 million in new loans and has leveraged nearly 30 percent co-funding from banks.
• Capacity Building: The USAID-Tijara program offers training and technical assistance to eleven Iraqi private banks. Our Training of Trainers program is building the in-house capabilities of our partner banks, as well as setting the stage for a major new training program to begin in the latter half of 2010.

International experience has shown that the best way to increase bank credit to SMEs is to show banks that SME banking can be good business. Worldwide, banks successfully lending to SMEs have shown that, even on a risk-adjusted basis, SMEs can be highly profitable, even more so than corporate or retail customers. To this end, USAID-Tijara is complementing its ongoing capacity building at the operational and middle-managerial levels with increased engagement at the highest levels of our partner banks.

You may reach the SME Banking team at banking@tijara-iraq.com.