Over the past few years, MicrofinanceInstitutions (MFIs) in Iraq have emerged as credible sourcesof financing for low-income households and entrepreneurs,both underserved by conventional banks. Microfinanceservices in Iraq, however, are still nascent and far frommeeting their full potential. Similar to many countries inthe MENA region, MFIs in Iraq were set up asnon-governmental organizations (NGOs) supported by a steadyinflux of donor funding. While these NGOs were initiallyable to grow through donor support, they are now strugglingto meet increasing client demand as donor resources havedwindled, preventing them from making the necessaryinvestments in capital and infrastructure to meet growingclient demand. Many countries address this funding challengeby allowing institutions to provide financial services ascompanies or banks, helping them raise capital, provide newservices, and increase their outreach in a sustainablemanner. A similar path could be envisioned in Iraq, but iscurrently obstructed by regulatory hurdles. This diagnosticreport aims to present and assess the current microfinancelandscape in Iraq, including the legal and regulatoryframework, recommend policy improvements to enhance thesustainability and operating environment for MFIs and theirclients. This report argues that the current legal andregulatory environment for microfinance in Iraq hinders thegrowth and sustainability of the sector and furthermoreadvocates several short and medium term policyrecommendations to enhance the overall operating environmentfor MFIs, the sustainability of the sector, and impact for clients.
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