A well-functioning financial sector iscritical for efficient resource allocation leading toincreased productivity, greater investment, and higheroverall levels of economic growth. This is particularlycritical in Iraq, where years of political instability andviolence have impeded the development of a robust privatesector, decimated infrastructure and institutions, andcaused serious employment challenges. The proportion ofindividuals with access to formal financial servicesincluding credit, savings, and insurance services iscritical for improving household welfare by spurringeconomic activity and helping manage economic shocks.Financial inclusion positively impacts on macroeconomicstability. The extent of financial intermediation causallyimpacts growth, mostly through lower transaction costs andbetter distribution of capital and risk across the economy.Microfinance has in recent years become an importantmechanism to promote financial inclusion and economicdevelopment in Iraq. Microfinance institutions (MFIs) haveemerged as credible sources of financing for low incomehouseholds and microenterprises, both underserved byconventional banks.
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