Post date: Apr 18, 2011 1:35:26 PM
Small businesses in Iraq face high start up costs and little government funding because decades of economic sanctions and war have severely hit the economy, but private banks can help.
BAGHDAD, IRAQ (RECENT - APRIL 10, 2011) REUTERS - Small and medium enterprises (SMEs) struggle to get started in Iraq because of high initial costs and scant government funding, although they have a role to play in satisfying local demand and reviving the nation's war-damaged economy.
Iraq's economy has suffered because of international sanctions under the rule of Saddam Hussein, conditions of war at the time of the 2003 U.S.-led invasion that toppled the former president and a subsequent rise in sectarian infighting.Sabah Jassim is one of hundreds of Iraqis fighting against the odds to establish an SME and then keep it going.
The trained nurse pooled his savings and turned to a private bank to develop a medical clinic in Baghdad after government banks could not provide the funds he needed for his project.
"I asked government banks for help but there was no support for such projects," he said.
Jassim used his savings to fund half the 50,000 U.S. dollar project and received a loan, repayable at an interest rate of 12 percent, from the private bank Ashur for the other half of the the capital needed to set up the business in 2010.
The clinic, which employs 15 people, brings in about 5,000 U.S. dollars a month.
"Thank God, the project is very successful. God willing, I will work on developing it more in the future," Jassim said.
Jassim spends about 850 U.S. dollars a month on electricity, water and other costs to run the centre.
Chronic power and water shortages, ongoing security concerns and high customs tariffs have all made it difficult for the small business sector to thrive.
Iraq has seven state-owned banks and 36 private lenders, but credit is still costly and hard to obtain.
Suha Salim, head of the credit department of the private North Bank, said the bank, which currently has a capital of 107 million U.S. dollars, gives loans of between 5,000 U.S. dollars and 250,000 U.S. dollars at an interest rate of 11 percent on a monthly pay-back basis.
"We support all the economic sectors: trade, industry, health and agriculture. We have 20 projects under our development programme," she said.
The Iraqi Company for Financing SMEs, which was established in 2009 by the United States Agency for International Development (USAID), has helped finance 785 businesses through nine private banks.
It asked North Bank to provide loans to business setting up in areas of high unemployment, for example in Ramadi City, Salim said.
"We gave loans in Ramadi City, they (Iraqi Company for Financing SMEs) asked us to grant loans for the areas with the highest rates of unemployment. We granted loans between 50 and 150 million Iraqi dinars (41,850 and 125,500 U.S. dollars) and they are all successful loans," Salim told Reuters Television.
Salim said North Bank has financed more than 600 SMEs since 2004.
"The bank financed more than 600 project of SMEs and the amount we have given has reached more than 20 billion Iraqi dinars (16,735 million U.S. dollars)," she said.
Iraq's official unemployment rate is 15 percent, although the actual figure is believed to be around 30 percent.
Sherwan Mustafa, manager of the Iraqi Company for Financing SMEs, said that reviving Iraq's SME industry is crucial in helping to resuscitate the economy and create jobs.
"Within this year we are targeting to make 3,000 loans and we will add about, our figures share to 305,000 new jobs," he said.
Most of the SMEs which the Iraqi Company for Financing SMEs funds are in the industrial, healthcare, tourism and agriculture sectors.
It provides loans of between 5,000 U.S. dollars and 250,000 U.S. dollars at an interest rate of 10 percent.
Iraq has around 35,000 licensed industrial projects, but 85 percent of these businesses lie idle and the remaining 15 percent work at 20 percent of their designed capacity, according to Basim Jameel, a member of the Iraqi Industry Union, a support body for industry.