DINAR REVALUATION REPORT: Financial Inclusion in Iraq: Current Landscape and Future Aims, 18 SEPT

 Financial Inclusion in Iraq: Current Landscape and Future Aims

Financial inclusion in Iraq has been a significant focus in recent years, with efforts aimed at enhancing access to financial services for both businesses and individuals, particularly those in vulnerable populations. As of September 17, 2024, the situation in Iraq presents a picture of progress and potential, yet challenges remain. 1  3  5

Current State of Financial Inclusion in Iraq

Low Uptake of Financial Services

Historically, Iraq has faced challenges with financial inclusion, with less than 20% of adults holding bank accounts with formal financial institutions as of 2021, according to the Global Findex Database. 1 This scenario is further complicated by the fact that less than 5% of micro, small, and medium-sized enterprises (MSMEs) use bank lending, limiting their growth prospects and the country's overall economic development.

Initiatives to Enhance Financial Inclusion

To address this gap, initiatives like the SheCan program by the World Food Programme (WFP) have been launched. SheCan is designed to bridge the financial inclusion gap for vulnerable populations, specifically targeting women and smallholder farmers.  2 By collaborating with local financial service providers, SheCan designs and implements gender-responsive lending products tailored to the unique needs of these groups.

Recent Surge in Financial Inclusion

Notably, Iraq has witnessed a significant surge in financial inclusion, with a reported increase of 48.5% in the current year, as announced by the Iraqi Private Banks League (IPBL). 3 The IPBL attributes this change to government-backed initiatives and aims to achieve a 60% financial inclusion rate by the next year.

Future Aims and Challenges

Aiming for 60% Financial Inclusion

The IPBL's target of achieving a 60% financial inclusion rate by the next year is ambitious but reflects the commitment of the Iraqi government and private sector to improve access to financial services. Efforts are being made to integrate financial literacy into school curricula and provide continuous training to develop the necessary infrastructure.  3

Economic Challenges and Opportunities

Despite these efforts, Iraq faces significant economic challenges, including dependence on oil revenues and vulnerabilities to oil price volatility. The International Monetary Fund (IMF) has highlighted the need for fiscal adjustments and private sector development, including labor market reforms, financial sector modernization, and restructuring of state-owned banks. 5

Promotion of SMEs and Access to Finance

Recognizing the role of SMEs in job creation and economic growth, projects like the Promotion of Small and Medium Sized Enterprises (SMEs) in Iraq, supported by the International Labour Organization (ILO), aim to provide sustainable access to financial services for SMEs and startups, with a focus on youth and women.  6

G20 Financial Inclusion Indicators

The G20 Financial Inclusion Indicators Database offers additional insights into Iraq's financial landscape but does not provide specific figures as of the latest update. 4

Conclusion

Financial inclusion in Iraq is on the rise, driven by government and private sector initiatives, as well as support from international organizations. The country's efforts to improve access to financial services for individuals and MSMEs, particularly those in vulnerable populations, are crucial for economic growth and social well-being. However, significant challenges remain, necessitating further reforms and investment in infrastructure and education.