ILO and KfW join forces to empower small and medium-sized enterprises in Iraq

Despite Iraq's abundant oil resources, the predominant role of the public sector, which contributes only about 30 per cent to national GDP, presents challenges to economic diversification.

The ILO and the German Ministry for Economic Cooperation and Development through the German Development Bank (KfW) have launched a transformative partnership aimed at empowering small and medium-sized enterprises (SMEs) in Iraq.

The new "Promotion of Small and Medium-Sized Enterprises (SMEs) in Iraq program " is a collaborative endeavor that strives to unlock access to sustainable finance, placing a special emphasis on supporting youth and women entrepreneurs. The initiative contributes to fostering decent work opportunities and nurturing a prosperous future for the Iraqi economy.

Despite Iraq's abundant oil resources, the predominant role of the public sector, which contributes only about 30 per cent to national GDP, presents challenges to economic diversification. The nation grapples with high unemployment rates and a complex business environment. According to the World Bank's Doing Business 2020 report, Iraq ranked 172nd out of 190 countries for ease of doing business, with major challenges such as contract negotiation, cross-border trade, and particularly accessing credit (where Iraq ranks 186th out of 190 countries).

A significant impediment lies in the limited access of many Iraqis to finance, with less than 7 per cent of GDP allocated to private sector credit. The Iraqi Company for Banking Guarantees (ICBG) plays a pivotal role in mitigating credit risks but faces obstacles in expanding access to finance for smaller businesses.

The new five-year initiative, spanning from January 2024 to December 2028, secures USD 21,5 million in funding from the German Government through KfW to markedly enhance access to finance for Iraqi SMEs, which comes in line with the priorities of the government program to support the private sector in order to create decent job opportunities, especially for youth and women. It will also work to build the capabilities of the partners in this program, including the Iraqi Company for Bank Guarantees and partner banks, as well as small and medium-sized companies that will benefit from this program.

This program signifies a crucial step towards building a more inclusive and sustainable Iraqi economy. By amplifying the voices and capabilities of SMEs, we not only create jobs but also drive innovation and propel economic growth. Partnering with KfW on this initiative will help ILO to further support private sector to take its role for creating decent and sustainable job opportunities for youth and women.  is a privilege for the ILO", said Maha Katta, ILO country coordinator in Iraq.

“Small and medium enterprises are at the core of a country’s successful economic development- not only in Iraq but also in Germany. They create employment opportunities, foster growth, and contribute to economic perspectives. Together with ILO and the Iraqi Company for Credit Guarantees we address one of the biggest obstacles for SMEs in Iraq: access to adequate financial services,” said Maximilian Rasch, Chargé d'Affaires at the German Embassy in Baghdad.

“Private sector development and particularly small and medium enterprises (SMEs) play a key role in economic growth. Yet, the limited availability of finance to SMEs in Iraq has been identified as one of the most severe obstacles for SMEs’ business to thrive. We are therefore extremely pleased to cooperate with ILO and the Iraqi Company for Credit Guarantees in providing credit guarantees to Iraqi banks so that they can expand their SME business with a special focus on supporting women and start-ups, said Anna-Christine Janke, the Director of the KfW Office in Iraq.

From his side, Mr. Adel Akab, the President of the Iraqi Industries Union, stated, "This program is ambitious for the union, especially since it comes from the International Labour Organization and an industrial state like Germany. With the concerted efforts of all, it will play a significant role in developing these small and medium projects in Iraq."

“The Iraqi Company for Banking Guarantees is the sole assurance institution in Iraq. However, the shortfall in financing remains a challenge for most small and medium-sized projects, leaving ample room for credit guarantee facilities in Iraq to play a significant role in addressing this challenge. We are pleased with this partnership, which will enable the company to fulfill its true role in developing small and medium projects," said Mr. Hussein Thamer, the Acting Director of the Iraqi Company for Banking Guarantees.

“This new joint program aims not only at enhancing access to finance for SMEs, in particular those involving youth and women entrepreneurs, but also serves as a testament to the role of collaboration across various stakeholders, including the UN, the government, local communities and international partners, in Iraq. It further underscores our commitment to creating inclusive opportunities and building a resilient, diversified, and sustainable economy that benefits every Iraqi”, said Ghulam Isaczai, the United Nations Resident Coordinator in Iraq.

Representatives from the Ministry of Planning, the Ministry of Trade, Iraqi Private Banks League, and various representatives from different partnering entities concerned with the development of the private sector attended the launch ceremony.

The "Promotion of Small and Medium-Sized Enterprises (SMEs) in Iraq" program envisions transforming the Iraqi SME credit system to foster decent work opportunities and sustainable economic development. With a target audience of 1,500 existing SMEs, and startups, the program aims to benefit 1,000 SMEs through credit guarantees. Key program activities include establishing dedicated SME windows within select private financial institutions, implementing an effective credit guarantee scheme through ICBG, providing tailored technical assistance to financial institutions, ICBG, and SMEs, and delivering targeted business management and financial literacy training programs.