DOCSLIB.ORG

Lesson Learnt in Implementing an Enterprise Development Credit Facility for Iraq

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Lesson Learnt in Implementing an Enterprise Development Credit Facility for Iraq OCCASION This publication has been made available to the public on the occasion of the 50th anniversary of the United Nations Industrial Development Organisation. DISCLAIMER This document has been produced without formal United Nations editing. The designations employed and the presentation of the material in this document do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations Industrial Development Organization (UNIDO) concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries, or its economic system or degree of development. Designations such as “developed”, “industrialized” and “developing” are intended for statistical convenience and do not necessarily express a judgment about the stage reached by a particular country or area in the development process. Mention of firm names or commercial products does not constitute an endorsement by UNIDO. FAIR USE POLICY Any part of this publication may be quoted and referenced for educational and research purposes without additional permission from UNIDO. However, those who make use of quoting and referencing this publication are requested to follow the Fair Use Policy of giving due credit to UNIDO. CONTACT Please contact [email protected] for further information concerning UNIDO publications. For more information about UNIDO, please visit us at www.unido.org UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION Vienna International Centre, P.O. Box 300, 1400 Vienna, Austria Tel: (+43-1) 26026-0 · www.unido.org · [email protected] United Nations Industrial Development Organization PROGRAMME OFFICE for IRAQ Lesson Learnt in implementing an Enterprise Development Credit Facility for Iraq March 2013 United Nations Industrial Development Organization PROGRAMME OFFICE for IRAQ List of Contents PROGRAMME OFFICE FOR IRAQ 1 LIST OF CONTENTS 2 1. BACKGROUND 3 1.1. IRAQI SMES: FINANCING SECTOR 3 2. LOAN PRODUCT 7 2.1. LOAN PRODUCT DETAILS 7 2.2. IMPLEMENTATION OF THE EDIP CREDIT FACILITY IN IRAQ 9 2.3. IMPLEMENTATION CHALLENGES 10 3. IMPACT OF THE CREDIT FACILITY IN THE IRAQI CONTEST 10 4. RECOMMENDATION FOR DESIGN AND IMPLEMENTATION 12 4.1 CREDIT FACILITY DESIGN 12 4.2 CREDIT FACILITY IMPLEMENTATION 14 ANNEX I: EXAMPLE OF OPERATIONAL PROCESS FOR APPROVING LOANS 15 1. AMALKOM OPERATIONAL PROCESS FOR APPROVING LOANS 15 2. AMALKOM PAYMENT PROCEDURE FOR BORROWERS: 18 ANNEX II 19 CLIENT SUCCESS STORY 19 UNIDO Enterprise Development Programme for Iraq 2 United Nations Industrial Development Organization PROGRAMME OFFICE for IRAQ 1. Background The EDIP Credit Facility is a financial tool of 1 MLN USD embedded within the “Enterprise Development and Investment Promotion Project for the SME sector in Iraq” (EDIP) that was created to ensure that an appropriate funding opportunity is provided to support SMEs supported through the project activities in three Iraqi Governorates (Erbil, Baghdad and Thi- Qar). Initially conceived in 2008, the SME credit facility was technically redesigned by UNIDO in 2009 due to unclear provisions in the project document regarding the fund ownership, UNIDO exit strategy and the operational disbursement (loan/grant) arrangements with the financial institution. These issues were clarified by the Programme Steering Committee in April 2009 comprising the Italian Government, UNIDO and representatives of the Government of Iraq. It was decided that the fund (1 MLN USD) is a UNIDO owned fund asset. UNIDO would disburse it to the selected financial institutions as an interest-free loan to make it available to be used by them to provide loans to SMEs and project beneficiaries in Iraq according best practices involving SMEs, and covering their costs and profits through the interest earned. It was also agreed that after a period of two years, the selected financial institution must return the funds to UNIDO. The credit facility was then tendered for the second time amongst local banks and international financial institutions. The management award was gives to Amalkom, an Iraqi headquartered and managed member of the CHF International family of microfinance institutions. Amalkom was selected based upon several factors including geographic reach, technical expertise and prior and ongoing success in lending in Iraq. The contract with Amalkom came into effect on February 20th 2010, and covers a period of twenty-four months. In accordance to the contract signed with UNIDO, the financial institution was tasked to deliver a minimum of 60 loans to project beneficiaries in the three project governorates. In the early weeks of March 2010, Amalkom established a separate sub-account at the Bank of Baghdad for the specific purposes of this fund. However, general issues with interbank transfers into Iraq delayed the funds transfer from UNIDO to Amalkom until July 2010. On September 2010, the first loan was disbursed. As of May 2011, 64 loans have been disbursed, exceeding the target of minimum number of loans to be disbursed. 1.1. Iraqi SMEs: Financing Sector The SME financing sector in Iraq has shown substantial progress in the past years, thanks to efforts undertaken by the Iraqi Government and international donors. The Iraqi government established its first new initiative, a tentative foray into SME financing through its National Micro-lending Programme. In February 2007, the Prime Minister approved the assignment of US$ 30 million from Rafidain Bank as loans to be managed by the Ministry of Labour and Social Affairs (MOLSA). The loans would range from IQD 3-10 million UNIDO Enterprise Development Programme for Iraq 3 United Nations Industrial Development Organization PROGRAMME OFFICE for IRAQ for new businesses or developing an existing business in Baghdad. Loan duration was set at 5- 8 years, with a grace period of 6-12 months, at an administrative charge rate of 6% total, 2% paid by the borrower and 4% by the Ministry of Finance, who also guaranteed any loan losses. A similar program has been established within the Ministry of Industry and Minerals (MIM), with a budget of US$ 408 million in 2008 (loan range 25,000-50,000 USD). Despite the initial enthusiasm surrounding the initiative of the two Ministries, some limitations have emerged during the implementation phase, which have slowed the progress and inhibited results. A comprehensive effort to improve the management of this government-guaranteed Micro-Lending Programme implemented by MoLSA and MIM will be designed and implemented by the UN within the framework of the Private Sector Development Program. International donors also recognized the needs of the SME sector through the International Compact for Iraq and the main international actors in supporting Iraq’s SME sector are the World Bank, United Nations, USAID and Iraq Middle Market Development Fundation. (IMMDF). The United Nations has been working on a private sector development strategy through its Economic Recovery and Development Sector Outcome Team (ERDSOT) in collaboration with the Prime Minister’s Task Force with SME related objectives including surveying the sector, improving legislative structures and strengthening access to capital. This project is anticipated to begin preliminary activities this year. Other United Nations actors involved in the SME sector include UNIDO through its Enterprise Development and Investment Promotion project, which has supported the formation of three Enterprise Development Units (EDUs), which are providing training to entrepreneurs and SMEs. The EDUs have an overall small and medium- sized enterprise focus. ILO and UNOPS have established partnerships with three Chambers of Commerce/Industry in Sulaymaniyah, Hillah and Basrah with a view to strengthen their service delivery capacity to member businesses (largely SMEs). Through the establishment of Business Information and Development Centres (BICs) housed within the partner Chambers of Commerce/Industry, UNOPS/ILO endeavoured in providing business counselling, management training, advice on accessing finance, fostering public-private dialogue, and developing investment promotion tools. The endeavour, as with UNIDO’s EDUs is planned to be self- sustaining in the near future. The latest and largest initiative in the SME financing sector is the re-establishment with the support of World Bank of the Iraqi government sponsored Economic Development Fund (EDF) capitalized with $100m, and specifically tasked with facilitating financing to SMEs in addition to legal and regulatory reform of the sector. Under the relevant law, EDF loans are to be provided at the “national debt rate” plus 1%, though this issue is yet to be finalized it is anticipated that loans will be below market rates at between 9-11% per annum. The targeted clients include Iraqi trading and service enterprises with up to 50 employees and Iraqi manufacturing enterprises with up to 250 employees. Loans can be provided for between $25,000 and $500,000 and up to five year period. Supported by the World Bank the EDF began SME lending activities in March 2009 and has began intensive marketing nationwide UNIDO Enterprise Development Programme for Iraq 4 United Nations Industrial Development Organization PROGRAMME OFFICE for IRAQ through private business associations and with the aid of Ministry of Planning offices. It is slated to transition from direct lending to on-lending as the private banking sector develops. USAID TIJARA is also one of the most active players in the field of SME financing
Load more

Recommended publications
  • Icbg the Iraqi Company for Bank Guarantees, Jsc
    2010 ICBG THE IRAQI COMPANY FOR BANK GUARANTEES, JSC. www.icbg-iq.com THE IRAQI COMPANY FOR BANK GUARANTEES,JSC. IICBGCBG Table of Contents Mission Statement 2 ICBG Overview 3 ICBG Member Banks 4 Chairman's Statement 5 Statement of Mr. Mudher Hillawi, Director General, Gulf Commercial Bank 6 Board Meeting 6 Management Report 7 Mission 7 Results Overview 7 Highlights 2010 8 Looking Ahead 8 Financial Results 9 Activity Report 10 Analytical data: 10 Performance indicators: 10 Number of loans: 11 Risk Management 13 Salaries and Wages 13 Loan Lets Manufacturer Battle Imports 14 Raising of livestock keeps Raji Happy 14 New Pneumatic Nail Guns Improve Furniture Production 15 Preventative Medicine Saves Lives 15 Independent Auditor's Report 16 Financial Statements 17 Notes to the financial statements 20 Corporate Information 31 2010 1 IICBGCBG THE IRAQI COMPANY FOR BANK GUARANTEES,JSC. Mission Statement The goal of the Iraqi Company for Bank Guarantees is to enhance small and medium enterprises access to formal sources of credit from financial institutions. It does so by partially guaranteeing loans extended to SMEs by local private banks. By partnering and risk sharing with Iraqi private banks, ICBG improves SME access to credit. This directly stimulates economic expansion and job creation, which together advance private sector development in Iraq. 2 2010 THE IRAQI COMPANY FOR BANK GUARANTEES,JSC. IICBGCBG ICBG OVERVIEW The Iraqi Company for Bank Guarantees, Joint Stock Company. (ICBG-JSC) was established in March 2006 as a Limited Liability Company by an original group of eleven Iraqi private banks under the auspices of the Central Bank of Iraq and through the technical assistance and financial support of USAID, which provided a grant to cover potential claims during the beginning phase of its operations.
    [Show full text]
  • COMPANY PROFILE 2020 Lorem Ipsum Is Simply Dummy
    MESHKAT for General Contracts & NOOR Engineering Consultancies ltd OUR VISION TRUST SUCCESS POWER GOALS COMPANY PROFILE 2020 Lorem Ipsum is simply dummy GET IN TOUCH Web Site: www.nooralmeshkat.net Phone No. : +964 07902267493 Address: Iraq- Baghdad-Aqba bin Nafaa 07829981700 Area-Sec 931,Street 30 ,Res12 +962 796672657 MESHKAT For General Contracts & Engineering Consultancies ltd NOOR Accept Company Greetings The following is a special summary of the company, group that works with it, capabilities of staff, equipment, works executed and experience in the construction, electrical and mechanical works. Headquarter of the company - Baghdad / Karada - Uqba Bin Nafie Square - Babel district – locality 931; The Company has the following branches: • Jordan Branch / Amman - Sixth Circle / Emaar Towers – Tenth floor. • Branch in Al-Basra governorate - Manawi Pasha - opposite Manawi Pasha Hotel. • Branch in Erbil - Italian village - Villa No. 484. 1- Establishment: After the transference of the engineering offices where the five represent founders of our company work in it previously, three of them are engineers (a Consultant Degree) who has been carrying out the contracting business for ten years, the company was established on 18-1-2004 in accordance with the regulations of the Ministry of Planning and Development Cooperation, and the Ministry of Commerce / Registrar of Companies. The company's activity has been expanded by establishing engineering consultancies office and feasibility studies on 11-10-2011 and increasing the company's capital to seven billion Iraqi dinars on 5-2-2014. 2- Company Staff: A. Engineers Staff: • Twenty Civil Engineer ( Seven consultants Degree) • Four Architect Engineers (One of them is consultant Degree).
    [Show full text]
  • This Report, Sansar Capital Holds an Interest in Bank of Baghdad on Behalf of an Advisory Client
    May/June 2013 A Closer Look at the Iraqi Banking Sector 16 RAFFLES QUAY #40-02A HONG LEONG BUILDING SINGAPORE 048581 TEL: +65 6372 7580 http://www.sansarcapital.com To request additional information, please contact: [email protected] Sansar Capital Management, LLC, 2013, Copyright © All Rights Reserved 1 Table of Contents Executive Summary 3 Methodology 4 Iraq: A Quick Glance 5 Banking Sector Overview 6 The State Owned Banks 8 How Iraqi Banks Make Money 10 Risk Analysis: CAMEL 16 ROE: Adjusting the reported numbers 19 Capital Issuance: What comes next? 22 Valuation: The Traditional Approach 24 Laws and Regulations 26 Company Overview: North Bank (BNOR) 27 Bank of Baghdad (BBOB) 34 Iraqi Middle East Bank Investment Bank (BIME) 41 Kurdistan International Bank (BKUI) 50 Dar Es Salaam Investment Bank (BDSI) 55 Important Disclosures: 60 Sources: 62 Sansar Capital Management, LLC, 2013, Copyright © All Rights Reserved 2 Executive Summary The Iraqi banking sector is poised for significant earnings and asset growth over the next decade driven by a strong macro environment, increasing credit penetration and an improving security situation. The IMF forecasts Iraqi GDP to grow at a rate of 9.0% in 2013 on the back of 8.4% growth in 2012 placing Iraq solidly in the category of one of the fastest growing economies in the world.1 The IEA in its World Energy Outlook report stated that Iraq is expected to contribute 45% of the global incremental oil supply over this decade.2 As a result, the IEA central scenario forecast predicts Iraq GDP to grow 151% between 2011 to 2020.2 Rising credit penetration is likely to further fuel banking sector growth.
    [Show full text]
  • Making Payments in Iraq V3.DOC
    Making Payments in Iraq – March 2005 Update Prepared by members of the Iraq Reconstruction and Management Office-Financial and Fiscal Affairs (IRMO-FFA) in coordination and cooperation with members of the: Iraqi Private Bankers Association; U.S. Treasury Department, and; Federal Reserve Bank of New York. I. General Comments Iraq has a cash driven society where banks are seldom viewed as places to store consumer wealth and communications between branches of even the same bank are often difficult to conduct and rely mostly on face-to-face meetings to update account balances rather than the use of automated networks. The flow of funds in Iraq’s economy in general is more often than not, one of funds flowing out from banks with very little recirculation as is experienced in other societies. Why does this happen? It’s a result of “learned behavior” including consumer experiences dating back to the end of the first Iran-Iraq war. During this timeframe, the former dictator found the country nearly broke and faced with making millions in stipend payments to returning soldiers. To generate cash, he instructed all banks to stop making payments other than those needed to pay government workers. Most who stored their wealth in the banking system lost everything. Accordingly, the current distrust in the banking system will take time and consumer education to overcome. The population of any type of currency in banks given the current security situation makes such movements risky to the extent that it is often difficult for Iraq’s own Ministries to keep current on payments to its own workforces.
    [Show full text]
  • Annual Report 2019 Bank of Baghdad 5 Annual Report 2019 Chairman's Statement
    ANNUAL REPORT The artworks pictured on the cover and section dividers are created by the late artist Mohammad Ghani Hekmat Nicknamed “Sheikh of Sculptors”, Mohammad Ghani Hekmat is an Iraqi sculptor born in Al Kadhimiyah neighborhood of Baghdad in 1929 and died in 2011. His passion for art began at the age of four, and later he joined the Institute of Fine Arts in Baghdad and graduated in 1953, then travelled to Rome to pursue his studies and received a diploma in sculpture in 1955 and a diploma in medal making from Lazka Institute in 1956. He then moved to Florence to specialize in bronze casting, and received a degree in this field in 1961. Mohammad joined the Institute of Fine Arts in 1962 to be the first professor of sculpture in the history of Iraq. Muhammad Ghani Hekmat was creative in all fields of fine art in general, but his creativity was particularly evident in sculpture, and his sculptures are seen in the squares of Iraq and many Arab and other capital cities. Looking closely at his sculptures, we notice how he was clearly influenced by Sumerian sculptures, and how, in his own way, he managed to incorporate Assyrian, Babylonian and Acadian styles into his works. Mohammad Ghani Hekmat designed many statues and murals in Baghdad. His main works include the statue of Shahryar and Scheherazade and Kahramana monument in central Baghdad. He also made the Statue of Ishtar Sheraton, the Statue of Hammurabi, the Statue of Ali Baba and the Forty Thieves, the mural of the City of Medicine, the statue of the poet Abu Tayyeb Al Mutanabbi and many other distinctive works of art, for which he received many national and international awards.
    [Show full text]