The CHF International Approach

Iraq The CHF International Approach p03 Introduction p05 CHAPTER I The Community Action Program p13 CHAPTER II The Access to Credit Services Initiative p19 CHAPTER III Iraq Middle Market Development Foundation Iraq The CHF International Approach

October 2008 ROMANIA U.S.S.R.

BULGARIA

CHINA U.S.S.R.

TURKEY

Al Mawsil

CYPRUS Irbil

Kirkuk LEBANON SYRIA AFGHANISTAN ISRAEL Baghdad IRAQ IRAN

An Najaf

JORDAN An Nasiriyah

Al Basrah PAKISTAN KUWAIT

INDIA

EGYPT SAUDI ARABIA BAHRAIN OMAN QATAR Basic Facts on Iraq UNITED ARAB EMIRATES Population 28,221,180 (July 2008 estimate)

Area 169,234 square miles (slightly larger than the state of California) OMAN

Government structure A constitutional federal parliamentary republic. The nation is divided into 18 governorates (provinces).

Capital city Baghdad

History Iraq’s history dates back to ancient Mesopotamia. After being un- SUDAN der Turkish control for several centuries, in 1920 it was declared a League of Nations mandate under the administration of the United Kingdom. Iraq achieved full independence in 1932. Saddam Hussein ruled the country from 1979 until 2003.

YEMEN

ETHIOPIA DJIBOUTI

SOMALIA Introduction

The Challenge

CHF International began working in Iraq in June 2003, just two months after the end of Saddam Hussein’s government. The Iraqi people were facing a host of challenges in rebuilding the political, social, and economic institutions of their society in recovering from years of conflict.

The Response

CHF International undertook three major projects in Iraq: International created the Access to Credit Services Initiative (ACSI), a major development finance program whereby Iraqi entrepreneurs Community Action Program At the request of USAID, CHF and home-owners had access to the loans necessary to expand their began working in three governorates (provinces) in southern and businesses or improve their living conditions. central Iraq on the Community Action Program (CAP). The goal of

CAP was to undertake rebuilding projects to establish a sound and Iraq Middle Market Development Foundation In 2004, sustainable physical and economic infrastructure that would have a the Overseas Private Investment Corporation (OPIC) saw a market substantial impact upon conditions in Iraq. gap in the finance industry in Iraq. Middle Market Enterprises – com-

Access to Credit Services Initiative Owners of small to panies larger than SMEs – were also being excluded from traditional medium-sized enterprises (SME) and home-owners had traditionally loans and were hitting a glass ceiling. CHF International worked with been excluded from mainstream loans and other services, and had OPIC to set up the Iraq Middle Market Development Foundation to turn to local moneylenders who often charged prohibitively high (IMMDF) to give out loans of up to $5,000,000 to growing enter- interest rates. With the aim of stimulating the Iraqi economy, CHF prises that showed promise in the recovering Iraqi economy. Iraq The CHF International Approach — 4

The Legacy of absolute center of CHF’s approach is the principle that every project the CHF International Approach must be demand-led, community-driven and community-owned. 98% of CHF’s Iraq-based staff is Iraqi, giving the organization an In the five years since CHF International began operating in Iraq, its Iraqi face and Iraqi sense of pride, accomplishment and ownership. projects have achieved great successes. And the sense of ownership extends to the community projects un- Under CAP, hundreds of community-based, community-driven, der CAP. Every project undertaken is the priority and decision of the infrastructure and economic development projects have been community. The community is involved in planning and funding the implemented by CHF International. project, in overseeing the work done by local contractors, and the ACSI has become the largest development finance program community must sign-off on the contract before anyone is paid. In in Iraq, providing between 70 and 80% of the small loans order to achieve this, CHF uses a democratic methodology of discus- granted in the country with an exceptional repayment rate av- eraging 99%. By the end of August 2008, ACSI had provided sion, voting for community representatives and decision making. more than 59,000 loans, with a total value of more than $130 Not only does this increase the likelihood of Iraqi buy-in to the proj- million, and had created thousands of jobs. ects and thus increase their sustainability, it also introduces on the IMMDF has loaned, at the end of August 2008, over $68 million to grass-roots level the experience of the democratic process. CHF 33 private Iraqi enterprises, also creating thousands of jobs. International hopes that this will help to build capacity in Iraq for But there is an integral element of the CHF International approach long-term, sustainable community participation in government—the that goes beyond statistics and quantitative measurement. At the building blocks of democracy. CHAPTER I

The Community Action Program

Building Local Infrastructure—and Grassroots Democracy Too

CHF International began operating in Iraq in June 2003. With fund- With each new community, one of the first steps has been to help the ing from the U.S. Agency for International Development (USAID), CHF residents have an election to choose representatives for a community initiated its efforts in three governorates in southern and central Iraq: association or “community action group”. The elected members of the Babil, Karbala, and Najaf. These governorates had suffered from de- association discuss and then decide on the types of infrastructure and cades of oppression, conflict, poverty, and systematic neglect, leaving economic development projects that are needed to rejuvenate their lo- the area’s infrastructure in an advanced state of decay. cal economy and to improve schools, clinics, and other facilities and services for area residents. Later steps include implementing a chosen To help deal with those dire conditions, USAID asked CHF to imple- project, and finally handing over responsibility for maintaining the com- ment the Community Action Program (CAP) in those three gover- pleted project, usually to the local authorities. norates. For the first 90 days of CAP, the goal was to carry out rebuilding projects that would have a quick impact on those governorates. However, there was another key objective for that early period: to allow local communities to conceptualize and design their Community Priorities own reconstruction activities. That form of local community in- Local communities have chosen a wide range of economic and involvement—and of local democracy—was a revolutionary change. frastructure development activities. One large group of projects has It was hoped that this small, initial step toward civic engagement involved building or renovating schools. Also common have been would lead to changes in attitudes that would serve as the first step projects to build or repair roads and bridges. A number of projects in the establishment of the democratic process. have aimed at improving health conditions and services, such as by constructing local health clinics, providing safe drinking water, and developing systems for dealing with sewage and with solid waste. A Participatory Process Other efforts have concentrated on boosting people’s incomes. All In those first three months, as well as over the subsequent years of CAP, of these priorities were chosen by the local communities through a the new form of citizen involvement followed a systematic process. participatory, democratic process. iraq The CHF International Approach — 6

Community Revitalization through An Unsystematic Environment

a Grassroots Participatory Process But this was not a process that came easily in Iraq. Having local Iraqi communities take on real decision-making authority was a dramatic change from the way that local communities and the national government had previously interacted. Under the previous government, says Denis Dragovic, the CHF International country director for Iraq, “Iraq was very much a state socialist system. The central government would allocate funds. It wasn’t the community saying, ‘We need this.’ The communities weren’t expressing themselves. It was the central government imposing its decisions.”

“Conducting of community meetings was a previously non-exis- tent skill in South Iraq at that time,’ says Bruce Parmelee, CHF International Regional Director for the Middle East in 2003. “The most frequent difficulty we encountered was the steaming anger The community-driven development approach that CHF International has applied that was present in so many of these communities after decades with the Community Action Program (CAP) in Iraq builds on a methodology called of neglect. People were not only poor and hampered in their daily “Participatory Action for Community Enhancement” (PACE). While CHF International lives by inferior and unmaintained infrastructure but it became began applying that name to its approach in the 1990s, the process builds on core beliefs that have guided CHF’s work since the organization was established in 1952. apparent that they had never had a forum in which to express their needs or vent their frustrations at their conditions. So the The systematic steps of the PACE process bring individuals together across ethnic, challenge was dual-pronged: training the staff in CAP methodol- political, and religious barriers to achieve a common goal for the benefit of the community. At the same time, the process instills democratic ideals and practices ogy and training the communities in how to get things done in an that will contribute to a peaceful, economically secure future. organized forum. You had to let them vent before you could get them to the business at hand. It was also 110-120 degrees outside Having people work together toward a common goal ensures that the community as a whole will feel accountable for the program. Through the participation so that added to the complexity.” process, decisions are made about which projects are a priority. In this way, community members have a vested interest in completing the planned projects, and Although a challenge, Parmelee found that skepticism could be they feel a sense of ownership over what they have built. transformed into the greatest enthusiasm: “Once you got to the point of getting them to realize that they had to choose community

A CHF International innovation – the 25% Match

The average amount that CAP has put into its local community projects labor costs – a match in kind, usually, rather than in currency. This was has been around $35,000, according to John Lister, CHF International’s Iraq an essential innovation in CHF’s strategy to ensure community buy-in and regional director. With each CAP project, the communities themselves must long-term sustainability. Where projects are entirely paid for by external also make an investment in the project. “In that way,” says Lister, “com- funding there is less local pride and the community is less likely to identify munities have more of a stake in the project.” with the project. But when the community has been an integral and sub- CHF decided that communities had to supply a 25% match of the total stantial investor in the project, it is CHF International’s experience that the amount of the CAP grant. This could be supplied in terms of land, supplies, project will be maintained in the long-term. 7 — CHAPTER I The Community Action Program

Another CHF International Innovation—Community Sign-Off

It is a requirement of CHF International that before any contrac- munity buy-in, involvement and responsibility, the project is far tor gets paid, the community association group must sign-off more likely to be sustained in the long term, and is less likely to on the work. This is done to ensure that the work is satisfactory be targeted for vandalism or other violence. to the recipients and that the community accepts it. With com-

members they trusted to represent them in establishing commu- between a community association and government officials. For ex- nity priorities, they would begin to identify with the process and ample, an association may have to convince government officials things would begin to gel. They were accustomed to disappoint- to provide ongoing budget funds for a teacher for a newly built ment and quite skeptical that projects would ever be implemented, school, or to allocate moneys to keep the community’s new drink- so we moved quickly to get to the implementation process – then ing-water supply system operating properly. Association members the change in attitudes was something to behold! They were proud unaccustomed to pushing government officials to take local input to be involved and seldom required encouragement to remain in- into consideration may need training and guidance from CAP staff volved. They sometimes even drove the locally chosen Iraqi contrac- members until the community association representatives become tor crazy with the intensity of their oversight and their unrelenting used to their new role. demand for perfection!” After the first project is completed, the community association can work on additional projects in their area. An association can also join with other, nearby associations to form a “regional community The CAP process association cluster committee,” to consider projects that could be One key to making a CAP local project successful in a new communi- implemented in two or more communities. ty has been a careful following through of the process. The first step Throughout the 11-step process, CAP employees work with the is for the CAP staff to make contact with persons in the new com- community associations to build their members’ skills, so they bet- munity, which is followed by a communitywide meeting to choose ter serve the needs of local residents. All the associations receive between 8 and 12 persons to serve on the community association. initial training in such topics as community mobilization, democratic The association then has meetings to identify possible projects, and meeting methods, and project identification. As the community as- to prioritize them. Once the association decides upon undertaking sociations have advanced, they have received training on assessing one project, community representatives meet with project engineers community needs and resources; project design; leadership, com- and local officials and the project is begun. After it is completed, the munication, and advocacy; problem analysis; conflict mitigation; project becomes the responsibility of the local, provincial or central economic development; and the organization and management of government for its maintenance and long-term sustainability. That nongovernmental organizations (NGOs). particular step, however, may involve some difficult negotiations iraq The CHF International Approach — 8

Dealing with Security Threats

Highlights of CHF International’s During the first several years of implementing CAP, CHF International involvement in the first two encountered numerous obstacles that put a premium on highly creative problem-solving. One of the biggest challenges was the phases of CAP (from May 2003 to June 2008) periodically unstable security situation. In some areas that had initially been calm, violence grew substantially. For many organizations with a large number of expatriate employees, protecting this staff became an expensive burden that took away from the groups’ intended focus on rebuilding the Iraqi economy and promoting democracy in the country.

In contrast, CHF International has worked hard to have a very high proportion of Iraqi staff members. “We have an Iraqi staff, an Iraqi face to our work,” points out Lister. In addition, through the stan- dard CAP process of identifying and then working on an ongoing basis with local community representatives, CHF has been able to maintain its presence in unsettled areas. The community members and locally hired guards provide vital information needed to keep CHF staff safe and to prevent damage to CAP projects. And the buy- in from local communities has exponentially decreased the risk of CHF-initiated projects being exposed to violence and vandalism.

Developing Iraqi Employees’ Skills

$55.4 million - the value of CHF’s USAID funded CAP projects Another challenge that CHF International faced in the early days of 639 community associations formed and trained in the CAP process implementing CAP was finding Iraqi employees with the necessary 845 projects completed background in areas such as economic development, community 90,000 Iraqis actively participated in democratic activities and processes 11.3 million Iraqis directly benefited from CHF CAP projects development, or even social work. None of those professions had (51% women) been priorities during the previous regime. Consequently, CHF had to recruit staff based on such factors as their knowledge of the local community, their motivation to assist their fellow citizens, and their awareness of their communities’ infrastructure and social needs.

To build the new local staff members’ skills, CHF had those persons regularly participate in training sessions. This capacity-building included conflict mitigation and advocacy skills for community facilitators and technical skills for administrative and engineering staff. Staff members also received computer training and English language instruction. That ongoing training helped 9 — CHAPTER I The Community Action Program

CAP SUCCESS STORIES

Solid Waste Removal in Babil

Domestic solid wastes are a serious problem neg- fumes and gases emitted would badly pollute the atively affecting the environment of many cities air and environment. within Iraq and the surrounding area. The management of solid wastes requires mechanized The Solid Waste project was highly praised by city technologies that involve high running costs. officials and enabled the community to learn to respect the environment and feel proud of their To assist the residents of Babil, CHF initiated a sol- city. The City manager stressed the idea that a id waste management project and constructed a recycling process should be applied to the solid new solid waste management facility. Prior to con- waste so that it will not degenerate and pollute struction, solid wastes would accumulate in the the soil and air. The beneficiaries from this proj- open areas in the city. After several days or weeks, ect exceeded 42,500 people. In addition, 1,350 heaps of solid wastes would be burned and the jobs were created.

Vocational Training Courses in Hilla and Najaf

One of the priorities for CHF is to provide employment ees had a rudimentary knowledge of electrical installa- opportunities to young people, and thus to alleviate tions, they were keen to develop their skills further and the despair of unemployment. The provision of an elec- to learn modern techniques. The majority of the trainees trician’s training course in Hilla and Najaf is part of the were new to this vocation, and were enthusiastic about continuing efforts of CHF to offer skills training to the the opportunity being offered to them. unemployed. On completion of the training course, some of the Twenty-four participants in the course were chosen from participants hoped to open their own electrical different areas of the governorate by ten members of workshop, while others planned to start an electrical local community associations. While some of the train- equipment shop.

Road Paving Links a Village to Services

Over the years, living conditions in the village of Al- bers first contacted the residents of Al-Makhfar. Makhfar, in the governorate of Babil, had declined. Later, at a communitywide meeting, the villag- The main reason for that was the increasing deterio- ers elected a community association to represent ration of the road between Al-Makhfar and neighbor- them. The association identified the rehabilitation ing villages and the connections from there on to the and paving of the village’s main road as the resi- city of Hilla, is the capital of Babil. The road to Al- dents’ immediate priority. Makhfar was in such disrepair that during the rainy season, due to the difficult journey over the crum- Work on the project began in November, 2003, and bling muddy route, ambulances would often fail to was completed in March, 2004. The tasks included respond to emergency calls from the village. the rehabilitation and paving of the 1-mile road link- ing Al-Makhfar with the nearby villages, as well as In early August 2003, CHF International staff mem- renovation of the main road leading on to Hilla. iraq The CHF International Approach — 10

Success in a Highly Volatile Area of Iraq

For years after the end of the Saddam Hussein regime, the governorate of Anbar, in western Iraq, was one of the most violent areas of the country, making it extremely difficult for non-Iraqi organizations to carry out development projects there. In the fall of 2006, however, it appeared that things might be changing course, when a federation of tribes in the governorate formed a united front against the Al Qaeda in Mesopotamia group.

While things improved over the following months there were ongoing difficulties: Municipal services and local govern- ments remained weak and years of fighting had damaged much of Ramadi, the capital of Anbar.

Given those ongoing challenges, it was not surprising that some organizations carrying out CAP activities had trouble in the governorate. When one such organization left, although unsure of how conditions would evolve there, CHF International agreed, at the request of the U.S. Agency for International Development, to take over the CAP operations in the unsettled governorate.

Finding CHF staff willing to move to the governorate was a challenge. In a meeting of CHF senior Iraqi staff, none of the men there offered to take on the task. To the men’s surprise, two female Iraqi CHF employees said they would go to Anbar.

After they arrived in Anbar, the two women followed many of the CHF procedures developed in other areas of Iraq. The women met with tribal leaders and government officials to introduce CHF and its CAP activities. With help from a tribal chief, CHF secured approval to set up its first Anbar office, in the town of Hit, in August, 2007. Local staff were hired, and CHF began the process of implementing CAP activities.

Over the next year, CHF set up CAP offices in four other cities of Anbar and carried out more than 100 projects with local communities. The projects included setting up systems to distribute clean drinking water, building and renovating schools, establishing health centers, providing electricity services, and setting up vocational training programs. 11 — CHAPTER I The Community Action Program

CHF make a smooth transition during the period when security The Legacy of the Community conditions deteriorated and the organization sought to replace Action Program non-Iraqi staff members with Iraqis who had shown they could Through CAP, CHF has implemented hundreds of community-based, handle more responsibilities. community-driven projects in Iraq. CAP has shown that these grass- Overcoming Local roots infrastructure projects can be one of the most effective ways Communities’ Reluctance to help achieve reconstruction goals in the volatile setting of Iraq. Completed projects have been sustainable over the long term because A further major challenge for CHF International appeared in the local residents have been involved in the efforts from start to finish. first two years of CAP’s implementation. Some local community members in the governorates where CHF operated were reluctant to This local involvement has included decision-making process by work with outside groups. They feared the consequences of associ- the community association and the use of local labor and materi- ating with foreign organizations such as CHF International. als. It has also involved the important CHF innovations of the 25% community match and the associations signing-off on all projects. To meet this challenge, CHF International built on the support And the communities predominantly interact with CHF’s Iraqi staff. it had developed with the first community associations that had The projects completed have been maintained locally and have not been organized. The existing associations helped introduce the faced the same security risks that many top-down or expatriate- CAP strategy to new communities, explained CHF’s methodology staffed projects have faced. and vouched for CHF’s reliability and integrity. Having Iraqi-to-

Iraqi contact made it much easier to implement the grassroots CAP has also helped to create employment and, whether it has CAP projects in new communities. come from building more roads so farmers can bring their produce to market or from establishing vocational training centers to give young Iraqis better employment prospects, the economic value of CAP has been profound. But an even more important legacy may be the long-term effect of absorbing the CAP methodology and of using that methodology to improve the effectiveness of grassroots organizations – and to building long-term democracy in Iraq. iraq The CHF International Approach — 12

Special Funds Assist Victims of War Violence

Some of those who have suffered the most from the ongoing armed conflict in Iraq have been civilians who have had a family member killed or injured unintentionally or who have had a home damaged or destroyed because of military action by coalition forces. The U.S. Department of Defense and the U.S. Department of State provide cash payments to compensate those victims.

A special activity under the Community Action Program (CAP) can also help such victims, but with an added feature: CHF staff work with families to assess what they need in order to recover, and then they assist the affected persons in satisfying those needs. “We’re providing them with planned support to help them reestablish their lives,” says Denis Dragovic, the CHF International country director for Iraq. “We may ask, ‘You’ve lost the breadwinner of your family. How can we help you make a living?’”

That assistance can take various forms. CHF may help the family obtain medical care for an injured person, repair a damaged home, set up a small business to provide ongoing income, or provide training needed to improve an individual’s employment prospects.

The funds for these special CAP activities come from the Marla Ruzicka Iraqi War Victims Fund. The fund is named in honor of Marla Ruzicka, an American human rights advocate who had worked in Afghanistan and Iraq and was killed by a roadside bomb in Baghdad in 2005.

One 13-member extended Iraqi family received help from the Marla Fund after Hashim, a 20-year-old farmer and main breadwinner for the family, was accidentally shot and killed by multinational forces. Hashim had relied on traditional methods of farming, but he had dreamed of making his relatively barren land more fertile. Through the Marla Fund, CHF supported the construction of a greenhouse for Hashim’s family. The structure uses modern methods of cultivation and irrigation. According to Hashim’s mother, “The Marla Fund realized his dream and, through it, I feel like he is still alive.”

Another Iraqi family that CAP helped had lost three brothers in a military action in June, 2003. While driving to the city of Najaf to look for employment as day laborers, all three were killed when an American patrol opened fire on their car. All the brothers were married and had children, and their deaths put severe financial strains on the other family members. After conferring with the family, CHF staff members decided to build a small store and stock it with goods, in order to help the family rebuild their income. The finished store has given the family the hope that the brothers’ children will be able to continue their schooling up through high school and even to university. CHAPTER II

The Access to Credit Services Initiative

Financing a Better World for the Iraqi People

Despite their large number, small Iraqi businesses have generally work quickly and to get money into the market as grants. We want- been excluded from loans and other services offered by the formal ed to charge interest on the loans, to help make this sustainable on banking sector, due to the entrepreneurs’ low incomes. As is typical a long-term basis. If we didn’t charge interest, we could undermine with many countries, Iraq has an informal, market-driven system to the future of the Iraqi financial sector.” If the loan program had not deliver credit through moneylenders, family, friends, and suppliers. been planned to eventually become self-sustaining, Tilock points That system, however, cannot reach many potential borrowers, and out, it could have faded away, leaving lower-income Iraqis once the loans that are made are often prohibitively expensive, with an- again with limited access to affordable financing. nual interest rates as high as 300 percent. Tilock and other CHF staff members presented their concept to CPA CHF International has more than a dozen years of experience set- officials, who responded by asking for a more complete proposal. ting up and running successful microfinance programs in developing That proposal was soon approved. countries and nations making a transition to democracy. Despite that track record, establishing a small-loan program in Iraq presented special challenges. Gaining Local Acceptance

Some of the officials in the Coalition Provisional Authority (CPA) CHF focused its ACSI efforts initially on Karbala and Najaf, two of the doubted the wisdom of a loan program targeting small businesses. three governorates where the organization was implementing its CAP Instead, they thought the recovery would go faster if the small en- projects. Along with other portions of southern Iraq, the residents terprises just received grants that did not have to be repaid. of Karbala and Najaf are mainly members of the Shi’a sect of Islam. Here, the central government had failed to provide or maintain basic While that type of assistance might achieve short-term goals, CHF services, including electricity, water and sewage systems, roads, ir- saw the need to focus on other, longer-term considerations as well. rigation canals, and health and education services. Further damage Kimberly Tilock, a CHF staff member who spearheaded the effort to was done during the military action to oust the government. establish a small-loan program in Iraq, explains: “Our vision was to help people rebuild their lives, and also to help Iraq rebuild its finan- Karbala and Najaf, the capitals of their respective governorates, are cial sector. After a crisis, many groups providing assistance want to the most important centers of Shi’ism in Iraq. The special religious iraq The CHF International Approach — 14

character of southern Iraq was a key consideration in the CHF market study for the proposed loan program. “We knew that if we got buy- in from the religious leaders, that would help us work in the communities,” says Tilock. CHF International’s staff worked closely with the local Ayatollah in Najaf to ensure that the not-for-profit based A Global Demand for Ongoing loan system was acceptable under Sharia law. The Ayatollah issued a Access to Microfinance fatwa declaring that so long as the profits of the loans did not accrue to one individual that it was acceptable. In addition, it was decided that rather than charging interest over the period of the loan, an up- front fee covering the ACSI’s running costs was to be assessed and deducted from the amount dispensed to the borrower.

With authoritative buy-in and a locally-acceptable structure in place, ACSI was ready to make its first loan. That went to Lela, a 40-year- old woman in Najaf whose husband had divorced her, taken her gold savings, and left her alone to support their two children. After the divorce, Lela had set up a tailoring and sewing business to provide income for her family. Over time, she bought several more sewing machines and hired two women to help her. In addition, she began offering sewing classes for young girls, to give them a means of sup- porting themselves financially in the future. With a $1,200 ACSI loan, Some 70 percent of the world’s poorest people live in developing countries. In Lela expanded her business, buying two more sewing machines. those nations, the provision of “microfinance”—loans ranging from $50 up to $2,000—can make a tremendous difference in people’s lives. These small loans After setting up ACSI offices in Najaf and Karbala, operations ex- can provide an opportunity to set up or expand a small business, foster self- reliance, and can help entrepreneurs build the skills to properly manage their panded later in 2003 to Baghdad, and other governorates were businesses. added later. When first starting operations in a new governorate, ACSI employees apply many of the same techniques initially used in In Iraq and most other nations, the demand for microfinance greatly exceeds the available supply of credit. That is despite the fact that experience from around Najaf and Karbala. A key step, according to Ahmad Lamaa, director the world has shown that poorer people are a good risk, with very high loan of business and operations for ACSI, is to reach out to local commu- repayment rates. A key reason for that, according to Kimberly Tilock, is the bor- nity, political, and religious leaders. “We explain,” he says, “what rowers’ expectation that, in the future, they will want to access a second, third, we do, what our goals are, what our loan products are, and how we or fourth loan, to continue expanding their business and building financial secu- can improve the lives of the people in their area.” rity for their families. Tilock played a key role in establishing the ACSI program in Iraq. Her assessment of borrowers in that country could well apply to small As ACSI’s reputation has grown over the years, getting started in business operators around the world: “They repay the loans because they want the service to stay around.” new areas has become easier. “People have contacted us,” says Lamaa, “and asked us to open an office in their area. Now we have community support all over Iraq.”

When ACSI began its operations, it offered two types of loans, one for existing small businesses and one to renovate or improve a home. The loans for housing were especially important in the early months 15 — CHAPTER II The Access to Credit Services Initiative

ACSI SUCCESS STORIES

Batoul Husain Ali – expanding a sewing business

Batoul Husain Ali is a mother of four children in purchase of a high specification industrial sew- Anbar. Her husband works for the Electricity Di- ing machine. She also purchased a generator to rectorate but, after many years of economic and operate the sewing machine and to enable her sectarian turmoil in Iraq, they found it difficult to home to have air conditioning – an essential for cope financially. Batoul decided to help her fam- her children when power cuts in temperatures of ily in these difficult circumstances by sewing and 120 degrees are common. selling children and women’s clothing. Batoul’s good relationship with her neighbors After her initial modest success, Batoul looked and experience meant that she was able to to expand her work and heard about the Access identify their needs and provide clothes suit- to Credit Services Initiative. CHF International able for the local environment quickly. She also awarded Batoul a loan of $1000 for a period of expanded her business into curtains, headwear ten months to develop her business through the and bedsheets.

A Blacksmith Helping His Disabled Children

Muhammed, a blacksmith in the city of Hilla, had chairs for the others. He was also able to buy a system dreamed of providing a better life for his family, in- to purify the drinking water in the family’s home. cluding his three sons who have been disabled since birth. In early 2004, he borrowed $2,000 from ACSI to With a third loan, for $2,000, Muhammed increased expand his blacksmithing business. He used a second his inventory and bought a mobile welding machine loan, for $2,200 to open a second branch of his enter- for his business. As the earnings from the business prise, to be managed by one of his sons. With the fam- grew even greater, Muhammed was able to add two ily’s increasing income, Muhammed was able to send rooms and a bathroom to the family’s home and to one of his sons for treatment in Iran, and to buy wheel- furnish the house with beds, a refrigerator, a freezer, a washing machine, and other items.

Dealing with the Aftermath of an Earlier War

During the war that raged between Iraq and Iran in In 2003, Sabeen applied for a $500 loan from ACSI, the 1980s, the husband of Sabeen, a wife and mother to be repaid over the next 10 months. She purchased of five, was taken prisoner. To make up for the family’s a new sewing machine, fabric, and a refrigerator for lost income, Sabeen started working on an old sewing her dairy products. Sabeen expanded her home-based machine, producing clothing to sell. She also began business into a minimarket, offering a variety of goods preparing an assortment of dairy products to offer for in addition to her homemade dairy products. sale. Sabeen’s husband was eventually released and returned home, but he continued to experience physi- With second loan from ACSI, for $1,000, Sabeen helped cal and psychological difficulties due to the hardships one of her sons to establish his own small shop, where of his captivity. he sells his mother’s fresh products, and she also bought more fabric to use in producing traditional clothing. iraq The CHF International Approach — 16

CHF’s 20 Years of Experience in Small and Medium Financing

For the last 20 years, CHF International has served as a leading provider of By improving access to financial services for persons who are unserved or financial services in developing countries and in nations making the tran- are underserved by the formal financial markets, CHF International is: sition to democracy. Over that period, CHF has distributed more than $415 million in loans, five times the value of its outstanding loan portfolio, and creating jobs pioneered new loan products, such as home renovation and improvement improving living standards for borrowers and their families loans for low-income communities, including in Iraq. contributing to local and regional economic development bringing private and commercial capital into low-income markets CHF currently oversees lending operations in 11 countries, in Africa, Asia, Europe, Latin America, and the Middle East. CHF’s microfinance initiatives maintain a 98 percent repayment record.

and years following the change of government. According to Lamaa: shut down their entire operations in Iraq and pulled out all their foreign “People needed to have adequate housing for their families before employees following attacks on their offices or the kidnapping or killing they could focus on working at a job or running a business.” of staff members.

In 2008, to supplement the financing for existing businesses, ACSI When they joined ACSI, few of the Iraqi employees had experi- began offering loans to establish completely new businesses. ence in the banking sector. The lack of that specific experience, however, was not necessarily a shortcoming, according to Lamaa. “Microfinance is new in Iraq,” he says. “Even if you have a financial Building a Program with an Iraqi Face background, you may not be a good loan officer. You need to be hard-working and have connections in the community.” ACSI now has more than 300 employees. Over 98 percent of ACSI employees are Iraqi. In contrast to some other groups that have tried A number of the new loan officers were engineers. One was a vet- operating in Iraq with a higher proportion of expatriate staff, ACSI has erinarian, and another was an English teacher. “We hired young found it easier to continue its work in areas of the country that have people who were hopeful and optimistic,” says Tilock. “We trained experienced ongoing conflict. Unlike ACSI, some organizations have them, and together we built a market for microfinance.” 17 — CHAPTER II The Access to Credit Services Initiative

The Legacy of ACSI One of the most exceptional successes of ACSI is the repayment rate among borrowers. According to the Grameen Foundation, By the end of August, 2008, ACSI had 14 offices in Iraq across repayment rates of microfinance loans are usually between 95- 10 governorates. Nine of the 10 governorates are in the southern 98%, considerably higher than credit card or student loan re- part of Iraq, and one is in the Kurdish area of northern Iraq. ACSI payments in the USA. ACSI’s repayment rate is an exceptional had provided more than 59,000 loans to Iraqis, with a total value 99%. This demonstrates the appetite for long-term sustainable of more than $130 million. ACSI is now the largest microfinance economic development in Iraq and the commitment of the Iraqi program in Iraq, providing between 70 and 80 percent of the small people to making it work. loans granted in the country. Kimberly Tilock looks back with pride on what a small number of The impact that the ACSI loans have made on the lives of individual foreign staff and hundreds of Iraqi employees have accomplishment Iraqi families has been striking. ACSI has provided affordable small since ACSI was launched in 2003: “At the start, we said to the Iraqi loans to Iraqis who would likely have had no other access to credit. staff, ‘This is an Iraqi program. You have a stake in its success.’ The borrowers have used the financing to expand their businesses Now, they feel a sense of ownership. They’re proud of the program’s and improve their homes. That, in turn, has helped improve the local accomplishments.” economy in hundreds of communities across Iraq.

CHAPTER III

Iraq Middle Market Development Foundation

Filling the Market Gap—Middle Market Loans for Growing Enterprises in Iraq

One of CHF International’s primary objectives is to provide demand- IMMDF led development. Rather than intervene from above, CHF works with the communities to provide the development that they need IMMDF, set up in 2004, is an independent non-profit corporation, and want. And in 2004 it became clear that there was a gap in the funded by OPIC, that operates solely in Iraq. The organization’s goal financial market in Iraq. is to stimulate employment growth and the reconstruction of Iraq by providing loans to businesses that would not otherwise be able Iraqi banks traditionally gave larger loans based on collateral. to secure financing on reasonable terms. Unless the loan applicant had substantial resources which he or she could borrow against, a loan was unavailable. And while short term Loans have been made across the whole of Iraq to a wide portfolio loans for home and small business owners were covered by ACSI, of businesses including to those in the manufacturing, technology, there was a void of loans for the middle-market. This meant that construction and agriculture industries. Most borrowers use IMMDF growing enterprises that had moved beyond the microloan level had capital to upgrade or expand their operations by purchasing new no access to larger loans. Unless a loan-system based on cash-flow equipment, building new facilities and financing raw materials. was established, they would find themselves at a glass ceiling. Operating from offices in five cities of Iraq, IMMDF offers three

In 2004, the Overseas Private Investment Corporation (OPIC) re- products: quested proposals for developing a financial entity to meet this Middle Market Enterprise (MME) Loans The first loan product need and CHF International responded. Because of its experience IMMDF offered is the highly successful Middle Market Enterprise and successes in Iraq, the Middle East, and in development finance loans. The value of these varies from $500,000 to $5,000,000 to in challenging settings, CHF was chosen by OPIC to create the cor- be repaid over five years. This product was launched with a $23.5 poration that would fill the market gap. The result was the Iraq million grant, where OPIC augments any IMMDF loan by providing Middle Market Development Foundation – IMMDF. four times the loan amount in addition. iraq The CHF International Approach — 20

Small and Medium-Sized Enterprise (SME) Loans The second A Unique Innovation loan product is designed for smaller companies and provides loans of $35,000 to $500,000, repaid over four years. Since its creation, IMMDF has loaned over $68 million to 33 private Iraqi enterprises and has created thousands of jobs in Iraq. As Agribusiness The third loan product is part of the second SME the longest-serving and only not-for-profit middle market lending stream, but is dedicated specifically to agricultural businesses. corporation in Iraq, IMMDF fulfils an important role in creating eco- IMMDF offers loans of up to $1 million in the areas of, for example, nomic development, job creation and social stability. dairy, cold storage, grain processing, fish farms and slaughterhous- es. These and the SME loans were set up with an $8 million grant, where OPIC augments funding by a ratio of two to one.

Success Story

Jadge poultry is an Iraqi company which has benefited from a $5 million loan toward the construction and running of the largest and most modern poultry operation in the country. By spring 2008, Jadge’s annual production reached over 1.3 million day old ‘parent chicks’ for sale to other Iraqi poultry companies, over 1.3 million broiler chickens, 375,000 table eggs, and 12,000 metric tons of specially sanitized and enriched feed. Jadge operates the highest bio-security standards in the region.

The loan has created over 100 new jobs in Iraqi Kurdistan and has provided an economical, nutritious food source for the citizens of Iraq.

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