CATALYZE Iraq Access to Finance: Expanding SME Financing and Better Employment Opportunities for Iraqi Youth
SME lending poses challenges in Iraq
In Iraq, the limited availability of bank credit to the private sector — ranking among the lowest globally at just nine percent of the GDP — poses a significant obstacle to economic growth and job opportunities. Although youth aged 15–25 make up more than half of Iraq’s population, nearly one-third were unemployed in 2023. This financing shortage further affects small- and medium- sized enterprises (SMEs), which comprise the majority of Iraq’s private sector employment. Only 2.7 percent of SMEs manage to fund their projects through bank loans, compared to an average of 23.7 percent across the Middle East and North Africa (MENA) region.
The dominance of state-owned banks, which hold 86 percent of deposits and extend 80 percent of the credit in the country, compounds this problem, as they are hesitant to expand financing to the private sector. This reluctance — in junction with high-interest margins — further hampers SMEs’ access to long-term funding needed for growth. According to IMF estimates, narrowing this financial gap for SMEs could significantly boost GDP and reduce unemployment rates.
CATALYZE Iraq Access to Finance Activity
The CATALYZE Iraq Access to Finance (A2F) Activity is designed to increase access to finance for Iraqi SMEs, thereby fostering better employment opportunities for youth. To achieve this goal, CATALYZE supports loans to SMEs that employ youth by collaborating closely with local financial institutions to help them offer loans to the targeted SMEs, as well as by establishing and overseeing a pipeline of Iraqi Transaction Advisory firms.
“The A2F Activity works towards achieving significant impact by helping financial institutions to increase lending to SMEs, which will, in turn, generate more employment opportunities for Iraqi youth,” says Akbar Ahmadzai, CATALYZE A2F Activity Lead. “By addressing the barriers faced by the commercial finance sector and connecting SMEs with financing, we aim to drive private investment, lower youth unemployment, and enhance the competitiveness of the private sector in Iraq.”
This approach, which addresses common barriers faced by Iraq’s commercial finance sector such as high costs, risks, and information asymmetry, will also help to increase private investment and drive private sector competitiveness, contributing to growth and stability within Iraq’s financial sector.
“By increasing SME lending, we’re directly contributing to youth employment in Iraq. More financing for small businesses means more employment opportunities, which will address the staggering unemployment rates facing Iraqi youth.” -Akbar Ahmadzai, Activity Lead, CATALYZE Iraq Access to Finance
Expected Results
By 2025, A2F expects to mobilize $9 million in private sector capital for at least 366 Iraqi SMEs, supporting over 561 Iraqi youth to find better employment. Overall, the Activity aims to:
● Establish and oversee a network of Transaction Advisory Service Providers who will be paid primarily on a success-fee basis for identifying and supporting the close of SME loans which otherwise would not have been granted;
● Establish and oversee a network of Iraqi financial institutions (private banks and MFIs) interested in increasing lending to SMEs and participating in the incentive program;
● In conjunction with the SME lending of the activity, support youth employment through incentivizing loans that result in better employment for youth.
Learning and evidence building
Evidence and results generated under the A2F Activity will be used to build USAID’s and the wider community’s understanding on how to best invest in blended finance solutions. A2F also contributes to CATALYZE Education Finance evidence building through its workforce development and youth employment component, which collectively build off learning and results from technical and vocational education and training (TVET) initiatives implemented under the EduFinance Africa and Latin America and the Caribbean (LAC) Activity. All relevant workforce learnings and evidence generated under A2F will be integrated into CATALYZE Education’s wider efforts to make the case for blended finance approaches that address global education funding gaps and improve and sustain learning and employment outcomes for children and youth globally.
Read more about the USAID CATALYZE Education portfolio, and our technical models and emerging results across LAC, Africa, and South Asia.
About USAID CATALYZE
USAID CATALYZE (2019–2027), implemented by Palladium, is a $250 million contract designed to mobilize $2 billion in private capital towards underserved sectors, geographies, and populations across 39 countries in Africa, Asia, Latin America and the Caribbean (LAC), and Europe. CATALYZE co-creates with Missions, Bureaus, and Independent Offices (MBIOs) to design multi-year, results-based activities that are managed by Palladium and implemented by a broad network of principally locally led implementing partners.
