To get a loan from a bank in Iraq is difficult for many, not least because in order to be approved for one, often the borrower must bring along somebody who is employed by the government to guarantee them. In Iraq, a government-paid position is seen as the most stable kind of job you can get. It means you will get paid regularly and that eventually you’re in line for a pension.
The guarantee given by a state employee is needed for a personal loan, no matter how big the sum. And most banks want the state employee’s salary to be twice the monthly repayments for the loan. Additionally a state employee can only guarantee one bank loan at a time.
All of this makes getting a loan from a local bank difficult for anyone who is not a state employee, particularly for low-income Iraqi families. This is why they will often turn to money lenders who work unofficially.
Haji requires that those senior community members agree to repay him if the borrower defaults on the loan.
One of these kinds of lending offices advertises on the wall of a kindergarten in the Al Dawoodi neighbourhood in the Mansour area, in Baghdad. The advertising targets shop owners and says the office can provide loans of US$1,000 to US$5,000. The terms are strict: The loans need to be paid back within around three and a half months, the borrower needs to make daily repayments and the arrangement would end with the lender getting a 33 percent return on the initial sum.
That is a high return for a relatively modest sum, like US$1,000, under especially tough conditions. Although the interest rates are high and conditions tough, many low-income Iraqis don’t have any other option. “It’s an important service because then you can get a loan without having to bring a government employee to a bank,” says Ali al-Rubaie, a Baghdad local who has loaned money before in this manner. “If I had a guarantor, I would have borrowed far more money though – to buy a car or an apartment,” he adds.
Upon calling the lending office to enquire as to how their procedures were managed, the staff refused to give NIQASH any further information, or deny or confirm if the office was licensed in any way.
However a former borrower divulged conditions they had been able to get a loan under. The applicant must submit a letter asking for a loan and the office then tries to ascertain whether the applicant would be capable of repaying the cash, including looking into guarantors or assessing any property they owned and their business. In the case of the store owners this lender targets, the office looked at the business which, one imagines, gives them some sort of guarantee to begin with. If the application for a loan was accepted, the borrower had to sign a promissory note to receive the funds.
In another nearby neighbourhood, locals talk about a resident called Haji, who lends money on similar terms. They say Haji has been known to loan as much as US$20,000. And Haji – nobody we spoke with knew his full name - apparently decides whether a loan can be guaranteed by making enquiries with the community leaders, or tribal elders, in the applicant’s neighbourhood. He also requires that those senior community members agree to repay him if the borrower defaults on the loan.
From a legal point of view, there is nothing stopping anybody loaning money to any other Iraqi, says legal expert, Ali al-Tamimi. There are no legal restrictions on individual lenders, as opposed to institutions, unless there is fraud committed or contractual violations. Only at this point, would the courts get involved, al-Tamimi explains. So it’s all perfectly legal, despite the injustice of the high interest and short repayment times.
Iraqi banks know that it is hard for Iraqis to borrow money. In fact a lot of Iraqis still don’t have bank accounts and in general, the banking sector remains undeveloped. This is starting to change though, as local banks begin giving personal loans rather than just working on trade deals and with larger institutions and the government.
Banks are beginning to think about how they could extend credit more easily to ordinary citizens, agrees Faisal al-Haimus, the chairman of the Trade Bank of Iraq, first set up by the US authorities after 2003 to facilitate trade. “The bank is currently considering extending loans to people other than government employees,” he told NIQASH.
Lack of credit makes it difficult to bankroll property development and vehicle sales and also deprives banks of potential interest earned.
“Our company has proposed to the Iraqi central bank and other Iraqi banks that they cancel this condition – where the borrower has to bring a state employee – because it is impacting negatively on Iraqis’ ability to buy our cars,” says Sabah al-Janabi, the public relations manager for Land Rover and Jaguar cars in Iraq. “They were actually quite open to our suggestions and we expect things to change in the future.”