World Affairs Council: Microfinance & Iraq (10/26/2004)

The second in a series of 3 sessions, this discussion covered Iraq and the Role of Microfinance (or listen to it online). The two speakers were:

• Brad Swanson, who had been in Iraq as a private citizen at the invitation of the Coalition Provisional Authority, and had a background in finance
  
• Thelma Tajirian, a US citizen born in Iraq, who had established a microfinance bank Al-Thiqa in Iraq for loans to small businesses

Due to getting a late start and traffic on the way up, I missed all but the Q+A session. Of the $18.4B for reconstruction, $3.3B was now set aside for security and economic issues. Approximately $30M had gone in to microfinance loans, some $6M from Thelma's organization. She restricts her lending to businesses that have been in business for at least a year. The loans are all secured, either by proerty (for loans over $2,500) or by the personal guarantee of someone with a government job. The average loan amount is $2,000, but sounds like it's dropping. They don't turn anyone down completely (except fraudulent), but sometimes give as little as $250.

The general sense was that security was a major concern, and had gotten worse in the last 3-4 months. Thelma had been forced to shut a bank branch due to security concerns, and said that moving cash between branches was one of their bigger risks. Brad said that only 5,000 soldiers had been trained for security (I assume that many non-soldiers have been as well, to come anywhere close to the official count of 100,000...) Insurgents have been succeeding, and each success rallies more to their side, though Thelma was quick to point out that many of the insurgents are foreigners who are trying to keep Iraq unstable. Of the Iraqi people themselves, she thought that it was about 50-50 for people wanting the US forces there and those not. People do think there will be total chaos if the US were to leave now. Asked about exit strategies, Brad said the best hope is following the January elections. If there's not enough stability for a large portion of the country to have free elections, then we will have to work with the existing power structure, including clerics and warlords. He felt that US troops should be protecting Iraq borders.

Regarding tech for Microfinance, Brad said that it wouldn't help much: it's the loan officers getting out to the communities making loans that provides scale. Equity investments are also essentially hung up on the security situation until it's safe enough to perform due diligence. Thelma said that technology has made them more efficient with email, and Microsoft office apps; IM has reduced communication costs. She does have a cell phone. In fact, she has 5! There's not a single network standard, so she has one handset per network.

As for the Al-Thiqa program, Thelma said that they only have about 10% women borrowers, low because there aren't that many women-owned businesses. They're not yet probitable, but do intend to be sustainable. They registered for NGO status before the June handover, but have recently been asked to re-register. They don't provide any training for their borrowers (they don't really have bandwidth to do so) but are thinking about helping some of them conduct focus groups and become more customer-centric. In assessing the loan amounts, they conduct an interview, site visit (to both business and residence), review the balance sheet and perform a cash flow analysis, and require two references.

They ended on a bit of an up-beat note, pointing out that monthly salaries (for a teacher, e.g.) have increased from $3 under Saddam to $150 now. Inflation is stable. There's revenue coming in from oil. Goods are coming across the border, and some 90% receive subsidized food rations.