When you deposit money in a US Bank it is federally insured through Federal Deposit Insurance Corporation (FDIC). Iraq does not have a FDIC per se as in the real world but almost and will be I am sure getting one in the future.
The Iraqi Company for Bank Guarantees Ltd. (ICBG) was started in late 2006 in Iraq and is privately owned by 11 Iraqi private banks. The ICBG is organized as a non-banking Financial Institution (NBFI) and is structured as a Limited Liability Corporation (LLC) and will eventually fall under the oversight of the Central Bank of Iraq (CBI) and its laws and regulations.
The initial money to start up was three million usd and was further funded by a grant from USAID at five million usd. The investment portfolio acts as a guarantee fund to support the company when losses occur in the guaranteed loan portfolio. The guarantee will not exceed 75% of the loan amount and the accrued interest.
The ICBG provides partial guarantees of loans to small and medium sized business in sectors such as Manufacturing, services, tourism,construction,trade and agriculture. The loan guarantee program supports cash flow based lending and the participating banks require personal guarantees and suitable collateral.
The ICBG loans generate income sources from the fees and the interest from the investment portfolio to support operations. ICBG charges a 2% loan guarantee fee per year only on the guarantee portion and interest of the loan.
The ICBG Participating banks:
Bank of Baghdad
Middle East Bank for Development and Investment
Basrah International Bank for Investment
National Bank of Iraq
Sumer Commercial Bank
Al Warka Bank for Investment
Mosul Bank for Development and Investment
Ashur International Bank for Investment
Gulf Commercial Bank
Investment Bank of Iraq
The objectives of the company are to:
Support commercial bank lending to SME’s through the provision of loan guarantees
Enhance access to credit from private banks for eligible Small and Medium Enterprises (SME) Iraq.
Support the use of modern credit methods and sound banking practices in providing loans to SME’s.
Assist private banks to develop new market sectors.
The following is from there Brochure of Frequently asked questions:
Questions by a participating Bank
How does a participating bank access the guarantee program?
The bank completes a participating bank agreement (PBA) with ICBG which defines the obligations of both ICBG and the bank. The bank must be licensed with the Central Bank of Iraq and be fully compliant with all CBI regulations.
Does the ICBG deal directly with SME borrowers?
No, only with banks.
What types and terms of loans does the ICBG Guarantee?
ICBG may guarantee eligible for both working capital and fixed asset acquisition.
Working capital loans may not exceed 360 days in tenor.
Fixed assets loans may be from 1 year to 5 years.
All loans should have monthly repayments.
Is a grace period for repayment applicable?
Grace period is decided by the bank and subject to the borrower’s cash flow projection.
Do the applicant bank have to pay any loan guarantee fee?
A 2% loan guarantee fee is charged per annum on the guaranteed portion of the loan and the accrued interest. The fee is calculated and payable on the reduced balance.
What is the maximum loan guarantee coverage?
All guarantee applications submitted during the first year of operations maybe granted guarantee coverage up to 75% of the approved loan. Accrued interest is guaranteed for a period not exceeding 90 days.
What is the maximum amount of loans that can be guaranteed by ICBG?
ICBG will guarantee loans with volumes ranging between the ID equivalent of USD 5,000 and USD 250,000.
Are personal guarantees and collateral required for loans guaranteed by ICBG?
The ICBG loan guarantee program supports cash flow based lending. However, the participating banks are authorized to require personal guarantees and suitable collateral.
What sectors of the economy does the ICBG loan guarantee program support?
Manufacturing, services, tourism, construction, trade and agriculture.
Questions by a SME borrower
How does an SME borrower access the guarantee program?
The borrower requests a loan from its bank (which must be a participating bank with ICBG), the bank performs normal loan underwriting due diligence, and will then decide whether to present the application to the ICBG for guarantee.
Does the ICBG guarantee loans for start-up business?
Start up businesses are included in the ICBG loan guarantee program.
What are the eligibility criteria governing an SME borrower?
Borrowers must satisfy the following:
Be citizens of the Republic of Iraq and between the ages of 21 and 65.
May be sole proprietorships, partnerships, limited liability companies, or joint stock companies.
Enterprises must be registered with the appropriate Iraqi government authorities.
The borrower must have at least 2 full time employees and not more than 29 full time employees.
The borrower must not be a subsidiary of, or affiliated through common ownership with, a company or branch of an enterprise that has more than 250 employees, nor can the enterprise hold a majority stake in larger companies.
Have not defaulted under any payment obligation to financial institutions or other creditors.
Owners and managers may not be related to members of the bank’s board of directors or senior management.
What are the interest rates chargeable on ICBG guaranteed loans?
ICBG guaranteed loans should bear market rates on interest.
Do I have to pay any fee for obtaining the loan guarantee application?
All applicants are requested to pay a non-refundable, application fee of USD 100 in its ID equivalent.