Iraq’s Latest Regulatory Framework: Financing Medium, Small, and Micro Enterprises by Companies

The newly enacted Regulation on Financing Medium, Small, and Micro Enterprises by Companies (“New Regulation“) has been officially issued and approved by the Central Bank of Iraq on April 30, 2024. Effective as of April 28, 2024, the New Regulation replaces the previous instructions governing the operations of small and medium enterprise financing companies (“Old Instruction“).

Key Highlights and Changes in the New Regulation:

The New Regulation specifies that only joint-stock companies are permitted to engage in financing medium, small, and micro enterprises, explicitly barring limited companies from this activity—a departure from the previous instructions. Moreover, the New Regulation raises the required capital for joint-stock companies to IQD 100,000,000,000 (one hundred billion Iraqi dinars), up from the former IQD 2,000,000,000 (two billion Iraqi dinars), and IQD 1,000,000,000 (one billion Iraqi dinars) for limited companies.

To meet the capital requirement under the New Regulation, companies can make an initial payment of IQD 40,000,000,000 (forty billion Iraqi dinars) and settle the remainder in three equal annual installments, starting from the date of license issuance.

The New Regulation delineates the approval stages issued by the Central Bank of Iraq, stressing that initial approval does not guarantee final approval. Additionally, it grants the Central Bank of Iraq the authority to audit and supervise these companies’ activities.

Moreover, the New Regulation distinguishes between local and foreign companies concerning establishment procedures. Regulated companies are mandated to establish specific administrative departments overseeing their operations. These departments encompass financial management, risk management, compliance monitoring, credit management, anti-money laundering, counter-terrorism financing, internal audit, financial awareness, public protection, complaint processing, information technology, and legal management.

Furthermore, the New Regulation mandates various instructions, including concluding loan contracts with clients, submitting periodic financial statements, establishing an online system for registering loan applications, allocating funds to mitigate risks, and appointing an auditor.

The New Regulation also specifies the requirements for loan contracts, such as client details, loan duration and payment method, interest amounts, client-provided insurances, and the loan’s purpose. Companies licensed before the issuance of these regulations have a three-year grace period from the regulations’ issuance date to align their operations with the new requirements.

When will the New Regulation come into force?

The decision has been in force since April 28, 2024. Licensed companies have three years from this date to comply with the New Regulation.

How can we help?

At Al Tamimi & Company we are at the forefront of these significant legislative changes. Our Iraq office is dedicated to guiding you through this transition, ensuring compliance with the New Regulation. We are committed to providing accurate and timely legal advice to help you navigate these changes effectively.