Shafaq News
When Iraq's formal banking system fails its poorestcitizens, the market finds its own solution, and the credit it provides comeswithout contracts, consumer protection, or legal recourse.
In the Shorja and Jamila markets of Baghdad, the mostefficient lending institution in Iraq operates without a license, a balancesheet, or a regulator. It requires no collateral form, no guarantor signature,and no waiting period. A phone call to the right intermediary, or a word from atrusted neighbor, is enough to access cash within hours. The interest rate isnot disclosed upfront. It compounds monthly. And by the time the borrowerunderstands what they have agreed to, the principal has often doubled.
This is Iraq's parallel credit market —what economicresearcher Ahmed Eid, speaking to Shafaq News, calls the "popular creditmarket": an informal financial system that has grown not despite Iraq'sformal banking sector but because of it. "The gap between what banks offerand what citizens need has become a business."
A Rate For Borrowers Already Trusted
Iraq's formal lending system offers rates that comparefavorably across the region, but only to the borrowers it already knows. TheCentral Bank of Iraq reduced its benchmark rate from 7.5% to 5.5% in late 2024,a move the CBI Governor described as a response to declining inflation. Theaverage weighted lending rate stood at 6.51% annually in Iraqi dinars as of theCBI's most recent monetary policy report, making Iraqi bank loans cheaper thanEgypt's and comparable to Jordan's. Those rates reach borrowers' trusted banks.
The IMF's 2025 Article IV report explains why they have notreached anyone else: excess liquidity in Iraq's banking system stood at around31% as of early 2025, a level the IMF said weakens the transmission of monetarypolicy, making interest rate adjustments less effective in influencing credit,as evidenced by the absence of reaction of deposit and lending rates to changesin the policy rate. Cutting the benchmark rate produces no correspondingreduction in borrowing costs for citizens outside the formal system.
Iraq's financial inclusion rate rose from less than 10% toover 40% within two years, according to the IMF's assessment, driven by therestructuring of state-owned banks and the expansion of digital paymentsystems. The gains, however, rest on a definitional distortion: progress isdriven almost entirely by public sector payroll digitization rather thanprivate sector credit access. A civil servant with a salary card is counted asfinancially included. A day laborer in Shorja who needs 500,000 dinars (approximately$381) to cover his child's surgery is not, and the metric does not register hisabsence.
In May 2025, the CBI launched Iraq's first NationalFinancial Inclusion Strategy for 2025–2029, developed with the World Bank, ArabMonetary Fund, and Germany's GIZ, and established Masraf al-Riyada, a newdevelopment bank mandated to finance small and micro-enterprises. Theinstitution represents a belated official acknowledgment that the formal systemwas not reaching the borrowers the informal market had been serving for years,but its mandate remains narrow, its capitalization unproven, and its reach untestedagainst the scale of exclusion it is meant to address. The moneylenders ofShorja reached the same conclusion earlier and acted on it without waiting fora strategy document.
The Arithmetic Of Entrapment
The informal lenders of Baghdad's popular markets do notquote annual rates; they quote monthly ones. The going rate documented bysocial activists typically runs between 10 and 20% per month on the outstandingbalance, meaning a citizen who borrows one million dinars in January will owebetween 3.1 and 8.9 million dinars by the end of the year —the principal morethan tripling at the lower end and nearly octupling at the higher.
Eid told Shafaq News that this market operates on networksof loans outside official oversight, offering fast cash against steep termsparticularly in commercial districts, and that its danger extends beyond theeconomic dimension: debt has become in many cases a source of psychologicalpressure, family breakdown, and legal and tribal disputes, particularly whenborrowers cannot repay because of falling incomes and the absence of legalprotection.
Social researcher Ruqayya Salman, speaking to Shafaq News,frames the mechanism precisely: borrowers begin with a small loan to cover anemergency —a hospital bill, a rent payment, a wedding expense— and findthemselves forced to borrow again to cover the accumulated interest, entering acycle in which the original emergency is long resolved but the debt compounds. The debt becomes an emergency.
Designed Not To Reach Them
The Ministry of Planning placed it at 13% in May 2026; theWorld Bank records 13.5%, with labor force participation at 38% —well below theregional average. Neither figure captures what the informal economy actuallycontains. The day laborers, seasonal workers, and market vendors who form theprimary clientele of Shorja's moneylenders appear in no official register asunemployed, because they are not: they work, intermittently, without contracts,protections, or the documented income that would make them legible to a bank. The barriers most cited by unbanked Iraqis are not interest rates butprocedural guarantor requirements, administrative complexity, documentationdemands, and institutional distrust built over decades of state failure. Asystem that requires a guarantor from someone with no formal employment, nodocumented income, and no prior banking relationship has not failed theseborrowers. It was never designed to reach them.
The informal credit market did not create itself, it wasassembled, borrower by borrower, in the space the formal system chose not tooccupy, leaving millions to find their own terms in the markets of Shorja andJamila, where the rates are always higher, the contracts are always absent, andthe emergency that started the loan is rarely the last one.
Written and edited by Shafaq News staff.