VZCZCXRO8713
PP RUEHBC RUEHDA RUEHDH RUEHKUK
DE RUEHGB #0455/01 0511358
ZNR UUUUU ZZH
P 201358Z FEB 10
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC PRIORITY 6734
INFO RUCNRAQ/IRAQ COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 BAGHDAD 000455 
 
SIPDIS 
 
DEPARTMENT PASS TO NEA/I 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EINV PREL PGOV IZ
SUBJECT: PRT NINEWA: CREDIT CRUNCH STIFLES ECONOMIC 
DEVELOPMENT 
 
¶1.  This is a Ninewa Provincial Reconstruction Team (PRT) 
message. 
 
¶2. SUMMARY:  Banking leaders in Ninewa province told PRT that 
significant barriers to commercial and consumer lending in 
Ninewa province continue to hamper economic development.  The 
precarious security situation, a paralyzed property deed 
registration system, and the lending requirements of the 
Central Bank of Iraq are all serious impediments to the 
effective flow of capital, and the consensus among these 
experienced bankers is that the only near-term growth in the 
financial services industry in Ninewa will be in private 
banking.  New PRT-led efforts to capitalize small, credit 
union-style financial institutions linked to agricultural 
associations or women,s groups will fill a critical void 
among existing groups who have a shared economic interest in 
working together and are therefore more risk tolerant.   END 
SUMMARY. 
 
RISK TO LIFE AND LOAN 
- - - - - - - - - - - 
 
¶2.   At a bankers roundtable PRT Ninewa organized on February 
4, bank managers from Ninewa branches of the Rafidain, 
al-Warka, and Agriculture Banks, as well as the Central Bank 
of Iraq commented that they worked in fear of their own 
success.  The bankers told PRToffs that a growth in deposits, 
increased lending, improved technology, and new, successful 
banking ideas could make them targets of criminal activity. 
This fear serves as a chill on expansion of the financial 
sector in the region, as there is limited incentive to grow 
the profitability of the banking institution.  In addition to 
their vulnerability to criminal activity, the bankers also 
told PRToffs that current security measures impede their 
commercial activities.  The representative from Rafidain 
Bank, for example, complained that physical barriers erected 
throughout the city of Mosul stifle trade activity by 
limiting physical movement.  He felt that the current 
security and work environment had improved somewhat, but that 
the barriers are excessive. 
 
THE PROBLEM OF COLLATERAL 
------------------------- 
 
¶3.  The bankers reported that Provincial Governor Atheel 
al-Nujaifi's (al-Hadba) sudden and temporary of a land deed 
registration office on the east side of Mosul caused lending 
in much of the city to grind nearly to a halt, since most 
lenders accept only land deeds as satisfactory collateral. 
The registration office in western Mosul remains open, 
however the numerous barriers and checkpoints around the city 
make travel to this office difficult. (NOTE: Governor 
al-Nujaifi claims he closed the office due to money 
laundering, theft, and other criminal activity in the land 
registration offices. END NOTE).  The Central Bank of Iraq's 
rather short list of acceptable forms of collateral, which 
includes real estate deeds or the signature guarantee of a 
GOI employee, reinforces the risk-averse mindset and serves 
as a further limitation on lending. 
 An Agricultural Bank representative did report success with 
a recent zero percent interest loan program in rural areas in 
the province, but noted that the program served only 
approximately 20 percent of prospective borrowers who 
qualified.  The bankers agreed the primary reason for the 
success of this program was that the lending took place in 
secure areas of the province. 
 
PRIVATE FINANCIAL SECTOR STIRS 
------------------------------ 
 
¶4.  While branches of state-owned banks await instructions 
from Baghdad to implement reforms and innovations, private 
banks are beginning to act with increased independence.  Al 
Qbanks are beginning to act with increased independence.  Al 
Warka Investment Bank reports active and expanding Electronic 
Funds Transfer systems, although these still represent less 
than ten percent of total transactions.   Al Warka's 
representative also told us that it now has three functioning 
Automatic Teller Machines operating in the province.  Many 
leading bankers expressed interest in implementing new 
technologies, which could boost their lending capacity and 
tolerance for risk, although the bulk of their current 
lending portfolios consists of larger high-interest loans 
(ranging from 17 to 22 percent) and not small, low-interest 
loans to fund small business development. 
 
COMMENT 
------- 
 
¶5.  Microfinance activity in Ninewa illustrates signs of 
 
BAGHDAD 00000455  002 OF 002 
 
 
continued growth and bank savings rates increase nationwide, 
but the barriers the bankers reported to us hamper an 
industry that otherwise should be in high growth mode.  When 
the public either stores its savings under their mattresses 
or deposits its savings in banks that store the capital under 
their mattresses, such risk aversion in lending stifles job 
creation and wealth building.  In Ninewa, such barriers must 
be addressed before there can be sustained capital flow and 
economic growth impacting the diverse communities facing 
abject poverty in the province.  Increased independence from 
banking regulations initiated in Baghdad may cause Ninewa's 
banks to be more aggressive and innovative in overcoming 
these barriers to feed small entrepreneurs with capital. 
Depending on the degree to which such liberalization occurs, 
U.S. efforts to stimulate economic growth through banking 
more likely will find traction within the private banking 
space, even though an extraordinarily large percentage of 
Iraqi capital flows through state-owned banks.  One key node 
for this expansion is a nascent PRT effort to capitalize 
small business development centers that link lending risk to 
the established tradition of cooperation and shared economic 
interest that thrives within agricultural associations, 
women,s groups, and other trade groups across the province 
(septel) END COMMENT. 
FORD