When Iraq’s banking system cannot meet the needs of ordinary people, many citizens turn to another source of money: the informal lending market.
In Baghdad’s Shorja and Jamila markets, people can often get cash much faster than they can through a bank. There are no lengthy applications, no paperwork, and no long waiting periods. A recommendation from a trusted person or a simple phone call is often enough to secure a loan within hours.
But this convenience comes at a heavy cost.
Many borrowers do not fully understand the interest they are agreeing to. Rates are often charged monthly rather than yearly and can range between 10% and 20% every month. As interest keeps piling up, a small loan can quickly become a huge debt. Someone who borrows one million Iraqi dinars could end up owing several times that amount within a year.
Economic researcher Ahmed Eid describes this system as Iraq’s “popular credit market.” He believes it has expanded because the formal banking sector has failed to serve a large part of the population. According to him, the gap between what banks provide and what people actually need has created a profitable business for informal lenders.
While Iraqi banks offer relatively low interest rates, these loans are mostly available to people who already have banking relationships, stable incomes, and the required documents. For many low-income workers, small business owners, and day laborers, these requirements are difficult or impossible to meet.
Although Iraq has made progress in financial inclusion through salary cards and digital payment systems, many citizens still have little access to actual credit. Having a salary card may count as being financially included, but it does not help someone who urgently needs money for medical treatment, rent, or other emergencies.
To address this problem, the Central Bank of Iraq launched a National Financial Inclusion Strategy for 2025-2029 and created Masraf al-Riyada, a development bank aimed at supporting small and micro businesses. However, many experts believe these efforts are still too limited to meet the needs of millions of Iraqis who remain outside the formal financial system.
The impact of informal lending goes beyond money. According to researchers and social activists, many borrowers fall into a cycle where they take new loans just to repay old ones. What starts as a temporary solution for an emergency can turn into long-term financial hardship.
Social researcher Ruqayya Salman says people often borrow for urgent needs such as hospital bills, rent, or family expenses. Once interest begins to accumulate, many are forced to borrow again, creating a cycle that becomes increasingly difficult to escape.
Iraq’s unemployment rate remains high, and many people work in informal jobs without contracts, stable salaries, or official records. Because banks usually require proof of income, guarantors, and extensive documentation, many workers are effectively shut out of the formal lending system.
As a result, the informal credit market continues to grow. It exists because millions of Iraqis need quick access to money and cannot get it through traditional banks. Until the formal financial system becomes more accessible, many citizens will continue relying on lenders in markets like Shorja and Jamila, despite the risks and high costs involved.
