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An analysis of Iraqi government institutions for agriculture, industrial, and mortgage banking
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An analysis of Iraqi government institutions for agriculture, industrial, and mortgage banking
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AN ANALYSIS OF IRAQI G O V E R N M E N T INSTITUTIONS FOR AGRICULTURAL» INDUSTRIAL, A N D M O R T G A G E BANKING A T h esis P resen ted to th e F a c u lty o f th e Department o f Economics U n iv e r s ity o f Southern C a lifo r n ia In P a r t ia l F u lfillm e n t j o f th e Requirem ents fo r th e Degree M aster p f A rts " b y Fawzl A. E l-K a ls s i June 195^ UMI Number: EP44729 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a complete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. UMI Dissertation Publishing UMI EP44729 Published by ProQuest LLC (2014). Copyright in the Dissertation held by the Author. Microform Edition © ProQuest LLC. All rights reserved. This work is protected against unauthorized copying under Title 17, United States Code ProQuest ProQuest LLC. 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 48106- 1346 Ec. l 5+ This thesis, written by .....................F A ^ I .. A ^ ..E L r v E M S S I .............................. under the guidance of h..3,M..Faculty Committee, and approved by all its members, has been presented to and accepted by the Council on Graduate Study and Research in partial fullfill- ment of the requirements for the degree of .........MASTER OF..ARTS Date.. Faculty Com m ittee TABLE OP CO NTENTS CHAPTER PAG E I . INTRODUCTION.................................................................. ' . . 1 Statem ent o f th e p r o b le m ............................ 1 Im portance o f th e s t u d y ...................................... 2 O rgan ization o f th e t h e s is ........................................... k Sources o f d a t e ....................... 5 I I . EXISTING EC O N O M IC CONDITIONS . 8 A g r ic u ltu r a l c o n d itio n s . 8 Land ten u r e system . ....................... 8 A R ecent developm ent . . . . . . 13 P r o d u c tio n ^ 17 M arketing ................................................... 19 C oop eratives . . . . . . . . . ........................ 21 The developm ent board and a g r ic u ltu r a l im p ro v em en ts.............................................................. 22 F ir s t : I r r ig a tio n p r o je c ts and flo o d c o n t r o l ................................. 23 Second: r e v iv a l o f la n d s . . . . . . . . Zk I n d u s tr ia l c o n d itio n s ... .. .. . . .. 25 The e x i s t i n g I n d u s tr ie s 26 E stab lish m en t o f new In d u str ie s ................... 27 I n d u s tr ie s sponsored by th e in d u s t r ia l b a n k ................................................................................. 28 CHAPTER The developm ent boards and th e in d u s t r ia l iz a t io n m ovem en t...................................... .... . . Housing c o n d itio n s . . , ........................................... Housing c o n d itio n s in urban a re a s . . . . Housing c o n d itio n s In r u r a l a r e a s . . . . P u b lic h o u sin g .............................................................. The developm ent board and h o u sin g con d i t io n s . . . . . . . . . . . . . . . . . Home ow nership . . ................................. Summary and co n clu sio n . .. . ... .. .. I I I . T H E AGRICULTURAL BARK O P IR A Q , . . . . . . . . P r in c ip le s o f a g r ic u ltu r a l c r e d it ................... C la s s if ic a t io n o f a g r ic u ltu r a l c r e d it . . Time c l a s s i f i c a t i o n . . . . . . . . . . Purpose c l a s s i f i c a t i o n . . ............................. S e c u r ity c l a s s i f i c a t i o n ............................. . Lender c l a s s i f i c a t i o n ....................... ..... . . Borrower c l a s s i f i c a t i o n ................................. F a c to rs d eterm in in g s i z e o f c r e d it . . . . F o r e clo su r e o f m o r t g a g e ................ ....... . . . M oratorla .................................................................. A g r ic u ltu r a l c r e d it p r io r to th e e s t a b lis h ment o f th e a g r ic u ltu r a l bank . . . . . . iil PAG E 30 30 32 34 35 36 36 38 40 40 41 41 41 42 43 44 44 46 47 47 I i CHAPTER PA G E Government f in a n c ia l a s s is ta n c e ................... 48 P r iv a te le n d e r s and m e r c h a n t s ........................ 48 Commercial banks . ................................. . . * 50 The a g r ic u ltu r a l and in d u s t r ia l bank . . . 52 E stab lish m en t o f th e a g r ic u ltu r a l bank o f I r a q ................................ 56 Bank m a n a g e m e n t........................................................ 57 Sources o f funds . .. . .. . . . . . . . 59 C a p ita l .................................................... 59 I n te r e s t and com m issions . ........................ 60 Borrow ings ........................................... . . . . . 60 C urrent and f ix e d d e p o s its a ccep ta n ce . 61 F u n ctio n s o f th e bank . . . . . . . . . . 62 P rod u ction and r e a l e s t a t e lo a n s . . . . 62 P urchasing and h o ld in g th e p rod u cts . . 63 R en tal and s a le a g e n c y ...................................... 64 E n trep ren eu ria l fu n c tio n . . . 65 Loans t o farm c o o p e r a tiv e o r g a n iz a tio n s . 66 Loan p rocedure and p o lic y o f th e a g r ic u ltu r a l b a n k ................................................... 6? E lig ib le a p p lic a n ts ................................................ 6? i Term o f lo a n s . . . . . . . . . . . . . . 68 Amount o f l o a n s ............................................... 69 V CHAPTER PACE R e s t r ic t io n s on th e use o f c r e d it . . . . 71 C o lla te r a l and u n d erly in g s e c u r it y . . . . 72 M ortgage on immovable p r o p e r t y ................... 72 Movable p r o p e r t y ................................................... 73 J o in t g u a r a n t e e .................................................... 73 Government gu aran tee ............................ 7& Repayment r e g u l a t i o n s ................................ 75 R ates o f in t e r e s t and oth er o o s ts . . . . 76 C o lle c tio n and f o r e c lo s u r e p roced u res . . . 77 D efa u lt o f m o r t g a g e e ............................................... 77 F o re clo su re s a l e ........................................................ 78 F o re c lo su re s a le o f r e a l e s t a t e . . . . 78 F o re c lo su re s a le o f movable p ro p erty . . 79 The r ig h t o f r e c o u r s e ...................................... 79 The redem ption p e r io d ...................................... 80 Summary and c o n clu sio n . ...................................... 81 S u m m a r y ..................................... 81 E v a lu a tio n and su g g e stio n s . . . . . . . . 83 The proposed a g r ic u ltu r a l banking system . 8 1 1 - S tr u c tu r e ................................................................... 85 F u n ctio n s o f th e p ro v in ce a g r ic u ltu r a l bank . .................................................................. 85 v i CHAPTER PAGE F u n ctio n s o f th e c e n tr a l a g r ic u ltu r a l h a n k ...................................................................... .... 89 Source o f funds o f th e p ro v in ce a g r ic u l t u r a l h a n k s ................................................ 90 Source o f funds o f th e c e n tr a l a g r ic u l t u r a l bank ............................................... 92 IF. T H E INDUSTRIAL BANK QF IRAQ ................... 97 P r in c ip le s o f in d u s t r ia l fin a n c e ........................ 97 Methods o f fin a n c in g an e n te r p r is e . . . . 98 F in a n cin g by th e o w n e r ............................. 98 The grad u al developm ent method ................... 98 Borrowed c a p i t a l ........................................... 99 Moneyed p a r t n e r s ........................................... 99 Government in te r v e n tio n in in d u s t r ia l f i n a n c i n g .......................................................... 100 Samples o f government in te r v e n tio n . . . 101 The a g r ic u ltu r a l and in d u s t r ia l hank . . . . 103 The need fo r I n d u s tr ia l bank . . . . . . . 104 Supplying o f l o a n s ........................................... 104 E s ta b lis h in g new e n t e r p r i s e s .................... 106 P a r tic ip a tio n in th e e n t e r p r i s e s ........... 106 E stab lish m en t o f th e in d u s t r ia l bank o f I r a q ................................. 108 v l i CHAPTER PAGE Bank m a n a g e m e n t............................................... 108 A u th o r itie s o f th e hoard . ............................. 110 Sources o f f u n d s ....................................................... 112 C a p ita l . . . . . . . . ................... . . . 112 P r o f it and i n t e r e s t .......................................... 113 B o r r o w in g s ....................................................................... I l k F u n ction s o f th e b a n k ................................. 118 G ranting in d u s t r ia l c r e d it s ........................ 119 E n trep ren eu ria l fu n c tio n ...................................... 120 Export and import agency . . ........................ 121 R en ta l and s a le agen cy ................................. 123 Loan p rocedure and p o lic y o f th e in d u s t r ia l b a n k ........................................................ 125 E lig ib le a p p l i c a n t s .......................................... . 125 Loans f o r e s ta b lis h in g a new e n te r p r is e . 126 Loans fo r e x p a n s i o n ................................. 126 Term o f l o a n s ....................................................... 127 The s i z e o f l o a n s ........................................... 128 C o lla te r a l and u n d erly in g s e c u r it y . . . . 132 M ortgage on Immovable p ro p erty ................... 132 M ortgage on m ovable p r o p e r t y ............... 133 P erso n a l s e c u r it y ........................ . . . . . 13^ Repayment r e g u la tio n s ................................................ 136 ▼ in CHAPTER PACE Rate o f in t e r e s t and o th e r c o s t s ................... 138 C o lle c tio n and f o r e c lo s in g p roced u res . . . 138 D efa u lt o f d eb tor . . ...................................... 138 F o reclo su re s a le . . . . . 139 F o re clo su r e s a le o f immovable p rop erty . 139 F o re clo su re s a le o f m ovable p ro p erty . . 140 R ight o f reco u rse ................... 140 Summary and co n c lu sio n . 141 S u m m a r y ............................................................................ 141 E v a lu a t io n .......................................... 143 The bank management ...................................... 143 The bank c a p i t a l .................................................... 144 V. THE M O R T G A G E B A N K O F IR AQ , ..................................... 146 P r in c ip le s o f h ou sin g c r e d it ............................. 14? The Instrum ent o f f i n a n c e .................................. 14? Home ow nership l o a n s . 148 Types o f m ortgages ... ... .. ... 148 C o n stru ctio n and new improvements lo a n s . 150 T rust deed in th e n atu re o f a m ortgage . 150 Sources o f funds ............................ 151 I n d i v i d u a l s .............................................................. 151 S a v in g s and lo a n a s s o c i a t i o n s ................... 151 Banks and t r u s t com panies . . . . . . . 152 i x CHAPTER PAGE L ife in su ran ce com panies . . . . . . . . 152 Government a g e n c i e s ........................................... 152 Home fin a n c e p r io r t o e sta b lish m e n t o f th e m ortgage bank o f Iraq ........................................... 15^ The esta b lish m en t o f th e m ortgage bank o f Iraq ............................................................. . . 155 Bank m a n a g e m e n t............................................ 156 Sources o f funds . . . . . . . . . . . . . 157 C a p i t a l ......................................................... 157 Borrow ing . . . . . ................................................ 158 D ep o sit accep tan ce ..................................... 160 I n te r e s t and o th e r charges ............................. 161 The b a n k 's f u n c t i o n s .................................. 162 G ranting lo a n s . . . . . . ............................. 162 L iq u id a tio n o f th e Jews' p r o p e r tie s . . 16^ E n trep ren eu ria l f u n c t i o n s ............................ 165 The com m ercial banking fu n c tio n s . . . . 167 Loan procedure and p o lic y o f th e m ortgage bank . ......................................................................... 168 E l ig ib le a p p l i c a n t s ..................................... . 169 The term o f l o a n s ....................... 1?0 Amount o f lo a n s . ........................................... 171 C o lla te r a l and u n d erly in g s e c u r it y . . . . 171 X CHAPTER PAGE P ro p o rtio n o f lo a n s t o t h e ir s e c u r i t i e s . 172 P r o te c tio n o f s e c u r ity * s p ro p o rtio n s . . 172 Repayment r e g u l a t i o n s ........................................... 173 Rate o f in t e r e s t and oth er c o s t s ........................ 175 C o lle c tio n and fo r e c lo s u r e p roced u res . . . 176 D efa u lt o f m ortgagor ........................ . . . . . 176 F o reclo su re s a le . . . . . . . . ........................ 177 The redem ption p e r i o d ..................................... . 178 R ight o f reco u rse ....... ... .. 178 Summary and co n c lu sio n . . . . . . 179 V I. S U M M A R Y AND CONCLUSION ...................................... 183 M anagerial d e f e c t s . . . . . . . ............................. 184 F in a n c ia l d e fe c ts . . . . ........................................... 185 F u n ctio n a l d e fe c ts ........................ . . . . . . . 186 C redit p o lic y d e f e c t s .................................................... 187 BIBLIOGRAPHY.............................................................. 190 LIST O P TABLES TABLE PAG E X. Land C la s s if ie d A ccording to Type o f Tenure by C a d a stra l S u r v e y .................................................... 12 I I . D is tr ib u tio n o f Land H oldings A ccording to C ad astral Survey .......................................... . 1^ I I I . Comparison Between th e P a r tic ip a tio n o f the I n d u s tr ia l Banks in th e I n d u s tr ia l P la n ts a s in 1 9 4 9 - 1 9 5 0 .......................................... 31 IP. Comparison Between T o ta l Amounts o f Loans, 1950-1951 70 P . The D is tr ib u tio n o f P roceeds from th e S a le o f M lri Land Among p ro v in ce a g r ic u ltu r a l banks. 93 P I. Comparison Between th e Terras o f L oans, March, 1950 ............................ 129 CHAPTER I INTRODUCTION In any co u n try , th e e x is te n c e o f e f f e c t i v e a g e n c ie s advancing c r e d it fo r th e developm ent o f a g r ic u ltu r e , in d u str y and h o u sin g , i s o f g r e a t im portance. The In trodu e t io n o f m achinery in a g r ic u ltu r e , th e o r g a n iz a tio n o f la r g e e n te r p r is e s in In d u stry and th e n e c e s s it y o f fu r n is h in g d ecen t h o u sin g , h as cr ea ted a g rea t need f o r s p e c ia liz e d f in a n c i a l o r g a n iz a tio n s in th e s e f i e l d s . These f in a n c ia l in s t i t u t io n s have p la y ed an e s s e n t i a l r o le in th e d e v elo p ment o f th e econom ic c o n d itio n s o f many c o u n tr ie s o f w hich th e U nited S ta te s can be co n sid er ed th e b e s t exam ple. Statem ent o f th e Problem The purpose o f t h is stu d y i s to a n a ly z e c r i t i c a l l y th e th r e e f in a n c ia l i n s t it u t io n s in Iraq., nam ely, th e A g r ic u ltu r a l, I n d u s t r ia l, and th e M ortgage Banks. I t i s in t e r e s t in g to n o te from th e b eg in n in g , th a t th e se th r e e banks a re government owned, and th a t th ey a re th e o n ly f in a n c ia l a g en c ies in t h e ir f i e l d s . In a cou n try l i k e Ir a q , where m ost o f th e econom ic f a c t o r s are s t i l l i d l e , and o p p o rtu n ity fo r fu r th e r developm ent o f th e p eo p le * s standard o f l i v i n g i s g r e a t, th e e x is te n c e o f such o r g a n iz a tio n s i s a v i t a l f a c t o r . The s t u d y w i l l em phasize th e r o le s p la y ed by th e th r e e banks and t h e ir e f f e c t on th e econom ic c o n d itio n s of Ira q . The stu d y w i l l endeavor to show th e p o l i t i c a l and econom ic c o n d itio n s which in flu e n c e th e s e in s t it u t io n s ; a p p r a ise th e d e f e c t s and w eaknesses o f e x is t in g law s; and s e t f o r t h th e n e c e ssa r y s te p s to be taken to s o lv e e x is t in g prob lem s. M oreover, i t w i l l be th e purpose o f th e stu d y t o show th e p o s s i b i l i t y o f a d a p tin g , w ith m o d ific a tio n , in Ira q , some o f the ex p er ien ce of th e U nited S ta te s or any o th e r cou n try in th e f i e l d o f fin a n c in g a g r ic u ltu r e , In d u stry , and h o u sin g . Im portance o f th e Study The Im portance o f adequate funds fo r e s s e n t ia l econ omic a c t i v i t i e s i s as im portant a s adequate b lood fo r human l i f e . Where th e r e i s not enough b lo o d , th e in d iv id u a l w i l l jbe anemic and cannot a ch iev e h is r e s p o n s i b i l i t i e s . For t h is r e a s o n , governm ents in v a rio u s c o u n tr ie s have co n cen tra ted jon f a c i l i t a t i n g th e flo w o f funds to a g r ic u ltu r e , in d u str y , {housing, and o th e r a sp e c ts o f economic a c t i v i t i e s . Where l {p rivate funds are inadequate fo r th e se a c t i v i t i e s , th e I (government in many c o u n tr ie s has supplem ented, from i t s so u r c e s, th e needed funds. I As th e econom ic, s o c ia l and p o l i t i c a l e v o lu tio n of 3 Iraq has Ju st begun, and as th e r e I s a la c k o f p r iv a te c a p it a l, th e government e s ta b lis h e d I t s own f in a n c ia l I n s t it u t io n s to su p p ly c r e d it fo r a g r ic u ltu r e , in d u str y , and h o u sin g , The A g r ic u ltu r a l Bank, th e I n d u s tr ia l Bank, and th e Mortgage Bank are a l l new ly e s ta b lis h e d . The f i r s t two banks s ta r te d t h e ir o p e r a tio n s in 1946, and th e l a t t e r in 1950. C onsequently, th e im portance o f t h i s stu d y a r is e s from two a s p e c ts . 1 . The n e c e s s it y fo r f in a n c ia l i n s t i t u t io n s in th e f i e l d s o f a g r ic u ltu r e , in d u s tr y , and h ou sin g in Ir a q , i s v ery g r e a t . 2 . These in s t i t u t i o n s a re r e c e n tly e s ta b lis h e d , and many d e fe c ts have appeared d u rin g t h e ir sh o rt l i f e . These d e f e c t s need to be stu d ie d and e x is t in g law s need t o b e amended in order to make them ad ap tab le to th e e x i s t i n g econom ic c o n d itio n s in Ira q . M o p rev io u s stu d y has been made o f th e se problem s. C on tin u ou sly, th e I r a q i le g is la t u r e ta k es modern law s jfrora advanced c o u n tr ie s and t r i e s to ap p ly them in Ira q , .w ithout ta k in g in to c o n sid e r a tio n th e p e c u lia r s it u a t io n in jthe co u n try . So, th e im portance o f t h is stu d y l i e s in Ishowing th e m ajor d e f e c t s in th e law s o f th e se i n s t it u t i o n s Jand recommending th e n e c e ssa r y amendments. k O rgan ization o f th e T h esis This stu d y w i l l be lim it e d in i t s scope to th e A g r ic u ltu r a l Bank, th e I n d u s tr ia l Bank, and th e M ortgage Bank o f Ira q . One ch ap ter w i l l be d evoted t o each bank. A fte r an In tro d u cto ry p art concerning th e g en era l p r in c ip le s o f fin a n c in g in each f i e l d , each ch ap ter w i l l co n ta in th e d is c u s s io n s o f p r io r f in a n c ia l a g e n c ie s to th e esta b lish m en t o f th e s p e c if ic bank, a c r i t i c a l a n a ly s is o f th e s tr u c tu r e and p o l i c i e s o f th e bank, fo llo w e d by c o n c lu sio n s and recommendations o f th e au th or. C onsequently, th e fo llo w in g ch a p ters w i l l c o n s t it u t e th e rem ainder o f t h is stu d y . Chapter I I i s s e t up to a n a ly ze th e e x is t in g econom ic c o n d itio n s in Ira q . I t c o n ta in s th ree p a r t s . The f i r s t p a r t shows th e a g r ic u ltu r a l c o n d itio n s reg a rd in g th e la n d ten u re sy stem s, p ro d u ctio n , m arketing and c o o p e r a tiv e s . The second p a rt d is c u s s e s th e in d u s t r ia l c o n d itio n s in r e s p e c t to th e e x is t in g in d u s t r ie s , th e p o t e n t i a l i t i e s o f e s t a b lis h in g new in d u s t r ie s , th e in d u s tr ie s sp onsored by the I n d u s tr ia l Bank o f Iraq , and th e r o le o f th e Development M in is tr y in f lo u r is h in g in d u s tr y . The th ir d p art d e a ls w ith the e x is t in g h o u sin g c o n d itio n s w ith s p e c ia l r e fe r e n c e to h o u sin g c o n d itio n s in urban and ru ra l a r e a s , p u b lic h o u sin g , and home ow nership. 5 Chapter I I I i s s e t up to d is c u s s th e A g r ic u ltu r a l Bank o f Iraq . The d is c u s s io n t r e a t s , in th e f i r s t p a r t, th e p r in c ip le s o f a g r ic u ltu r a l c r e d it w ith s p e c ia l a t te n t io n g iv en to th e e l a s s i f i c a t i o n o f a g r ic u ltu r a l c r e d it , th e f a c t o r s w hich determ ine th e s i z e o f c r e d it and fo r e c lo s u r e p roced u res on m ortgages. In th e second p a r t, th e w r ite r d is c u s s e s th e a g r ic u ltu r a l c r e d it f a c i l i t i e s and i n s t i t u t io n s p r io r to th e esta b lish m en t o f th e A g r ic u ltu r a l Bank, e s p e c ia ll y , th e A g r ic u ltu r a l and I n d u s tr ia l Bank o f Ira q . The rem ainder o f th e ch ap ter i s d iv id ed in to fo u r p a r ts — d is c u s s in g management and c a p it a l o f th e hank, i t s c r e d it p o l i c i e s and p ro ced u res, th e c o lle c t io n and fo r e c lo s u r e of ■mortgages, and f i n a l l y , c o n c lu sio n s and su g g e stio n s o f the w r ite r . Chapter IV i s d evoted to th e I n d u s tr ia l Bank and Chapter V to th e Mortgage Bank o f Ira q . The manner o f o u t l i n i n g th e d is c u s s io n o f th e s e two banks i s th e same a s th a t o f th e A g r ic u ltu r a l Bank. The w r ite r f e e l s th a t th e r e i s no need f o r r e p e t it io n o f th e same o u tlin in g . In Chapter V I, w hich i s th e f i n a l ch ap ter o f th e t h e s i s , th e w r ite r s t a t e s th e g en era l summary, co n c lu sio n land o v erw a ll fin d in g s o f th e com plete t h e s i s . < i | | f Sources o f Data I t i s s t a t e d above th a t th e A g r ic u ltu r a l, I n d u s tr ia l 6 and th e Mortgage Banks are new ly e s ta b lis h e d . N othing im portant has been w r itte n about them in e it h e r A rabic or E n g lish l i t e r a t u r e . There a re a few r e fe r e n c e s con cern in g t h e ir o p e ra tio n s in th e R eport o f th e M issio n o f th e I n te r n a tio n a l Bank f o r R eco n stru ctio n and Developm ent. The w r it e r , th e r e fo r e , depended m ainly on prim ary so u r c e s, e s p e c ia ll y th e o f f i c i a l newspaper o f th e Ir a q i governm ent, tb e Waquayl1 a A1- I r a q ly a , and on annual r e p o r ts o f th e concerned Banks, b o th o f w hich are w r itte n in the A rabic la n g u a g e. The annual r e p o r ts th em selv es do not c o n ta in v a lu a b le in fo rm a tio n or a n a ly s is . M oreover, they cannot be co n sid er e d s t a t i s t i c a l d a ta in th e s c i e n t i f i c se n se o f th e word. R egarding th e e x is t in g economic c o n d itio n s w hich are covered in th e secon d ch a p ter, th e w r ite r w ish es to ex p ress h is in d eb ted n ess to th e above m entioned Report o f th e I n te r n a tio n a l Bank. This r e p o r t can be co n sid ered th e f i r s t and o n ly rep o rt w hich shows and a n a ly zes th e econom ic c o n d itio n s o f Ira q , com p reh en sively. On th e o th er hand, th e w r it e r stu d ie d some o f th e o u tsta n d in g books in E n g lish li t e r a t u r e in th e f i e l d o f non-com m ercial banking, e sp e c i a l l y in regard to th e a n a ly s is o f th e g e n e r a l p r in c ip le jof fin a n c in g , a d is c u s s io n o f w hich p rec ed es th e ch a p ters i jd ea lin g w ith th e th r e e banks o f t h is t h e s i s . I t i s hoped th a t t h i s stu d y w i l l be a f i r s t ste p 7 tow ards fu r th er d is c u s s io n and a n a ly s is o f th e s e non com m ercial i n s t i t u t i o n s by th e Ir a q i ec o n o m ists. I t i s a ls o hoped th a t th e fin d in g s w i l l be s u f f i c i e n t l y com prehensive to g iv e c o n c is e p e r s p e c tiv e to th e problem and, a t th e same tim e , enough to c le a r ly in d ic a te the f a c t s and i s s u e s . CHAPTER I I EXISTING EC O N O M IC CONDITIONS The w r ite r i s o f th e o p in io n th a t an a n a ly s is o f th e e x i s t i n g a g r ic u lt u r a l, I n d u s tr ia l and h o u sin g c o n d itio n s would be v ery u s e f u l fo r th e fu r th e r d is c u s s io n o f th e d if f e r e n t banks In th e se f i e l d s . T h erefo re, t h is ch a p ter i s d ev o ted to th a t a n a ly s is . I . AGRICULTURAL CONDITIONS Iraq , w ith i t s la r g e r e s e r v e s o f c u lt iv a b le la n d and abundant w ater su p p ly , p o s s e s s e s im p ressiv e p o t e n t i a l i t i e s fo r a g r ic u ltu r a l developm ent. B ut, m ain ly b ecau se o f the la n d ten u re system , Iraq s t i l l p r a c t ic e s tim e-w orn te c h n iq u es and has a low p r o d u c tiv ity in a g r ic u ltu r e . M arketing i s p o o r ly o r g a n iz e d , and th e r e are not many p rod u cers' c o o p e r a tiv e s . Land Tenure System The lan d ten u re system i s co n sid ered to be th e main o b s ta c le in th e fa c e o f a g r ic u ltu r a l advancem ent. I t Is b ased on la r g e - e s t a t e h o ld in g s by th e s h e ik s , aghas or the c i t i e s ' n o ta b le s . U su a lly , th e owners a re e ith e r engaged in some p o l i t i c a l a c t i v i t y , or u se the r e n t a l Income fo r l i v i n g p u rp o se s, w ithou t c o n tr ib u tin g an yth in g to the n a tio n a l 9 d iv id e n d . They a re a p a r a s it ic c la s s o f a b sen tee la n d lo r d s who have l i t t l e I n t e r e s t in th e developm ent o f a g r ic u ltu r e . C onseq uently, t h i s system i s k eep in g th e m ajor p o r tio n o f th e p o p u la tio n o f th e cou n try i l l - f e d , ill- h o u s e d , i l l - ed u cated and i l l - c a r e d fo r in every way. This s it u a t io n , which has i t s deep r o o t s , w i l l he b r i e f l y in d ic a te d w ith r e s p e c t t o r e c e n t developm ents o n ly . One o f th e major problem s which fa c e d th e new ly e s ta b lis h e d Ir a q i s t a t e was la n d te n u r e . As a r e s u lt o f th e T urkish w ithdraw al from Iraq a t the end o f World War I , many tapu r e g is t e r s (p ro p erty t i t l e s ) were e it h e r l o s t o r destroyed.-*' In o rd er to f in d a s u it a b le system fo r la n d s e ttle m e n t, th e Ir a q i Government asked S ir E rnest Dawson, th e ex p er t on la n d problem s, to stu d y th e s u b je c t. In h is re p o r t he su g g ested : 1 . The esta b lish m e n t o f a la n d se ttle m e n t o f f i c e w hich he b e lie v e d would g r a d u a lly gu aran tee s e c u r ity and order throughout th e cou n try. 2 . The fo u n d a tio n o f a permanent system o f a Land R ig h ts Record and i t s m ain ten an ce. 2 1 M in istry o f Econom ics, Iraq , P r in c ip a l Bureau o f S t a t i s t i c s , B Land S e ttle m e n t, H S t a t i s t i c a l A b stract (1950)* I p . 1 0 8 . j 2 Loc. c i t . ! 10 A cco rd in g ly , th e governm ent p a ssed th e Land S e t t l e ment Law No. 50 o f 1932. The im portant p r o v is io n o f th e Law i s th e esta b lish m en t o f a number o f s o - c a lle d Land S e ttle m e n t Comm ittees to ca rry out a c a d a s tr a l su rv ey . At any r a t e , th e e x i s t i n g c l a s s i f i c a t i o n o f la n d ten u r e i s : Hulk lan d : la n d h e ld in a b so lu te fr e e h o ld owner s h ip . I t i s governed by th e p r o v is io n s o f sacred law and n ot by th o se o f th e c i v i l s t a t u t e law . Land ow nership com p rises two r ig h t s : th e ra a a b a . or r ig h t of a b so lu te ow nersh ip , and th e t a s a r r u f . o r r ig h t to th e u su fru c t o f la n d . In Mulk ten u re b o th r i g h t s b elo n g to th e I n d iv id u a l. 2 * M lrl la n d : la n d o f w hich th e raaaba or a b s o lu te ow nership b elo n g s to th e s t a t e , but th e u su fr u ct or ta sa r r u f b e lo n g s to th e in d iv id u a l. I t i s a fo r a o f h e r ita b le le a s e - h o ld ow nership in w hich th e s t a t e le a s e s lan d to th e in d iv id u a l. 3 . Waqf lan d : la n d d ed ic a te d to some p io u s p u rp ose. Natruka land: la n d re ser v e d fo r some p u b lic purpose; fo r exam ple, v i l l a g e th r e sh in g f l o o r s . t 1 5« Mawat la n d : dead o r unclaim ed la n d .3 I : 1 9 3 Doreen W arrlner, Land and P o v erty in th e M iddle E ast (London: R oyal I n s t it u t e o f I n te r n a tio n a l A f f a ir s , 19W ) , p . 1 6 . 11 The la r g e s t p ro p o rtio n o f th e c u lt iv a b le land I s In th e form o f m lrl la n d , and i t f a l l s in to th r ee c a te g o r ie s reg a rd in g th e r ig h t o f ow nership and th e r ig h t o f u s u fr u c t. These c a te g o r ie s are: A. M lrl gran ted in ta p u , th a t i s , th e g o v e r n m e n ts , t r a n s fe r o f th e two r ig h ts to th e in d iv id u a l.. B. M lrl gran ted in lazm a, th a t i s , th e lan d le a s e d to a le a s e h o ld e r by th e governm ent would be granted to him in tapu a f t e r a c u lt iv a t io n p e r io d o f te n y e a r s. C- M lrl s l r f which i s acknowledged to b elo n g to th e governm ent a lth o u g h i t i s p a r t ic u la r ly v a ca n t or id le la n d . A lthough th e la r g e e s t a t e system i s p r e v a le n t in Ira q , th e re i s a c o n sid e r a b le d iffe r e n c e betw een th e n orth ern and so u th ern p a r ts . As: In the n orth ern r a in -fe d zon e, sm a ll p r o p r ie to r s own sm a ll p ro p o rtio n s o f th e la n d . In th e southern zon e, th e la r g e s h e ik s and th e n o ta b le s own v ery la r g e propor t io n s o f la n d and employ th e bulk o f th e p o p u la tio n as sh are te n a n ts on v ery onerous term s. By the in c r e a s e o f pump ir r ig a t io n , the c i t y n o ta b le s have become la n d owners by le n d in g c a p it a l a t e x to r tio n a te r a te s to en ab le c u lt iv a t o r s to i n s t a l l pumps,* * Table I shows th e c l a s s i f i c a t i o n o f lan d a cco rd in g to ty p e o f ten u re by c a d a str a l su rv ey . But i t should be remembered th a t th e c a d a str a l survey co v e rs about h a lf of th e la n d in th e fo u r te e n p r o v in c e s o f Ir a q . I t w i l l be I b id ., p . 15* 12 TABLE I LAND CLASSIFIED A C C O R D IN G - T O TYPE OF TENURE BY CADASTRAL SURVEY (In Donums)* C u ltiv a b le U n c u ltiv a b le T o ta l T o ta l a rea to be c l a s s i f i e d 1 0 7 ,0 4 5 ,7 2 5 T o ta l area c l a s s i f i e d by February 9 , 1951 3 8 ,1 8 8 ,5 7 5 1 2 ,2 6 8 ,4 5 9 5 0 ,4 5 7 ,0 3 4 Mamlukah (mulk) 1 5 0 ,6 0 1 2 2 ,3 6 6 172,967 Matroukah 9 ,2 9 6 1 , 6 8 6 ,9 1 2 1 ,6 9 6 ,2 0 8 Mawqufa (waqf) 5 4 9 ,1 9 8 3 6 ,5 3 8 585,736 M lrl tapu 8 ,3 7 0 ,5 9 5 6 9 8 ,9 8 7 9 ,0 6 9 ,5 8 2 M lrl lazm a 7 ,3 7 1 ,7 2 0 *1-85,291 7 .8 5 7 ,0 1 1 M lrl s l r f 2 1 ,7 3 7 ,1 6 5 9 ,3 3 8 ,3 6 5 3 1 ,0 7 5 ,5 3 0 Source: The Economic Developm ent o f Iraq (London: The Johns Hopkins P r e s s , 1 9 5 2 ), p . l w . *Donum eq u a ls .2 5 h ecta re or .6 2 a c r e s . n oted th a t 61 p er cen t o f th e t o t a l la n d surveyed and 51 p er cen t o f th e c u lt iv a b le la n d su rveyed has been d e f i n i t e l y adjudged to be m lr l s l r f . The d is t r ib u t io n o f p r iv a te la n d h o ld in g s i s shown in Table I I . This table Indicates that the highest proportion of large holdings is concentrated in the provinces of Amara, Kut, K erb ela, and M osul. M oreover, i t sh o u ld be n o ted th a t one o f th e im portant p r o v in c e s in th e c o n c e n tr a tio n o f lan d h o ld in g s i s not in c lu d e d , th a t i s , M u n tifig p r o v in c e . The Mission stated in its report that: . . . th e im portance o f la r g e h o ld in g s i s undoubtedly u n d erestim ated by th e se f ig u r e s . The c a d a str a l su rvey has proceeded by a rea s known as m u q a ta ^ s. In a number o f c a ses landow ners have h o ld in g s in s e v e r a l m uqata1a s , but th e s e have been r e g is t e r e d as se p a r a te h o ld in g s . . . i t i s g e n e r a lly rep o rted th a t th e r e are a c t u a lly s e v e r a l h o ld in g s w e ll o v er 3 0 0 ,0 0 0 donums.5 This le a d s us to th e c o n c lu sio n t h a t , i f th e cadas t r a l su rvey had covered a l l th e a g r ic u ltu r a l la n d , in c lu d in g M u n tifig p r o v in c e , and i f th e h o ld in g s o f s e v e r a l m uaatat as had been c o n sid er ed one h o ld in g , th e r e s u lt would have shown th a t th e m a jo r ity o f th e a g r ic u ltu r a l lan d i s owned by a few hundred p e r s o n s. Recent d evelopm en t. — S in ce 1936 th e r e has b een a 1 r i- " ■ i j ^ The Economic Bevelopm ent o f Ir a q , Report p u b lish ed fo r th e I n te r n a tio n a l Bank f o r R eco n stru ctio n and D evelop ment (London: The Johns Hopkins P r e ss, 1 9 5 2 ), p . 1ML. TABLE II DISTRIBUTION O F LAND H O LDING S ACC O R D IN G T O CA D A STR A L SU R V EY (M ULK, T A PU AN D L A Z M A HOLDINGS) P ercentage o f P ercentage of area covered by ca d a stra l In h oldings o f: survey P rovince t o t a l area by ca d a stra l survey Less than 501 donums Less than 1001 donums Over 1000 donums Over 10 ,0 0 0 donums Mosul 6* . 2 2 1 .2 2 * .0 76.0 2 7 .2 E rb ll 31*7 3 2 .6 3 7 .3 6 2 .7 5 .3 Kirkuk **. * * 6 .3 51*3 *8.7 1 8 .9 S u leim in iya 1**3 *2 .8 51*7 *8.3 5 .9 D lyala 3 7 .9 13*9 2 5 .2 7*. 8 1 3 .5 D ulain *6 .6 6 0 .3 6 8 .5 31.5 1 2 .5 Baghdad 6 8 .7 3 0 .9 *1 .6 5 8 .* 2 0 .9 Kut 1 0 0 .0 7 .2 1 1 .6 8 8 .* 5 2 .7 H llla 9**7 3 2 .1 *1.5 5 8 .5 1 7 .5 K erhela * 2 .5 2 3 .3 2 * .9 75.1 3 1 .3 D ivaniya 2 6 .2 3 5 .* *5.3 5 * .7 2 0 .6 Basra 2 0 .6 *2 .0 *8 .8 5 1 .2 7 .3 Amara 37*7 5 .6 1 0 .6 8 9 .* 7 5 .8 T otal 5 0 .0 2 6 .7 3 2 .9 6 7 .1 2* .3 Source: The Economic Develonment o f Iraq (London: p . 1 *2 . The Johns Hopkins P ress, 1 9 5 2 ), H ..........-........- 4 = * 15 grow ing r e a liz a t io n th a t a c l a s s o f independent sm a ll h o ld e r s needs to be c r e a te d . However, no p r a c t ic a l s te p s have been taken to a ch ie v e t h i s g o a l. C ontrary to t h i s id e a , th e M in istr y o f F inance s ta r te d to s e l l some o f th e s t a t e le a s e h o ld (m ir l s i r f ) la n d s by a u c tio n , a s an a n t i- in f la tio n a r y m easure. (T his was an i l l u s o r y remedy f o r i n f l a t i o n , and threw away some o f th e s t a t e ' s power to reform lan d ten u r e and d ev elo p a g r ic u ltu r a l r e s o u r c e s ).^ In o th e r w ords, t h i s s te p accum ulated la r g e - e s t a t e h o ld in g s . In 19*5-5* th e government en acted th e D u ja ila S e t t l e ment Act Mo. 23* The o b je c tiv e o f th e law i s th e d is t r ib u t io n o f some o f th e sta te-o w n ed a g r ic u ltu r a l lan d to th e la n d le s s farm ers in so u th s c e n tr a l Iraq , n ear Xut p r o v in c e . The S ec r eta ry o f A g r ic u ltu r e d ecla re d in J u ly , 1953* th a t th e t o t a l a rea o f th e p r o je c t i s *100,000 donums, and up to th a t tim e , th e t o t a l area d is tr ib u te d was 126,800 donums, w ith 100 donums p er s e t t l e r . The s e t t l e r s numbered two hundred and s ix t y - e ig h t f a m i l i e s .? In 1951* P arliam ent approved th e Law o f th e D evelop ment and E x p lo ita tio n o f th e M irl S ir f Land Mo. * * 3 . ^ W arriner, op. c i t . , p . 116. ? Abdul Rahman Jew det, "The Development o f th e S ta te - Owned A g r ic u ltu r a l Land," Al-Zaman, No. A?89 (Saturday, J u ly 1 1 , 1 9 5 3 ), p . 16 A ccording to t h i s Law, th e la n d w hich was reco g n ized as s t a t e owned in th e c a d a str a l su rv ey , w i l l he reserv ed fo r d is t r ib u t io n among th e s m a ll-h o ld e r s . A ls o , fan n ers who have made good d u rin g th e f i r s t te n y ea rs w i l l be gran ted t i t l e to t h e ir la n d w ith ou t ch a rg e. For a fu r th er te n y e a r s , th ey are n ot p erm itted t o a lie n a t e th e la n d in any way, or to m ortgage i t , e x c ep t w ith th e A g r ic u ltu r a l Bank.® Furtherm ore, th e Law s t a t e s th e method o f c u lt iv a t io n , th e d e sig n o f th e d w e llin g , and th e t o t a l a rea to be gran ted in th e d if f e r e n t s e c t o r s o f th e cou n try. In a d d itio n to th e D u ja ila p r o j e c t , th e re are fo u r more p r o j e c t s . These are: A l-H aw eeja, Shaharzoor, S in ja r and A l- L a t t if ia . The t o t a l a re a to be d is t r ib u t e d i s 2 , 5 8 8 ,0 0 0 donums, but th e a c tu a l area d is t r ib u t e d up to J u ly , 1953# was 663»5^0 donums, th e s e t t l e r s numbering 3>016 f a m ilie s .^ One m ight wonder how th e s h e ik s , aghas and th e c i t y n o ta b le s allow ed P arliam en t to p a ss such p r o g r e ssiv e la w s, s in c e th ey form th e m a jo rity In P a rlia m en t. M in istry o f A g r ic u ltu r e , The Committee o f D evelop ment and E x p lo ita tio n o f M irl S ir f Land, “The Law of Development and E x p lo ita tio n o f M lri S ir f Land, No. 43 of 1 9 5 1 # M The Laws and R eg u la tio n s R esp ectin g th e Development o f M irl S ir f Land in Ira q , (1 9 53T, p p . i ! ^ Jew det, l o c . o l t . 17 The answer I s v ery e a s y , beeause: . . . The su p p ly o f l o c a l farm w orkers was s e r io u s ly endangered when 5 0 ,0 0 0 la n d hungry f e lla h e e n a p p lie d fo r th e 1 ,2 0 0 D u ja lla t r a c t s . To s t i l l th e clam or o f th e s h e ik s o f f i v e n eig h b o rin g t r ib e s , th e government gave them t i t l e to 1 2 7 ,6 8 0 donums earmarked fo r th e p r o j e c t , w h ile o n ly th e rem aining 1^7,840 donums were s e t a s id e f o r th e o r ig in a l p u rp ose. To c r e a te sm all h o ld in g s , th e government had a t th e same tim e to c r e a te or c o n s o lid a te some very la r g e p r o p e r tie s* D esp ite t h i s , in 19^5» l o c a l s h e ik s , in order to p reven t a movement o f f e l l a heen from t h e ir e s t a t e s to D u ja ila , th r ea ten ed to break th e d ykes, w hich would have flo o d e d th e e n t ir e s e t t l e m ent. 1® The c o n c lu sio n w hich can be drawn from t h i s s it u a t io n i s th a t: w ith ou t b reak in g down th e t r ib a l system and sm ashing th e power o f th e s h e ik s , s o - c a lle d reform s w i l l o n ly stren g th en t h e ir power and a ffir m t h e ir e x is t e n c e . H ence, th e r e can be no c o n s tr u c tiv e p r o g r e ss u n t il th e s h e ik s a re shorn o f t h e ir pow ers. P rod u ction In i t s two b ig r iv e r s Iraq has a huge supply o f w a te r, b u t, due to th e ab sen ce o f a c t iv e flo o d c o n tr o l p r o j e c t s , and th e la c k of ir r ig a t io n sy ste m s, t h is su p p ly of w ater has become harm ful r a th e r than u s e f u l. The e x i s t i n g r iv e r c o n tr o l schemes a re: H indiya B arrage on th e E uphrates, th e Kut B arrage on th e T ig r is to j G ab riel B aer, “The A grarian Problem in Ira q ," M iddle E astern A f f a ir s , I I I , Ho. 12 (December, 1 9 5 2 ), pp. *390-391. 18 th e so u th o f Baghdad and f i n a l l y th e Lake Habbaniya p r o je c t w hich has not y e t been com p leted . In 1 9 5 1 » th e government borrowed about tw e lv e m illio n d o lla r s from th e I n te r n a tio n a l Bank f o r R eco n stru ctio n and Development In order to b u ild th e la r g e s t flo o d c o n tr o l and I r r ig a t io n schem e, nam ely, Wadi A l-T harthar In th e n orth ern p a r t o f Ira q , betw een th e T ig r is and th e E u p hrates. The u se o f modern m achines in p ro d u ctio n i s r a r e , but th e number o f m o to r-d riv en ir r ig a tio n pumps has In crea sed n o tic e a b ly s in c e th e end o f World War I . The u se o f o th er m achines in a g r ic u ltu r e has in c r e a s e d , t o o , and th e M issio n o f th e I n te r n a tio n a l Bank s t a t e d In I t s com prehensive rep o rt th a t; . . . com bines and t r a c to r s in o p er a tio n are rep o rted to number 320 and ?50 r e s p e c t iv e ly , w ith about h a lf o f th e number co n cen tra ted in th e p r o v in ce s o f Mosul and Baghdad. Of t h e s e , 75 com bines and 81 tr a c to r s are owned by th e A g r ic u ltu r a l M achinery A d m in istra tio n , an autonomous agency w ith in th e M in istry o f E con om ics.H The u se o f f e r t i l i z e r s in p ro d u ctio n i s not v er y common. (The c u lt iv a t io n o f s o i l b u ild in g and fo ra g e crops i s v i r t u a l l y unknown even though th e f e r t i l i t y o f th e s o i l n eeds t o be r e p le n is h e d . . . ) ^ In ste a d , farm ers u se th e ; f a llo w p r a c tic e and anim al manure. R ecen tly ; j | Chemical f e r t i l i z e r s are b eg in n in g to fin d a p la c e in X T The Economic Development o f Ir a q , op. c i t . , p . 2 0 . 12 I b id . , p . 2 1 . j . 1 19 f r u i t grow ing a r e a s, and, u ndoubtedly, w i l l fin d t h e ir p la c e in th e sm a ll h o ld in g s w hich a re now b ein g d ev elo p ed , e s p e c ia ll y a f t e r th e se la n d s have been c u lt iv a t e d f o r a number o f y e a r s .13 ' M arketing M arketing, in t h is r e s p e c t , means th e purchase o f s e e d s , f e r t i l i z e r s and t o o ls on th e one hand, and th e s a le o f th e p rod ucts on th e o th e r . The seed s are su p p lie d by th e sh e ik s in th e so u th and th e aghas in th e n o rth . There i s no p u rch a sin g p r o c e ss in th e modern se n se o f th e word. The government began ta k in g some p a rt in th e d i s t r i b u tio n of improved crops and co tto n s e e d s , b e sid e th e d is t r ib u t io n o f f r u i t and wood t r e e s , through the D ir e c to r a te o f A g r ic u ltu r e . F e r t i l i z e r s , as m entioned above, a r e r a r e ly u sed . C onseq uently, th e r e i s a v e r y lim ite d demand fo r them and th e y a re of o n ly m inor im portance in m ark etin g. A ll a g r ic u ltu r a l m achines are im ported through th e A g r ic u ltu r a l M achinery A d m in istra tio n , w hich has a monopoly ^ Department o f A g r ic u ltu r e -I r a q , u npublished Summary Report on A g r ic u ltu r a l P ro d u ctio n , Trade, Food, Consumption and M easures to be Undertaken by th e Government to Improve th e G eneral Economic C on d ition s o f th e Country. P r e se n te d by th e Iraq D ele g a tio n to th e Food and A g r ic u ltu r e O rg a n iza tio n C onference H eld a t Rome, November 19-December 7 , 1 9 5 1 , p . 8. 20 fo r th e im p o rta tio n and d is t r ib u t io n o f a g r ic u ltu r a l m achin ery . S in ce 1 945, th e im p o rta tio n of a g r ic u ltu r a l m achines and Implements has la r g e ly I n c r e a s e d .^ S e llin g th e p rod u cts has two p h a se s: th e s a le abroad, and th e s a le to th e lo c a l m arket, Up to th e b eg in n in g o f th e tw e n tie th ce n tu ry , a g r ic u ltu r e was p a r t o f a s u b s is te n c e economy. When tr a n sp o r ta tio n through th e P ersia n G ulf was opened, t h is le d to e x p o r ta tio n o f Ir a q i g r a in . At th e p r e se n t tim e, Iraq exp orts g r e a t v a r i e t i e s o f a g r ic u ltu r a l p r o d u c ts, e s p e c ia ll y g r a in , p u ls e s and f lo u r , d a te s , raw / w o o l, l i v i n g a n im a ls, h id e s and s k in s , and raw c o tto n . B u t, on th e o th e r hand, Iraq im ports some a g r ic u ltu r a l p r o d u c ts, m a in ly , su g a r, t e a , tim ber and bags f o r p a ck in g , w hich are not produced f o r one reason or a n o th er. O therw ise, Ir a q i a g r ic u ltu r a l p ro d u cts s a t i s f y th e l o c a l n eed s. In co n n ectio n w ith m ark etin g, sto r a g e f a c i l i t i e s sh ou ld be g iv en some a t t e n t io n , as t h is i s a v ery im portant f a c t o r in s t a b i l i z i n g p r ic e s and d is t r ib u t in g th e su p p ly throughout th e y e a r . ^ The im p o rta tio n o f a g r ic u ltu r a l m achines and Im plem ents d u rin g th e years 1 9 3 5 to 1950 was as fo llo w s : T ra cto rs (629)* p lou gh s (5 9 6 ), c u lt iv a t o r s (233* com bines (315)* th r esh er s ( 2 6 ) , g ra in d r i l l s ( 6 0 ) , d is c harrow ers (8 ^ ), mowers (*j4), farm wagons (2 2 ), d itc h e r s ( 8 ) , je e p ca rs (6 2 ) b in d ers (3 ) , t r a i l e r s ( 5 ) . S t a t i s t i c a l A b s tr a c t, o p . c i t . , p . 1^9* ! 21 There are a few modern sto ra g e f a c i l i t i e s in Ira q , nam ely, th e g r a in s i l o a t Baghdad, w ith a c a p a c ity o f f i v e thousand ton s and th e c o tto n g in n e r ie s w hich have been e s ta b lis h e d w ith th e a s s is t a n c e o f th e A g r ic u ltu r a l Bank. 'Moreover, th e r e i s an oth er g r a in s i l o a t B asra, w hich i s under c o n s tr u c tio n , w ith a c a p a c ity o f f o r t y thousand to n s to s e r v e p r im a r ily th e exp ort tr a d e . C on seq u en tly, th e f e lla h e e n s e l l t h e i r p rod u cts ch eap ly in advance o r f lo o d th e m arket w ith huge q u a n titie s s h o r tly a f t e r th e h a r v e s t. C oop eratives C o o p era tiv es u s u a lly perform many s e r v ic e s fo r t h e ir members, such a s: le n d in g o p e r a tio n s , s a v in g s , s a le o f [products, p urch ase o f h ou seh old goods and encouragem ent of v i l l a g e in d u s t r ie s . In 19*M *> th e Ir a q i governm ent en a cted th e C oop erative S o c ie t ie s Law Ho. 2? to encourage and r e g u la te c o o p e r a tiv e s among th e fa rm ers. M oreover, th e governm ent s ta te d in th e A g r ic u ltu r a l Bank Law th a t one o f th e o b j e c t iv e s o f th e bank was to be le n d in g and h e lp in g th e esta b lish m en t o f a g r ic u l tu r a l co o p er a tiv e s o c i e t i e s . B ut, in r e a l i t y , th e r e i s only one p roducer*s c o o p e r a tiv e , w hich i s th e D u ja lla p r o j e c t . i jThls co o p er a tiv e was e s ta b lis h e d in 19^7, among th e new i [ s e t t l e r s o f th e p r o j e c t . In th e sp r in g o f 1951, th e cooper-: I a t iv e owned ten t r a c to r s w ith t i l l e r s , two tr u c k s, a sm a ll 22 flour mill and a club-house.1^ In Its rental policy, the cooperative discriminated between members and nonmembers, charging the nonmembers higher rates than the members to Induce than to join the cooperative. The main obstacles which prevent the establishment and growth of the cooperatives are: first, the absence of small holders, second, the prevalence of sharecropping, and, third, the fellaheen's ignorance of the benefits of cooper atives. The Development Board1 6 and A g r ic u ltu r a l Improvements Since the end of World War II, the government found itself face to face with a great demand from the people to ^ Economic Development o f Ir a q , op. c i t . , p . 261. The Development Board was e s ta b lis h e d by Law Ho. 23 o f 1950 to undertake th e r e s p o n s i b i l i t i e s o f d ev elo p in g th e econom ic c o n d itio n s in th e co u n try . A r t ic le Three, S e c tio n I . A ., s ta te d th a t th e d u tie s o f th e Board a re to : . . . p r e s e n t to th e C ou n cil o f M in is te r s fo r p r e s e n ta t io n to P arliam en t a g e n e r a l econom ic and f in a n c ia l p lan fo r th e developm ent o f th e r e so u r c e s o f Iraq and th e r a is in g o f th e standard o f l i v i n g o f her p e o p le . . . . T his p la n s h a ll in clu d e in i t s scop e . . . p r o je c t in w ater con servan cy, flo o d c o n tr o l, ir r ig a t io n d ra in a g e, in d u str y and m in in g. . . . The Board p resen te d a program f o r f i v e y e a r s . The c o s t o f th e scheme was e stim a te d a t ID 65 >67^*000. Revenue, coming m ainly from o i l r o y a l t ie s and th e lo a n o f th e I n te r n a tio n a l Bank, was estim a te d fo r f i v e y e a r s, at ID 9 5 ,0 7 5 ,0 0 0 ; th e su rp lu s was to be em ployed in o th e r a s p e c ts o f econom ic developm ent w hich were s t i l l under stu d y . ________ In stea d o f b e in g an independent ag ency , th e Board____ 23 Improve t h e ir stand ard o f l i v i n g . The str o n g p e o p le , con s c io u s o f th e need to improve t h e ir c o n d itio n s , fo r c e d the government to ta k e some m easures o f developm ent. The esta b lish m en t o f th e Development Board was one o f t h e s e . In the a g r ic u ltu r a l f i e l d , th e Board i s to ca rry out two a s p e c ts o f a g r ic u ltu r a l developm ent. F i r s t : ir r ig a t io n p r o je c ts and f lo o d c o n t r o l. — One o f th e main problem s in Iraq i s to have an e f f e c t iv e and econ om ical u t i l i z a t i o n o f th e w ater r e so u r c e s o f th e T ig r is , E uphrates, and o th e r m inor r i v e r s . For th e aehievem ent o f B t h is purpose th e Board p lan n ed th e c o n str u c tio n o f many p r o j e c t s fo r th e n ex t f i v e y e a r s , a t an estim a ted c o s t o f around t h ir t y m illio n Ir a q i d in a r s .1-7 The I r r ig a t io n p r o j e c t s are: 1 . T harthar scheme: to a ssu re f lo o d c o n tr o l in th e T ig r is . 2 . Habbaniyah scheme: to be a r e s e r v o ir and to e f f e c t f lo o d c o n tr o l on th e E uphrates. 3 . A dam on D la la a t Derbendi Khan to r e v iv e th e was con n ected w ith th e M in istr y o f D evelopm ent. The Development Board, Ira q 1s Government, C om pilation of Laws C oncerning th e Development Board in Iraq 7 Baghdad: The Government P r e s s , 1 9 5 l) , p p. 2 -6 . The I r a q i d in a r eq u a ls |2 .8 0 American d o lla r s . 24 lo w er Mahrawan la n d s . 4 . Dohan Dam t o c o n tr o l th e w ater o f th e S m aller Zah and to e f f e c t a r e v iv a l o f new la n d s In K irkuk, E r b il and D ly a la p r o v in c e s. 5 . The Board w i l l und ertak e many o th e r d ra in a g e and ir r ig a t io n w orks. For example* re m o d ellin g th e E uphrates t a i l a t Suk Al-Shuyukh a r e a , c o n str u c tio n o f r e g u la to r s on th e T ig r is a t Amarah p ro v in ce and on th e Gharrab enlargem ent and re m o d ellin g o f S h att A l-H illa h , re m o d ellin g o f S h a tt A l- Shamiyah, and f i n a l l y , th e enlargem ent o f th e a c tu a l Musayab c a n a l. Second: r e v iv a l o f la n d s . — The Board i s endeavoring to a t t a in t h i s o b je c tiv e in order to h e lp in th e se ttle m e n t o f th e. farm ers and t r ib e s . The e stim a te d sum fo r th e b u ild in g o f a r t e s ia n w e lls f o r d rin k in g w a ter and th e r e v iv a l o f a g r ic u ltu r a l la n d i s ID 2 ,4 0 0 ,0 0 0 .^ 9 I t seems th a t a f t e r th e achievem ent o f a l l o f th e se p r o j e c t s and p la n s , Iraq w ould be th e a n c ie n t Garden o f Eden. B u t, e x p e r ie n c e s o f th e p a st have taught us th a t one sh o u ld n ot ex p ee t to o much from what i s w r itte n in th e governm ent programs and r e p o r ts . I t i s r ig h t th a t some 18 I b id . , pp. 6 -9 . ^ I b i d ., p . 1 4 . 25 developm ent m ight take p la c e , but not to th e e x te n t e x p e c te d . The main reason f o r th e s e p e s s im is t ic id e a s i s , th a t a s lo n g a s Iraq keeps th e e x is t in g s o c i a l , p o l i t i c a l and econom ic s t r u c t u r e , any planned developm ent w i l l not a c h ie v e i t s p u r p o se s. I I . INDUSTRIAL CONDITIONS I n d u s tr ia l p ro d u ctio n in Iraq I s s t i l l in i t s in fa n c y . The w hole in d u s t r ia l s e c to r i s extrem ely sm a ll, and th e number em ployed in in d u str y r e p r e s e n ts a v er y sm all p ercen ta g e o f th e t o t a l w orking c l a s s . As in any o th e r f i e l d , I t i s v e r y d i f f i c u l t to o b ta in r e l i a b l e and rep resen t a t i v e data con cern in g in d u s tr y . Most o f th e a v a ila b le d a ta a re m erely estim a ted f ig u r e s and do not r e f l e c t th e a c tu a l p o s i t i o n . The Annual Report o f th e G eneral D ir e c to r a te o f In d u stry in d ic a te d th a t th e t o t a l c a p it a l in vestm en t o f th e ten main I n d u s tr ie s was about ID 4 ,8 0 0 ,0 0 0 in 19 5 1 -1 9 5 2 . The em ployees numbered 4 ,5 5 3 and th e t o t a l wages r e c e iv e d were about ID 6 0 0 ,0 0 0 . The annual g r o s s income o f th e s e in d u s t r ie s was about ID 4 ,4 2 4 ,0 0 0 .20 Annual Report o f th e G eneral D ir e c to r a te o f In d u str y , 1951-1952 (Baghdad: A l-R a b ita t r e s s , 195277 pp. 2 4 -2 5 . The Existing Industries / O o tto n -sp ln n ln g and w eavin g, cem ent, w o o l-sp in n in g and w eavin g, ta n n in g , b e e r , a lc o h o l, and v e g e ta b le o i l s are some o f th e r e l a t i v e l y few modern I n d u s tr ie s in Ira q . D uring 1 9 51-1952, th r e e more m ajor in d u s t r ie s , (so a p , s i l k w eaving and ju t e sp in n in g and w eaving) w ere e s t a b lis h e d .2- * - The Government en a cted a Law fo r th e Encouragement of In d u str y , in 1933. This g ra n ted th e in d u s t r ie s , w hich have p o s s i b i l i t i e s o f s u c c e s s , ta x exem ptions and r e d u c tio n s and many o th e r a d v a n ta g es. This a s s is ta n c e was v er y n e c e ssa r y fo r th e esta b lish m en t and th e p r o s p e r ity o f th e se in d u s t r i e s . In addition, the Industrial Bank participated in many \ o f th e s e in d u s t r ie s and gave many lo a n s to th e o th e r s . These two f a c t o r s h elp ed th e esta b lish m en t o f many s u c c e s s f u l in d u s t r ie s , some o f w hich a re expanding t h e ir c a p a c it ie s w ith o u t government f in a n c ia l a s s is t a n c e . (The cement p la n t and th e brew ery a re b oth d o u b lin g t h e ir c a p a c ity , and r e c e n t Improvements and exp an sion have put th e w oolen in d u str y a b rea st o f th e cou n try*s n e e d s ) .22 What th e s e I n d u s tr ie s need i s t o im prove th e q u a lity o f t h e ir p r o d u c ts, a lth o u g h 2 1 o l t . 22 ' • I The Economic Development of Iraq, op. cit., p. 3 5 -\ 27 some o f them a re o f e x c e lle n t q u a lity and compete fa v o r a b ly jwith s im ila r fo r e ig n p r o d u c ts, f o r exam ple, th e cement and ibeer. B esid es th e s e major in d u s t r ie s , th e r e are some of a m inor n a tu re, w hich s a t i s f y p a rt o f th e in te r n a l n eed s. These a re: s h o e s , b r ic k and t i l e , m illi n g , d a te p a ck in g , m atches and c i g a r e t t e s . Some o f th e in d u s t r ie s u se modern jm achinery, but th e m a jo rity o f them depend on sim p le t o o ls and th e u se o f th e hands. A lso , th e r e a re many sm a ll shops and e n te r p r is e s w e ll w orth m en tio n in g . These can be expanded w ith l i t t l e e f f o r t and some f in a n c ia l a s s is t a n c e . Among them are shops fo r t i r e r e tr e a d in g , re cla im in g o f lu b e o i l , wood w orking, b a tte r y and e l e c t r i c a l r e p a ir , b a k e r ie s , and so f o r t h . Ho a t t e n t io n has been p a id to th e o i l In d u stry , due to th e f a c t th a t th e r e i s no d ir e c t r e la t io n between th e I n d u s t r ia l Bank and t h is In d u str y , and b eca u se i t i s w e ll d ev elo p ed . E stab lish m en t o f Hew I n d u s tr ie s The I n d u s tr ia l Bank, to g e th e r w ith th e G eneral D ir e c to r a te o f In d u stry , stu d ie d th e p o s s i b i l i t i e s o f e s ta b l i s h i n g some new in d u s t r ie s . Among th e s e in d u s tr ie s are: a j u t e m i l l , a su gar p la n t , a paper m i l l , a s t e e l m i l l, and a ch alk m anufacturing p la n t . The M ission o f th e I n te r n a tio n a l 28 ©ank su g g e ste d , in a d d itio n t o th e above m entioned in d u s t r i e s , th e esta b lish m en t o f bone meal f e r t i l i z e r p la n t s , an au tom ob ile t i r e f a c t o r y , a c e n tr a l m achine shop, a co n cr e te p a tc h in g p la n t, a p la n t f o r th e m anufacture o f d a te b oxes and th e m anufacture o f g la s s b o t t l e s . 23 C o n d itio n s, however, a r e g e n e r a lly fa v o r a b le to , fu r th e r in d u s t r ia l d evelopm ent. An expanding a g r ic u l tu r e should p ro v id e more m a te r ia ls , su ch a s f ib e r s and o i l se e d s, fo r p r o c e ssin g and when th e standard of l i v i n g among th e r u r a l p o p u la tio n i s r a is e d , th e r e sh ou ld be a grow ing d o m estic market f o r in d u s t r ia l p r o d u c ts. In o i l and n a tu r a l gas th e cou n try p o s s e s s e s a cheap so u rce o f power and f u e l as w e ll as an im portant so u rce o f raw m a te r ia ls . There a re su r fa c e in d ic a t io n s o f ir o n , cop p er, z in c and chrome o r e s , as w e ll a s of th e e x is te n c e o f sulphur and s a l t d e p o s it s . . . . In th e c i t i e s th e r e i s adequate man power f o r In d u stry , and th e I r a q i workman w ith p rop er tr a in in g i s g e n e r a lly adept a t le a r n in g in d u s t r ia l p r o c e s s .2^ I n d u s tr ie s Sponsored by th e I n d u s tr ia l Bank The I n d u s tr ia l Bank i s now p a r t ic ip a t in g in e ig h t in d u s t r ie s , and t h i s i s c o n sid er ed a g r e a t f a c t o r in h e lp in g th e e sta b lish m en t o f th e se in d u s t r ie s . The f i r s t and main p r o je c t i s th e cement p la n t . The q u a lity o f th e I r a q i cement i s regarded as b ein g v ery h ig h , and i t com petes a g a in s t im ported cement in p r ic e and 23 I b id ., pp. 1?-*18, Annual Report o f th e G eneral D ir e c to r a te o f In d u str y , op . c i t . , p . 1 8 , and The Economic Development o f Ir a q , o p . c i t . . p» 36. The Economic Development o f I r a q , op. c i t . . p . 33. 29 q u a lit y . The demand exceed s th e c a p a c ity o f th e p la n t , w hich a t p resen t I s o n ly 220 to n s p er d ay. I t i s hoped t h a t , a f t e r exp an sion o f th e p la n t , w hich i s ta k in g p la c e c o n tin u o u sly , n ot on ly w i l l th e in te r n a l demand be s a t i s f i e d but th a t th e r e w i l l be some’ su rp lu s fo r ex p o rt to n eigh b or in g c o u n tr ie s . The v e g e ta b le o i l e x tr a c tio n p la n t i s th e secon d im portant p r o j e c t . This p la n t hap been s u c c e s s f u l to a g r e a t e x te n t and i t s p rod u cts dom inate th e lo c a l m arket. But th e su p p ly i s n ot s u f f i c i e n t to m eet a l l th e n e e d s. B e sid es th e o i l p la n t, a soap p la n t i s in o p e r a tio n , h avin g a c a p a c ity o f 7 .5 ton s o f lau nd ry soap and. 2 .5 ton s o f t o i l e t soap p er day. As in th e o th e r p la n t s , th e produc tio n o f th e soap p la n t i s n ot a b le to s a t i s f y th e cou n try*s req u irem en ts. The f lo u r m ill p r o je c t i s v er y modern and equipped w ith th e l a t e s t m achinery. T his m ill i s lo c a te d a t B asra p ro v in ce (Liwa, a) and se r v e s th e exp ort f lo u r tra d e to K uw ait, Saudi A rab ia, and o th e r c o u n tr ie s on th e P e r sia n G u lf, j A c o tto n sp in n in g and w eaving m i l l was b u i l t n ear jBaghdad in 19^7> and i t i s now in th e s ta g e o f expanding. I I t in c lu d e s d y e in g , p r in tin g and f in i s h i n g equipm ent. As c o tto n sp in n in g r e q u ir e s a s p e c i f i c tem p eratu re, th e p la n t ! 3 0 l Is air conditioned. The Industrial Bank has participated in the financing of two more plants, a leather plant and a dredging company, but the operations of these two plants are not yet regu lated. To show the extent of the participation of the Indus trial Bank and the size of these different plants, Table III Is a comparison between these plants, regarding their capital and the amount of participation of the bank. The Development Board and the Industrialization Movement The Board did not take the responsibility of estab lishing new industries and neither participated in nor helped the existing Industries. Its only direct relation with Industry was the allocation of ID 220,000 in the five year program, for the mine investigation. But, the Board, in its development of agriculture, transportation and communication, would raise the standard of living and the standard of Industry. III. HOUSING- CONDITIONS j Dwellings in every country reflect the standard of jliving of the people and show the social differences of the different classes of the population. | i In Iraq, housing conditions, whether in rural or ! 31 _ TABLE I I I COM PARISON B ET W EE N THE PARTICIPATION O F TH E INDUSTRIAL BANKS IN TH E INDUSTRIAL PLANTS AS IN 1949-1950 P a rt1c lp a t 1on P er Cent o f th e o f th e P a r tic ip a tio n P la n ts C a p ita l I n d u s tr ia l t o th e Bank C ross C a p ita l ID ID Cement 812,500 243,750 30# V eg eta b le O il E x tr a c tio n 150,000 3 0 ,0 0 0 20# F lo u r M ill 150,000 2 5 ,000 20#* C otton S pinning and Weaving 900,000 2 2 2 ,9 0 0 25# L eath er 175,000 4 3,750 25# R iv er Dredging 250,000 6 2 ,5 0 0 25# Source: Compiled from th e Annual Report o f th e I n d u s tr ia l Bank, 1950 (Baghdad: A l-R a b ita P r e s s , 1951)* pp» 1 3 -1 8 . *20# o f th e p a id c a p it a l (ID 1 2 ,5 0 0 ) o n ly . urban a r e a s, are g e n e r a lly in very bad c o n d itio n . I t i s ea sy to f in d , s id e by s id e , many s t o r ie d h ouses w ith la r g e , gardens and mud o r mat h u ts sh ared by human b ein g s and t h e ir li v e s t o c k . I t i s rea so n a b le to s t a t e t h a t th e m a jo r ity o f th e p o p u la tio n l i v e s in d w e llin g s o f mud and m ats w ith o u t s a n it a t io n f a c i l i t i e s , and to a la r g e e x t e n t , w ith o u t s a fe w ater s u p p lie s . Some f a m ilie s l i v e in h o u ses where th ey have fo u r rooms p e r p erso n , w h ile o th e r s l i v e fo u r p erso n s to one room. T his s it u a t io n i s tr u e , n ot o n ly in th e v i l l a g e s and in th e sm all c i t i e s , but a ls o in b ig c i t i e s and th e c a p it a l, Baghdad I t s e l f . R egarding illu m in a tio n , th e m a jo r ity o f th e p eo p le s t i l l use ca n d les and g a s o lin e lam ps, and th e re are many l i v i n g w ith o u t lig h t in g o f any d e s c r ip t io n . H ousing C on d ition s in Urban A reas The h o u sin g c o n d itio n s o f urban a re a s can be d iv id e d in to th r e e c a te g o r ie s : modern h o u ses, o ld h o u ses, and th e s a r r i f a . In th e modern h o u se s, u s u a lly each h ou sin g u n it i s o ccu p ied by one fa m ily , and th e r e are many rooms p er p erso n . T his ty p e o f house has a n e a t appearance and i t c o n ta in s a s e p a r a te , p r iv a te en tra n ce, t o i l e t , k itc h e n , and i s b u il t to g e t a maximum o f s u n lig h t . A la r g e gard en , p r o te c te d by a fe n c e a l l around th e h o u se, u s u a lly se p a r a te s i t from t h e ___ 33 n eig h b o r* s u n it . Water and e l e c t r i c i t y su p p ly i s p ro v id ed , and some o f th e u n its are fu r n is h e d w ith some k in d o f modem m ech an ical I n s t a lla t io n s l i k e r e f r ig e r a t o r s and a ir co n d i t io n in g . Houses in th e o ld s e c t io n o f th e c i t y a re in h e r ite d from o ld e r g e n e r a tio n s . These a re o fte n overcrowded and “d oub led u p ,“ as i t i s custom ary fo r th e r e l a t i v e s , in -la w s o f th e fa m ily to l i v e to g e th e r , so h ere th e r e are too many p erso n s to a room. Many u n it s do n ot have p r iv a c y o r a n ic e appearance. Some o f th e s e a re p rovid ed w ith w ater or e l e c t r i c i t y , w h ile o th e r s depend on t h e ir n eigh b ors f o r th e w ater supply and u se g a s o lin e lamps f o r t h e ir illu m in a tio n . The s a r i f f a i s u s u a lly in h a b ite d by th o se who esca p ed from th e serfdom o f th e sh e ik s and came to th e c i t i e s lo o k in g f o r b e tte r l i v i n g c o n d itio n s . These p e o p le c o n s t it u t e th e m a jo r ity o f th e w orking c l a s s . s a r r if a i s fo u r square yards o f sp a ce , surrounded by mud w a lls about two and one h a lf yards h ig h . I t d o es n ot have any w ater su p p ly , k itc h e n or s a n it a t io n . L iv e sto c k fr e q u e n tly sh are t h i s l i t t l e sp ace w ith th e fa m ily . The a verage in h a b ita n c e o f th e s a r r if a i s about fo u r p e r s o n s. s a r r if a can be co n sid er ed th e m ost r e p r e s e n ta tiv e fe a tu r e o f co r r u p tio n in Ir a q , and th e ir r e s p o n s i b i l i t y o f i th e government tow ards i t s p e o p le . The s a r r if a i s n o t owned J i ___________________________________________________________________________________________________________________ ______________________________________________________________________________________ — - — — J 3b by th e I n h a b ita n t, as I t I s b u i l t on v a ea n t l o t s n ea r modem h ou ses or o u ts id e th e c i t i e s , fh e M issio n o f th e I n te r n a tio n a l Bank estim a te d th a t Baghdad has about s i x t y thousand s a r r if a and B asra about tw enty th o u sa n d ,2-5 w h ile th e s e two c i t i e s a re co n sid er ed th e most modem in Ir a q . This p ic t u r e shows th a t th e g r e a te r p a rt o f th e popu l a t i o n In th e C it ie s l i v e s in p o o rly c o n str u c te d and p o o r ly fu r n ish e d h o u se s, w hich r e f l e c t t h e ir lo w standard o f l i v i n g . H ousing C on d ition s in R ural A reas Housing c o n d itio n s In r u r a l a rea s a re w e ll i l l u s tr a te d and d e sc r ib e d by th e e x c e lle n t r e p o r t o f th e M issio n o f th e I n te r n a tio n a l Bank to Ir a q . The Report s t a t e s th a t: V illa g e s a re g e n e r a lly c lu s t e r s o f mud h ouses w here, In many c a s e s , men and l iv e s t o c k a re n ot se g r e g a te d . They have u s u a lly grown up around w e ll s or a lo n g stream s and I r r ig a t io n ca n a ls under c o n d itio n s where w ater p o llu t io n becom es in e v it a b le . For th e most p a r t, s a fe w ater s u p p lie s a re not a v a ila b le . The cu rren t f l i g h t from th e la n d cannot be a r r e s te d a s lo n g as th e o rd in a ry v i l l a g e la c k s th e m ost elem en tary f a c i l i t i e s o f s a n it a t i o n , m ed ica l a id , c le a n d rin k in g w a te r , and s c h o o lin g , and g e n e r a lly o f f e r s l i t t l e a t t r a c t io n to th e p erso n who w ants to improve h is l o t and en joy a rea so n a b le com for t a b le l i f e . 26 The Economic Developm ent o f I r a q , op. c i t . , p . 55* L oc. c i t . 35 P u b lic Housing R ecen tly th e r e has been an I n c r e a s in g I n t e r e s t in h o u sin g c o n d itio n s a t b o th p u b lic and q u a s i-p u b lic i n s t i t u - t io n s . The M in istr y o f S o c ia l A ffa ir s i s empowered by Law Ho. 38 o f 19^1# and Law No. 22 o f 19^5* to b u ild low r e n ta l h o u ses fo r la b o r e r s . The M in is tr y has a lr e a d y c o n str u c te d ZQfy u n it s and has 185 u n it s under c o n s tr u c tio n in Tal Mahomed near Baghdad. Furtherm ore, m u n ic ip a litie s w hich come under th e M in is tr y o f th e I n t e r io r , ca rry out some h o u sin g p r o j e c t s , such a s th o s e in B asra and Kut p r o v in c e s . The co r ru p tio n in th e p o l i t i c a l and econom ic s tr u c tu r e h as a g rea t in flu e n c e in re ta r d in g and d e c r e a sin g th e grow th o f p u b lic h o u sin g . In many e a s e s , a p u b lic h o u sin g p r o je c t i s begun and l e f t uncom pleted by th e r e s p o n s ib le a u th o r ity , b eoau se o f th e m isu se o f th e n e c e ssa r y amount o f c a p it a l d evoted to th e p r o j e c t . S em i-p u b lic h o u sin g i s p rovid ed by th e R ailw ay A d m in istra tio n and th e Port o f B asra A d m in istr a tio n . The h o u ses o f th e se two p r o je c ts are p ro v id ed la r g e ly f o r th e s e n io r s t a f f and n ot fo r th e w ork ers. The w orkers l i v e in s a r r i f a b u il t by th em selv es around t h e i r p la c e o f em ploy m ent. However, th e r e are a few e x c e p tio n s where th e R ailw ay 36 A d m in istra tio n has c o n str u c te d some s a r r i f a fo r th e w o rk ers. The q u a r te rs w hich have so f a r been p ro v id ed f o r la b o r e r s and a r t is a n s o f th e Ir a q i S ta te R ailw ays are: 283 u n its c o n s is t in g o f two-room q u a r te r s , 2 ,0 9 0 u n it s o f one-room and 60 u n it s o f s a r r l f a s .2 7 The Development Board and H ousing C o n d itio n s The Developm ent Board c a r r ie d out some o f th e resp on s i b i l i t y o f b u ild in g h ou ses f o r th e la b o r e r s and J u n io r o f f i c i a l s . In i t s budget o f 1950-1951» th e Board a llo c a t e d ID 1 5 0 ,0 0 0 fo r t h i s purpose and in ten d ed to r a is e th e amount to ID 3 0 2 ,000 in each o f th e su cc eed in g y e a r s .2® Home Ownership Investm ent in r e a l e s t a t e i s s t i l l co n sid er ed th e b e s t and s a f e s t ty p e o f in vestm en t in Ir a q . The average r e tu rn on t h i s Investm ent i s v e r y h ig h , th e r e n ta l r a t e o f a h ouse c o s tin g ID 2 ,0 0 0 b ein g about ID 180 a y e a r , t h a t i s , 9 p er c e n t. T his s it u a t io n encouraged many in d iv id u a ls to in v e s t t h e ir c a p it a l in r e a l e s t a t e r a th e r than in any o th er k in d ex cep t commerce. As in th e c a se o f th e a g r ic u ltu r a l la n d , th e r e are d if f e r e n t ty p e s o f home ow nersh ip . Tapu ow nership, w hich g iv e s th e owner th e r ig h t o f ta s s a r u f (u su fr u c t) and raquaba 27 I b id . , p . A56. 2(1 The Developm ent B oard , op . c i t . , p . 22. 37 ( t i t l e ) . A rasa ow nersh ip , w hich i s to a g rea t ex te n t l i k e th e r e le a s e sy stem . The la n d i s owned by a c e r ta in p erson or p e r so n s, and he le a s e s i t to a n o th er. The second p erson a g re es to b u ild a house on th e la n d and h as th e r ig h t to occupy, rent or s e l l t h is h ouse fo r th e p e r io d in d ic a te d in th e c o n tr a c t. Gn th e o th e r hand, t h is secon d person i s s u b je c t to payment o f a low r e n t a l r a te o f about ID 12 a n n u a lly , to th e o r ig in a l ow ner. A fte r tw en ty y e a r s , th e h o u se, in c lu d in g th e lan d and th e b u ild in g s come under th e d is p o s a l o f th e o r ig in a l ow ner. This ty p e o f ow nership i s u s u a lly p r a c tic e d in th e Waquf la n d . In r e c e n t y ea rs and e s p e c ia ll y a f t e r World War I I , Iraq w itn e sse d new p r a c t ic e s en cou raging th e ow nership o f hom es. These p r a c t ic e s a r e , th e e sta b lish m e n t of New Baghdad Company, Mansoor C ity Company, and th e C oop erative S o c ie ty o f T each ers. A ccording to th e s e p la n s , th e p u rch a ser o f a h ouse i s not re q u ir ed to pay th e t o t a l p r ic e o f th e house in one paym ent. He makes a down payment and th e r e s t i s p a id o f f on a m onthly b a s is . Upon payment of th e v a lu e o f th e h o u se, th e t i t l e i s tr a n s fe r r e d to th e p u rch a ser. i j These a re th e main ty p e s o f ow nership w hich concern ■us in our s u b je c t. ! _____________________________________________________________________________________________i IV. SU M M A R Y AN D CONCLUSION 38 Iraq h as g re a t p o t e n t i a l i t i e s fo r econom ic d ev elo p ment . The T ig r is and th e E u p hrates, b e s id e s th e r a i n f a l l , su p p ly Iraq w ith la r g e amounts o f w ater f o r I r r ig a t io n . The s o i l i s v ery f e r t i l e , and th e la n d s u it a b le f o r c u lt iv a t io n i s more than i s needed by i t s p o p u la tio n o f o n ly 5 *5 0 0 , 0 0 0 . Labor i s cheap and capable o f becoming s k i l l e d w ith l i t t l e t r a in in g . O il fu r n is h e s Iraq w ith a cheap sou rce o f power and raw m a te r ia ls . There i s a g rea t p o s s i b i l i t y th a t Iraq has under i t s s u r fa c e many o th e r m in era l r e s o u r c e s , l i k e ir o n , c o a l, and z in c . Land on w hich h ouses can be e r e c te d i s co m p a ra tiv ely in e x p e n s iv e . B r ic k , cem ent, and wood a re l o c a l l y produced and q u ite low in p r ic e . T hese g iv e g r e a t o p p o r tu n itie s fo r r a i s in g th e h o u sin g stan d ard s and in c r e a s in g th e t o t a l nuibber o f h ou sin g u n it s . B u t, in s p i t e o f th e s e econom ic p o t e n t i a l i t i e s , p o v e r ty i s s t i l l p r e v a le n t in Ira q , and th e standard o f l i v i n g i s ex tre m e ly low . The system o f lan d ten u re i s s t i l l fe u d a l, h avin g h a rd ly changed f o r many c e n t u r ie s . Lands need ir r ig a t io n | and r e c la m a tio n . The u se o f modern m achinery and m ethods i s v e r y lim ite d and a g r ic u lt u r a l te c h n iq u e s a re p r im it iv e . la r g e amounts o f th e w ater su p p ly are w a sted . 39 In d u stry , on th e o th e r hand, i s a lm o st rudim entary and m eets on ly th e sim p le st w a n ts. As th e most common in d u str y i s h a n d ic r a ft, th e co u n try depends to a la r g e e x te n t on im ported in d u s t r ia l m a te r ia l to s a t i s f y i t s n eed s. Housing and s a n it a tio n fo r th e m ost p a r t, a re p rim i t i v e . Most o f th e p eo p le l i v e in mud h o u ses shared w ith t h e ir liv e s t o c k . The m a jo r ity o f th e h o u ses la c k e l e c t r i c i t y and a c le a n w ater su p p ly . In g e n e r a l, Iraq, i s in a backward econom ic p o s it io n ; b u t, a t th e p r e s e n t has s t a r t e d to ca rry o u t com prehensive program s fo r econom ic d evelopm en t. I t i s hoped th a t t h is w i l l in c r e a se th e p r o d u c tiv ity o f a g r ic u ltu r e and in d u s tr y , and r a i s e th e stan d ard o f l i v i n g fo r th e p e o p le . CHAPTER I I I THE AGRICULTURAL BANK OF IRAQ The A g r ic u ltu r a l Bank o f Iraq was e s ta b lis h e d by Law No. 18 in 19^0 t o d ev elo p a g r ic u ltu r e and to Improve fa rm e rs1 c o n d itio n s . In t h i s ch a p ter th e d is c u s s io n w i l l c o n s is t o f: p r in c ip le s o f a g r ic u ltu r a l c r e d it , a g r ic u lt u r a l c r e d it p r io r to th e e sta b lish m en t o f th e Bank, th e esta b lish m e n t o f th e Bank, lo a n p rocedu re and p o lic y o f th e Bank, c o l l e c t i o n and fo r e c lo s u r e p ro ced u res, and summary and c o n c lu s io n s . I . PRINCIPLES O F AGRICULTURAL CREDIT The u se o f c r e d it by farm ers has In crea sed enorm ously s in c e th e b eg in n in g o f t h i s ce n tu ry . C red it problem s have h e ld prom inent p la c e s in th e governm ent's p o l i t i c a l , econ om ic and s o c ia l program s. S ecu rin g adequate c r e d it f a c i l i t i e s f o r a g r ic u ltu r a l u se was th e main problem . At th e p r e s e n t tim e , farm ers in many d ev elo p ed c o u n tr ie s , e s p e c ia l l y th e U n ited S t a t e s , f in d c r e d it a v a ila b le on v ery r e a so n a b le term s. I t i s u sed now f o r a l l p rod u ction p u rp o ses and f o r b uyin g farm s o r a d d itio n a l la n d . The fo llo w in g pages w i l l be d ev o ted to th e c l a s s i f i c a tio n o f c r e d it , f a c t o r s d eterm in in g i t s s i z e and ia f o r e c lo s u r e o f m o rta g es. As th e aim o f t h i s p a rt o f th e d is c u s s io n i s t o e x p la in th e g e n e r a l p r in c ip le s o n ly , a b r i e f sta tem en t of th e s e d iff e r e n t s u b je c ts seem s ad eq uate. C la s s i f ic a t i o n o f A g r ic u ltu r a l C redit There a re f i v e c l a s s i f i c a t i o n s o f a g r ic u ltu r a l c r e d it . These a re: tim e , p u rp o se, s e c u r it y , le n d e r , and ty p e o f borrow er.^ Time c l a s s i f i c a t i o n . — C r e d it, a cco rd in g to th e tim e , i s d iv id e d in to th r e e ty p e s — s h o r t, in te rm e d ia te and lo n g . Short-term c r e d it i s p ro v id ed f o r a p erio d o f one y ea r o r l e s s . The p erio d in in te rm ed ia te c r e d it ra n g es from one t o f i v e y e a r s . W hile lo n g term c r e d it i s p ro v id ed fo r over f i v e y e a r s. The maximum p erio d fo r lo n g term c r e d it m ight be t h ir t y , f o r t y , or even s ix t y y e a r s in some coun t r i e s . Some w r it e r s b e lie v e th a t i t i s d i f f i c u l t , in many c a s e s , to d is t in g u is h betw een in te r m e d ia te and sh o rt-ter m c r e d it , so th ey c o n sid e r them b oth sh o rt-te r m c r e d i t . 2 Purpose c l a s s i f i c a t i o n . — C red it in a g r ic u ltu r e i s u sed fo r d i v e r s i f ie d p u r p o se s. I t can be sep a ra ted in to 1 W illiam G -. Murray, A g r ic u ltu r a l F inance (Ames, Iowa: The Iowa S ta t e C o lle g e P r e s s , 1 9 4 7 ), pp. 1 6 -2 ^ . ^ L oc. c l t . hz fo u r main groups: o p e r a tin g , m ark etin g, r e a l - e s t a t e , and c o o p e r a tiv e . O perating c r e d it i s u sed f o r b uyin g se e d , fe e d , f e r t i l i z e r , liv e s t o c k f e e d e r s , d a ir y c a t t l e , and m achinery, or to pay o p e r a tin g exp en ses and ca rry range l i v e s t o c k . (R efinancing o f any o f th e above m entioned p urposes a ls o comes under o p e r a tin g c r e d it . M arketing c r e d it In v o lv e s borrow ing to pay m ark etin g s e r v ic e s , such as tr a n s p o r ta tio n , commodity sto r a g e and in su r a n c e . But i t sh ould be n o tic e d th a t: “M arketing c r e d it can p ro p erly be d is c u s s e d as a g r ic u ltu r a l c r e d it o n ly when farm ers do t h e ir own m ark etin g. O therw ise i t i s c a lle d “m e r c a n tile ” or “commercial" c r e d i t . “3 R eal e s t a t e lo a n s a re u s u a lly d ev o ted to b u yin g a farm or a d d itio n a l la n d , and fo r fin a n c in g b u ild in g , d ra in a g e, orchards or any o th er im provem ents. This ty p e o f lo a n i s g e n e r a lly lo n g -te r m . The l a s t ty p e o f c r e d it c l a s s i f i c a t i o n a cco rd in g t o i t s p u rp ose, i s c o o p e r a tiv e o r g a n iz a tio n c r e d it . The c o o p e r a tiv e u se s th e c r e d it fo r th e same purposes a s th e o p e r a tin g , m a rk etin g , and r e a l e s t a t e c r e d i t s . S e c u r ity c l a s s i f i c a t i o n . — There a re two ty p e s o f ! 3 V ir g il P . Lee, P r in c ip le s o f A g r ic u ltu r a l C red it |(New York: M cGraw-Hill Book Company, I n c . , 1 9 3 0 ) , p . 7 2 . k3 c r e d it c o n tr a c ts from th e l e g a l enforcem ent sta n d p o in t— th e g e n e r a l and th e s p e c ific .* * A ccording to th e f i r s t ty p e , th e borrow er o b ta in s c r e d it on such s e c u r it y as a p la in p e r s o n a l n o te , th a t i s , m oral s e c u r it y , w hich su p p oses h is w illin g n e s s to p ay. Under th e s p e c if i c ty p e , th e borrow er has to m ortgage a s p e c i f i c p r o p e r ty . There a r e two k in d s o f m ortgages in t h i s r e s p e c t, nam ely, c h a t t e l m ortgage lo a n s and r e a l e s t a t e m ortgage lo a n s . C h a tte l m ortgage lo a n s are backed up by c r o p s, l i v e s t o c k , m achinery, com m odities, w arehouse r e c e ip t s o r c o l l a t e r a l s e c u r i t i e s . R eal e s t a t e m ortgage i s secu red by la n d , b u ild in g o r any r ig h t upon them. Sometimes th e le n d e r r e q u ir e s an endorsem ent o f a n o th er p erson on such c o n tr a c ts , in c a se he f e e l s th a t th e s e c u r it y o f th e borrow er i s not q u ite s u f f i c i e n t t o co v er th e in v o lv e d r i s k s . Lender c l a s s i f i c a t i o n . — The farm er may o b ta in c r e d it from d if f e r e n t s o u r c e s , some of t h e s e so u r c e s b ein g p r iv a t e , and o th e r s , sta te -o w n ed or p u b lic . The c h ie f so u rc e s a re in d iv id u a ls , farm -m ortgage jcom panies, c r e d it u n io n s, c a t t l e lo a n com panies, com m ercial i banks, sa v in g s b an k s, in su ra n ce and t r u s t com panies, banks ^ Ibid., p. 8 7. f o r c o o p e r a tiv e s , and a g r ic u lt u r a l b an k s. In th e U n ited S ta te s th e r e a re many governm ental a g e n c ie s d e a lin g w ith farm c r e d it , b e s id e s th e a g e n c ie s m en tion ed above, su ch as th e Farm ers' Home A d m in istra tio n , and th e Rural E l e c t r i f i c a t io n A d m in istr a tio n . Borrower c l a s s i f i c a t i o n . - - T his c l a s s i f i c a t i o n depends m ainly on th e k in d o f p ro d u ctio n o f th e fa rm ers. C on seq u en tly, i t i s d iv id e d in to th r e e groups o f farm ers: cro p , liv e s t o c k , and s p e c ia l. Crop farm ers a re th o se engaged in grow ing such p ro d u cts a s w h eat, c o tto n , co rn , to b a cco and v e g e ta b le s . L iv e sto c k fa n n er s In clu d e ran ge stockm en, f e e d e r s , dairymen and poultrym en . The s p e c ia l group i s composed in p a rt o f f r u i t orchard farm ers, n u rsery men, mushroom gro w ers, farm c o o p e r a tiv e s and v o c a tio n a l ed u ca tio n s tu d e n ts . F a c to r s D eterm ining S iz e o f C red it Lenders u se d iff e r e n t m easures in o rd er to determ ine th e amount to be lo a n ed to th e borrow er. A lthough c r e d it p o l i c y depends la r g e ly upon th e g e n e r a l econom ic c o n d itio n s o f th e co u n try , th e le n d e r has t o ta k e in t o c o n s id e r a tio n th e p e rso n a l econom ic c o n d itio n s o f th e borrow er to make repayment o f a lo a n . In o rd er to d eterm in e th e s i z e o f c r e d it , i t i s im portant t o exam ine th e p e r so n a l q u a l i f i e s - { t io n s o f th e b orrow er, h is b a la n ce s h e e t, and h is p r o s p e c ts * * 5 f o r Incom e. By p e r so n a l q u a lif ic a t io n s i s meant h o n e sty , a b i l i t y to produce Incom e, prom ptness in p ayin g d e b ts and t h r i f t i n e ss . The b a la n c e sh ee t a n a ly s is , or f in a n c ia l sta te m e n t, i s used to know th e n atu re and r e a l v a lu e o f p r o p e r ty , th e n a tu re and r e a l amount o f in d e b te d n e ss, and f i n a l l y , t o a s c e r t a in th e n e t w orth or n e t d e f i c i t . In r e ce n t y e a r s , many le a d in g a g e n c ie s adopted th e tren d s h e e t a n a ly s is on w hich th e a s s e t s and l i a b i l i t i e s o f about te n y ea rs a re l i s t e d . (In a d d itio n to b a la n c e sh e e t ite m s , in fo rm a tio n i s u s u a lly o b ta in ed on th o se incom e and management f a c t o r s w hich in d ic a te th e f in a n c ia l p r o g r e s s . . . • J S . The g r e a t e s t d i f f i c u l t y w hich f a c e s th e le n d e r i s a n a ly z in g th e borrow er*s p r o s p e c ts fo r incom e. This i s due c h i e f l y t o th e u n c e r t a in t ie s o f a g r ic u lt u r a l p r o d u c tio n . Methods o f e s tim a tin g th e incom e a re b ased on stu d y in g p a st incom e, p a st o p e r a tin g e x p e n se s, ad ju stm en ts f o r In v en to ry ch a n g es, and com parison o f th e fa rm er's income w ith a n o th er farm er in th e same t e r r it o r y . In g e n e r a l, th e d e s ir e d s it u a t io n o f a farm b u s in e s s i s o b ta in ed by lo o k in g to a l l th e se d if f e r e n t a n g le s , a s id e I * * Murray, op. c i t . . p . 3k. : ^ from th e p o t e n t ia l n a tu r a l h azard s and p r ic e f lu c t u a t io n r i s k s . F o r e c lo su r e o f M ortgage The r ig h t o f f o r e c lo s u r e a r is e s when one o f th e numerous te r n s o f a m ortgage a re n ot m et, such a s th e f a i l u re to pay th e p r in c ip a l or in t e r e s t when due. The f o r e c lo s u r e p r o ce ed in g s may ta k e fo u r s t e p s — d e fa u lt o f th e b orrow er, co u rt p r o c e e d in g s, s a le o f th e p ro p erty by p u b lic a u c tio n , and redem ption p e r io d . D efa u lt o f th e borrow er o ccu rs when he cannot m eet th e term s o f th e c o n tr a c t. D iffe r e n t governm ents r e q u ir e d if f e r e n t co u rt p ro c e e d in g s . B u t, g e n e r a lly sp ea k in g , t h e s e p ro ceed in g s r e q u ir e th e i n s t i t u t i o n o f fo r e c lo s u r e by th e le n d e r , th e h e a r in g o f th e c a s e , and th e ren d erin g o f a d e c is io n by th e c o u r t. The s te p o f s e l l i n g th e p ro p erty by p u b lic a u c tio n i s s e lf - e x p la n a t o r y . The law in a l l c o u n tr ie s g iv e s J u n io r c r e d ito r s and th e p r e v io u s owner th e r ig h t to purchase th e p ro p erty by p a y in g th e amount o f th e fo r e c lo s u r e s a l e , p lu s i n t e r e s t and o th e r c o s t s , d u rin g a s p e c i f i c tim e . T h is p erio d i s c a lle d th e redem ption p e r io d . In c a se th e m ortgage p ro p er ty d o es n o t s e l l fo r 4? enough to pay th e d e b t, th e le n d e r can c o l l e c t th e d e f i c ie n c y through a “d e f ic ie n c y jud gm ent.” The d eb ts can be le v ie d on o th er p r o p erty o f th e <|ebtor. M o ra to rla . — In c a s e o f em ergency th e governm ent m ight, en act moratorium l e g i s l a t i o n p r o v id in g a tem porary h a lt in fo r e c lo s u r e p ro ce ed in g s d uring t h a t tim e . . . . In r e a l i t y , th e m oratorium g ra n ted th e r ig h t s o f r e c e iv e r s h ip , to h a rd -p ressed farm d e b to r s . L enders w ere in most c a s e s g iv e n th e r ig h t t o a c t a s r e c e iv e r s in c o l l e c t i n g a r e n t from th e farm , p ayin g th e t a x e s and o th e r upkeep ex p en se s, and r e s e r v in g th e rem ainder to a p p ly on th e in t e r e s t and p r in c ip a l o f t h e ir m ortgage. When t h is p o l i c y p r e v a ile d , th e le n d e r was in e f f e c t a b le to o b ta in th e same Income from th e farm , t h a t he w ould have r e c e iv e d had he o b ta in ed th e farm a t . f o r e c lo s u r e s a le and r e n ted i t to th e farm er ow ner.6 I I . AGRICULTURAL CREDIT PRIOR T O THE ESTABLISHMENT OF T H E AGRICULTURAL BANK Farm ers, p r io r to th e. e sta b lish m e n t o f th e A g r ic u l t u r a l Bank, w ere n e a r ly s e l f - s u f f i c i e n t . The o p era tin g c a p it a l needed f o r a farm u n it was r e l a t i v e l y s m a ll, and was fu r n ish e d la r g e ly from th e farm I t s e l f . As a r e s u lt o f co m m ercia lizin g a g r ic u ltu r e , and th e in c r e a s e in money v a lu e o f th e farm u n it , a g r ic u lt u r a l c r e d it has d ev elo p e d , but n o t r a p id ly enough. Government f in a n c i a l a s s is t a n c e and th e A g r ic u ltu r a l and I n d u s tr ia l 6 I b id . , p . 1 4 3 . kB Bank o f Iraq came in to th e p ic t u r e . Government f in a n c ia l a s s is t a n c e , p r iv a te le n d e r s and m erch an ts, th e com m ercial hanks and th e A g r ic u ltu r a l and I n d u s t r ia l Bank w ere th e m ajor so u rc es o f farm c r e d it p r io r t o th e e sta b lish m en t o f th e A g r ic u ltu r a l Bank o f Ir a q . They w i l l be d is c u s s e d in th e fo llo w in g p a g e s. Government F in a n c ia l A s s is ta n c e S in ce 1 9 2 9 , th e government a llo c a t e d funds in i t s budget f o r h e lp in g farm ers in even t o f n a tu r a l d is a s t e r s or c a t a s t r o p h ie s . T h e o r e tic a lly , t h is p rocedu re i s co n sid er ed v e r y fine. B u t, in p r a c t ic e , th e re are many c r it ic is m s a g a in s t i t . In th e f i r s t p la c e , a s s is t a n c e was gran ted to th e la r g e - e s t a t e h o ld e r s and n ot to th e needy sm all fa rm ers. S eco n d ly , i t was g iv e n w ith o u t any gu aran tee or s e c u r it y . F in a lly , i t was u sed fo r lu x u r io u s consum ption p u r p o se s. As th e s e d eb to r s have a g r e a t in flu e n c e in th e governm ent, th ey su cceed ed in p a ssin g la w s ex cu sin g them s e lv e s from p a y in g back what th ey owed th e t r e a s u r y . 7 > P r lv a te Lenders and Merchant s Farm c r e d it p rovid ed by p r iv a te le n d e r s , m erchants 7 J a b ir Jad Abdul-Rahman, The P o l i t i c a l Economy, 1 1 V0 I . I I (Baghdad: Ir a q i P r e ss and P u b lis h in g Company, 1 9 5 1 ),' p . 2 6 8 . I _ _ w and d e a le r s was and s t i l l i s , th e predom inant form In Ira q . T his ty p e i s o n ly a supplem entary s e r v ic e to th e main b u s in e s s o f th e p r iv a te le n d e r s , m erchants and d e a le r s . C on seq u en tly, many d i f f i c u l t i e s a r is e in t h e i r e x te n s io n o f c r e d i t . P r iv a te le n d e r s c o n s is t o f r e l a t i v e s , f r ie n d s , sh e ik s and su b -sh e ik s (S i r k a l ) . A lthough some lo a n s m ight be g ra n ted a g a in st r e a l e s t a t e m ortgage o r a g a in s t a p erso n a l n o te w ith endorsem ent o f an o th er p e r so n , most o f th e lo a n s a re u nsecu red and are f o r sm a ll am ounts. In some p a r ts o f Ira q , th e p r a c t ic e o f t r a n s fe r r in g th e t i t l e to th e m ortgager fo r th e term o f th e m ortgage I s s t i l l u sed . Loans by th e sh e ik s or th e s u b -sh e ik s are g ra n ted to th e f e lla h e e n who do not have th e n e c e ssa r y working c a p it a l # and who are w orking on th e s h e ik 's la n d a s sh a recro p p ers. The m erchants are th o s e who d e a l in s e l l i n g farm p ro d u cts or l i v e s t o c k , o r who are th e owners o f l i t t l e v i l l a g e s to r e s s e l l i n g consumer goods to th e f a r m e r s . These m erchants g iv e lo a n s in th e form o f money o r goods and equipm ent and ta k e a c e r ta in sh a re In th e n ex t cro p . . . . much forw ard s e l l i n g o f th e cro p s ta k e s p la c e as soon as th e g reen a p p ea rs, a t ru in ou s p r ic e s to th e c u lt iv a t o r , som etim es in retu rn fo r a lo a n am ounting 5 0 to about a q u a r te r o f th e current g r a in price*® Som etim es, when th e farm er has h is own la n d , he and th e m erchant e n te r in to a sh arecrop agreem ent; th e m erchant advances th e w orking c a p it a l and equipm ent, and th e farm er o f f e r s h is la n d and la b o r . A nother group o f p r iv a t e le n d e r s i s th e ir r ig a t io n pump ow ners, who make c o n tr a c ts to su p p ly pumps t o p e a sa n ts a t e x to r tio n a te r a t e s o f i n t e r e s t . C redit from p r iv a te le n d e r s , m erchants and d e a le r s i s v ery e x p e n siv e . The c o s t s a re h ig h b eca u se o f th e farm ers' i l l i t e r a c y , th e lo a n s a re sm a ll and th e l o s s e s h eavy. The r a te o f in t e r e s t m ight reach 50 p er cen t o r more depending on th e ab sen ce o f s e c u r it y , a v a i l i b i l l t y o f money f o r le n d in g and th e p r e s t ig e o f th e b orrow er. 9 Commercial Banks In many c o u n tr ie s , com m ercial banks p la y an e s s e n t i a l ® Land Tenure in M u h tiflg Llwa, u n p u b lish ed r e p o r t p rep ared fo r M .E .S .G ., 19W , a s quoted by Doreen W arriner, Land and P o v erty in th e M iddle E ast (London: Royal I n s t it u t e o f I n te r n a tio n a l A f f a ir s , 1 9 ^ 8 ), p . ll^K 9 "It i s d i f f i c u l t f o r th e needy farm ers to o b ta in a lo a n w ith an I n t e r e s t r a te o f l e s s than 5% p er month, or 1 0$ in many c a s e s . . . many in n o cen t and uninform ed farm ers u s u a lly f a i l to demand a r e c e ip t or t o s e e th a t th e p ap ers a re c a n c e lle d upon payment o f th e lo a n . . . some le n d e r s have u sed such s it u a t io n s to t h e ir f u l l e s t a d v a n ta g es. . Abdul Jabbar F a r is , Two Y ears in th e M iddle E u p h ra tes, as q uoted by J a 'a fa r Khayyat, The Ir a q i V illa g e (B elru tT Dar jE l-K ash aff P r e s s , 1 9 5 0 ), p . 95- 51 r o le In a g r ic u lt u r a l fin a n c e , p a r t ic u la r ly In th e sh o rt-ter m lo a n s m arket. They have s e v e r a l ad van tages from th e fa rm er1s p o in t o f v ie w . They g iv e q u ick s e r v ic e , th e y are a c c e s s ib le to fa rm ers, and th e y p ro v id e o th e r banking f a c i l i t i e s , b e s id e s le n d in g . However, n o t a l l th e fe a tu r e s o f com m ercial banks a re fa v o r a b le to farm c r e d it . The banks m ight not have an adequate su p p ly o f sh o rt-term fu n d s, t h e i r r a te o f in t e r e s t i s n o n c o m p e titiv e , and f i n a l l y , some l o c a l bankers a re u n w illin g to s p e c i a l i z e s u f f i c i e n t l y in th e c r e d it r e q u ir e m ents o f farm ing to o f f e r i n t e l l i g e n t s e r v ic e in t h i s f i e l d . 10 In Ira q , com m ercial banks a re n ew ly e s ta b lis h e d , and th e la r g e s t a re b ran ch es o f fo r e ig n b an k s, nam ely, th e Ottoman Bank, th e E astern Bank, th e Im p eria l Bank o f Iran and th e M iddle E ast and th e A rabic Bank. There a re o n ly two n a tiv e banks; th e f i r s t , th e R a fld a ln Bank, w hich i s owned by th e governm ent, and th e seco n d , th e P e o p le 's Bank, w hich was e s ta b lis h e d l a t e in 1 9 5 2 . Branches o f th e s e b ank s, in a d d itio n t o Baghdad, are co n c e n tra te d in B a sra , M osul, Aumara and, A r b il p r o v in c e s . The Law o f Banks' C on trol o f 1950 p erm its th e 1 0 Murray, op. c l t . , p . 182. 52 com m ercial banks to in v e s t some o f t h e ir fun ds in a g r ie u l- o n e s, are not v e r y much in t e r e s t e d in th e developm ent o f th e n a tu r a l r e so u r c e s o f th e co u n tr y , s in c e th e y p r e fe r to d ea l o n ly -with th e r ic h e s t tr a d in g com panies and m erchan ts. In s h o r t, com m ercial banks a re o f m inor im portance in th e f i e l d o f a g r ic u lt u r a l c r e d it and c o n c e n tr a te a l l t h e ir a c t i v i t i e s around com m ercial c r e d it . The A g r ic u ltu r a l and I n d u s tr ia l Bank The governm ent, in th e m id - t h ir t ie s , r e c o g n iz e d th e Inadequacy o f p r iv a t e le n d e r s and com m ercial banks in th e le n d in g b u s in e s s req u ired by a g r ic u ltu r e . I t r e c o g n iz e d , t o o , th a t th e a g r ic u lt u r a l in d u str y d if f e r e d s u f f i c i e n t l y from o th e r I n d u s tr ie s to r e q u ir e a s p e c ia l banking sy stem . Prom e x p e r ie n c e s in th e p a s t , i t was e v id e n t th a t th e e x i s t i n g c r e d it system was d e f e c t iv e . The s p e c i f i c d e f e c t s may be summarized as f o llo w s : The custom ary term o f farm lo a n s was f a r to o sh o rt a p e r io d f o r th e repayment o f a lo a n out o f th e p ro d u cts o f th e lan d ; th e m ethods o f repayment Iwere n ot s a t is f a c t o r y , th e p o s s i b i l i t y and c o n d itio n s o f ren ew al were u n c e r ta in , and th e in t e r e s t r a t e was much th e N a tio n a l Bank o f Iraq (Baghdad: Al-Hokomeh P r e s s , 1951)» p . lF I t u r e .- ^ But com m ercial b ank s, and p a r t ic u la r ly th e fo r e ig n Kamil Al-Sam m eraee. C om oilatIon o f Laws C oncerning 53 h ig h e r than n e c e ssa r y fo r farm c r e d it in co m p etitio n w ith com m ercial or in d u s t r ia l c r e d i t The outcome o f r e a liz in g such d e f e c t s was th e e s ta b lish m e n t o f th e A g r ic u ltu r a l and I n d u s t r ia l Bank by e n a c tin g Law Ho. 51 o f 1 9 3 5 . The Bank i s owned and c o n tr o lle d by th e governm ent, w hich a p p ro p ria ted th e sum o f ID 150,000 fo r i t s c a p i t a l . T his was in c r e a se d t o ID 5 0 0 ,0 0 0 in 1937* The Bank i s managed by a board o f d ir e c t o r s , composed o f th e G eneral D ir e c to r o f th e Bank and fo u r members a p p o in ted by th e M in is te r s C o u n eil, one member from each of th e M in istr y o f F in a n ce, M in is tr y o f Econom ics and Transpor t a t i o n , farm ers and m erch an ts, and industrym en. The G-eneral D ir e c to r i s th e Chairman o f th e Board. The Bank i s concerned w ith th e developm ent o f a g r ic u ltu r e and in d u s tr y , b u t, as t h i s p a r t i s d ev o ted to a g r ic u lt u r a l c r e d it , o n ly th e a g r ic u lt u r a l o p e r a tio n s o f th e •Bank w i l l be m entioned h er e . The Bank r e c e iv e s d e p o s it s from anyone, but i t may g ra n t lo a n s to farm ers to l i f t p r io r encumbrances on a g r i c u lt u r a l la n d , t o a id in th e c u lt iv a t io n and improvement o f 1 such la n d s , to p u rch ase f e r t i l i z e r , s e e d s , m achinery, H Ivan W right, Farm M ortgage F in a n cin g (McGraw-Hill Book Company, I n c ., 1 9 2 3 ), p p. A6-A7- 5* im plem ents to be u sed e x c lu s iv e ly in a g r ic u ltu r e , and to pay th e exp en ses o f p la n t in g , c a r e and h a r v e s tin g o f farm crops and p rep a rin g them f o r m arket. M oreover, th e Bank r e n ts a g r ic u lt u r a l m achines to fa rm ers, and Im ports some a g r ic u l t u r a l p rod u cts f o r th e governm ent. F urtherm ore, th e Bank can e s t a b lis h i t s own a g r ic u lt u r a l e n t e r p r is e s , h elp o r g a n iz e c o o p e r a tiv e s o c i e t i e s and fin a n c e them. T o ta l lo a n s to be g ra n ted sh o u ld not exceed IB 65*OQO in any y ea r , u n le s s th e r e i s a g r e a t need approved by th e governm ent fo r th e e sta b lish m e n t o f la r g e p r o j e c t s .13 S e c u r it ie s req u ired f o r lo a n s a re: immovable p r o p e r ty , J o in t gu a ra n tee or government g u a r a n te e. Loans are gran ted upon th e r e s o lu t io n o f th e board o f d ir e c t o r s , but no r e a l - e s t a t e m ortgage may be a c c e p te d u n t i l th e t i t l e o f th e p ro p erty has been p a sse d on by th e D ir e c to r a te of Tapu ( T i t l e s ) . The s m a lle s t lo a n p erm itte d i s ID 5 and th e la r g e s t ID 1 ,5 0 0 . Loans a g a in s t J o in t g u aran tee cannot ex ceed ID 60 per p e r s o n .1 ^ In A p r il, 19^*6# th e Bank was d iv id e d in to two banks, th e A g r ic u ltu r a l Bank and th e I n d u s tr ia l Bank. The l a s t 13 For b o th a g r ic u lt u r a l and in d u s t r ia l p u r p o se s. 1^ Annual Report o f th e A g r ic u ltu r a l Bank o f I r a q , ;19^ «19^ 7 (Baghdad: The Government P r e s s , 1 9 ^ 8 ), p . 3 . ! i 55 annual rep o rt I ss u e d by th e Bank was In 19^ 5-19^ 6. At th a t tim e th e Bank had a c a p it a l o f ID 5 0 0 ,0 0 0 , o f w hich ID 2 8 0 ,0 0 0 had b een p a id In . The o u tsta n d in g lo a n s , fo r a g r ic u ltu r e o n ly , amounted to ID 2 7 6 ,1 6 6 . The accum ulated p r o f i t s were 17 p er c en t o f th e p a id -in c a p i t a l. At th a t s p e c i f i c p e r io d , th e Bank had two b ran ch es In a c t iv e o p e r a tio n , one lo c a te d in Sulaym ania and th e o th e r in A r b il P rovin ce where tob acco i s grown. B e sid e s i t s lo a n o p e r a tio n s , th e Bank e s t a b lis h e d , in 1939» a co tto n g in n ery a t A ziz ia y a h C ity . C o lle c tio n p roced u res seem to be i n e f f e c t i v e , as th e t o t a l unpaid and renewed lo a n s amounted t o 59 p er c e n t o f th e t o t a l lo a n s due in th e y ea r 1 9 ^ 5 -1 9 ^ • The Bank r e la te d t h i s h igh p erc en ta g e to th e d e cr ea se in a g r ic u lt u r a l p r ic e s and th e occu rren ce o f a f lo o d . Prom an a n a ly s is o f th e lo a n s o f th e Bank, a cco rd in g to th e d if f e r e n t p ro v in o e s o f Ira q , i t ap pears th a t th e se lo a n s are c o n c e n tr a te d in a r e a s p rod u cin g tobacco (Sulaym ania and A r b i l ) , and c o tto n (Baghdad, D yaleh and H i l l a h ) . Loans advanced to th e s e p r o v in c e s in 19^5-19^6 amounted to ID 1 3 1 ,8 1 ^ , out o f th e t o t a l lo a n s o f ID 1 6 6 ,5 3 8 to a l l p r o v in c e s . The a verage lo a n g ra n ted by th e Bank amounted to about ID 225 f o r p e r io d s ran gin g from one to s ix ! ' ' y e a r s , which d o es not seem to be enough f o r th e a g r ic u ltu r a l; 56 p r o d u c tio n , e s p e c ia lly i f th e lo a n was f o r p u rch a sin g and improvement o f la n d .3-5 In c o n c lu s io n , th e Bank, d u rin g i t s sh o r t l i f e o f ten y e a r s , su cceed ed to a c e r ta in e x te n t in fin a n c in g fa rm ers, p a r t ic u la r ly th o s e who were engaged in p la n tin g to b a cco and c o t t o n . Concerning th e ty p e o f borrow ers, most o f th e lo a n s iwere gran ted to farm ers in th e median group. For th e ^greater p a r t, th e amount o f lo a n s g ra n ted ranged b etw een one hundred and sev en hundred I r a q i d in a r s . Taking th e g r e a t n eed f o r a g r ic u ltu r a l, c r e d it in to c o n s id e r a tio n , th e p a id -in c a p it a l o f th e Bank was n ot s u f f i c i e n t f o r th e developm ent o f a g r ic u ltu r e . M oreover, th e Bank was v e r y slow in opening b ran ch es •in th e im portant a g r ic u lt u r a l a r e a s, c a u sin g lim it a t io n s to th e e x te n s io n o f i t s o p e r a tio n s . T his c o s t th e farm ers e x tr a tr a n s p o r ta tio n ex p en d itu re s to th e n e a r e s t branch. I I I . ESTABLISHMENT OF THE AGRICULTURAL BANK O F IRAQ i Four y ea r s a f t e r th e e sta b lish m en t o f th e A g r ic u ltu - i 1 r a l and I n d u s tr ia l Bank o f Ir a q , th e governm ent r e c o g n iz e d ^5 A ll th e fig u r e s s t a t e d here are com piled from th e Annual Report o f th e A g r ic u ltu r a l and I n d u s tr ia l Bank o f I r a q , 19^ 5-19i*&"~(Baghdad: The Government P r e s s , 19WT* 57 th a t th e w ide r e s p o n s i b i l i t i e s o f th e Bank made i t v e r y hard to a c h ie v e i t s o b j e c t iv e s . There was no s p e c ia liz a t i o n in th e o p e r a tio n s o f th e Bank a s i t had to d ev elo p a g r ic u ltu r e and in d u str y , t o undertake some com m ercial tr a n s a c tio n s fo r th e governm ent, and t o perform some o f th e com m ercial b a n k ^ o p e r a tio n s l i k e fo r e ig n exchan ge, a c c e p tin g d e p o s it s , and op en in g ch eck in g a c c o u n ts. In o th e r w ord s, th e Bank was an a g r ic u lt u r a l, in d u s t r ia l , m ortgage and commercial, bank. In 1 9 4 0 , th e governm ent sep a ra ted th e A g r ic u ltu r a l and I n d u s tr ia l Bank in to two Banks: The A g r ic u ltu r a l Bank, jcreated by Law No. 1 8 , and th e I n d u s tr ia l Bank, c r e a te d by I - 1 £ Law No. 1 2 .A O The two Banks d id not s t a r t t h e ir s e p a r a te o p e r a tio n s u n t i l A p r il, 1 946. Bank Management The A g r ic u ltu r a l Bank Law o f 1940 gave th e c h o ic e o f e s t a b lis h in g th e Bank, e it h e r as a governm ent agency headed by a board o f d ir e c t o r s , o r a co r p o r a tio n in w hich th e governm ent co u ld p a r t ic ip a t e to th e e x te n t d ecid ed by th e C o u n cil o f M in is t e r s .^7 i n 1 9 4 5 , th e Temporary Committee of ^ The Waqauit s A l-I r a q iy a , No. 1785 o f March 3 1 , 19-40* Law o f th e E sta b lish m en t o f an A g r ic u ltu r a l Bank, No. 18 o f 19&0"TBaghcLad: Government P r e s s , 1 9 4 0 ), A r t ic le I I I . ■ * ■ 7 Kamil Al-Sammera* i , C om pilation o f Laws C oncerning th e N a tio n a l Bank o f Iraq (Baghdad: Government P r e s s , 1 9 5 1 ) , p p . 2 8 0 -2 8 1 . ! 58 th e Bank su g g e ste d founding th e Bank a s a government agen cy, arith th e o p tio n o f changing i t to a c o r p o r a tio n . The Board o f D ir e c to r s c o n s is t s o f a chairman and fo u r members. The Chairman I s th e G eneral D ir e c to r o f th e Bank, one member r e p r e s e n ta tiv e o f th e M in istr y o f F in a n c e, an oth er member i s r e p r e s e n ta tiv e o f th e M in istr y o f E conom ics, and th e two o th e r s are r e p r e s e n ta tiv e s o f th e la r g e fa rm ers. The Chairman and members are a p p o in ted by th e C ou n cil o f M in is te r s f o r term s o f fo u r y e a r s , so arranged th a t h a lf o f th e members sh ou ld be changed ev ery two y e a r s , w ith th e e x c e p tio n o f th e Chairman. The d e s ig n a ted member may be a p p o in ted a g a in f o r a n oth er term . Each member i s e n t i t l e d to r e c e iv e annual a llo w a n c e s; th e Chairman ID 1 2 0 , th e non-governm ent o f f i c i a l members ID 200, and th e government o f f i c i a l members ID 1 0 0 . In order t o e lim in a te f a v o r it is m , i t i s fo rb id d en t o g iv e a lo a n o r s e l l p r o p e r ty o f The Bank to any member o f th e Board o f D ir e c to r s or any o f h is c l o s e r r e l a t i v e s . M oreover, i t i s n ot p erm is- js ib le to a p p oin t any d eb to r to th e Bank a s a member o f th e Board o f D ir e c to r s . The Board o f D ir e c to r s has charge o f th e op en in g o f b ra n ch es, iss u a n c e and s a le o f bonds, w r it in g - o f f and I renew al o f d e b ts , and ev ery m a tter co n cern in g th e com m ittees and o f f i c i a l s o f th e Bank. The Board o f D ir e c to r s may \ L , ------------------------------------ — - 1 59 d e le g a te some a u th o r ity to th e G eneral D ir e c to r o f th e Bank. The Bank now has te n branches in a c t iv e o p e r a tio n in te n p r o v in c e s , two o f them headed by a d ir e c t o r and ea ch o f th e r e s t headed by a su p e r in te n d e n t. The o th e r th r e e p r o v in c e s , in w h ich th e r e a re no b ra n ch es, a re M u n ta fig , Amara and Dulalm . I t seems t h a t th e rea so n fo r t h i s i s due m ain ly to th e f a c t th a t th e huge e s t a t e s in th e s e p r o v in c e s a re in th e hands o f a few s h e ik s . The s h e ik s to o k th e r e s p o n s i b il it y o f le n d in g t o th e farm ers a t u su r io u s r a te s o f i n t e r e s t . The t o t a l lo a n s granted in t h e s e ,t h r e e p r o v in c e s was o n ly th r e e p er cen t o f th e t o t a l lo a n s gran ted in 1951* T his p erc e n ta g e i s c o n sid er ed v e r y low compared w ith th e a g r ic u lt u r a l im portance o f th e s e p r o v in c e s . S o u rces o f Funds There are fo u r so u rces of funds: C a p ita l. — A ccording to th e Law o f 19^0* th e govern ment p ro v id ed th e Bank w ith ID 5 0 0 ,0 0 0 as c a p it a l. T his | i c o n s is te d o f a g r ic u lt u r a l lo a n s , p r o p e r tie s and r ig h t s o f th e d is s o lv e d A g r ic u ltu r a l and I n d u s tr ia l Bank. The c a p it a l i s c o n sid er e d a lo a n from th e government to be rep a id t o th e i T reasu ry in in s ta llm e n t paym ents o v er a p e r io d o f s e v e n ty - f i v e y e a r s . The p a id - in c a p it a l in 19^5-19^6 was o n ly ID 2 8 0 ,0 0 0 ,. w hich was augpaented in th e n ex t year to ID 3 8 0 ,0 0 0 as a : r e s u lt o f th e In cr ea se d demand fo r lo a n s by fa n n e r s. | By th e amendment o f Law No. 18 in 1 9 5 0 , th e c a p it a l was r a is e d to one m illio n I r a q i d in a r s ,^9 th en in 1952 in c r e a s e d to two m illio n I r a q i d in a r s , w ith a p a id -in c a p it a l o f ID 5 5 0 ,0 0 0 . I n te r e s t and com m ission s. — The in t e r e s t r a te to be charged i s d eterm in ed from tim e t o tim e by th e Board o f D ir e c to r s . B e s id e s th e i n t e r e s t , th e Bank ch arges commis s io n a g a in s t o p e r a tin g as an in term ed ia ry in th e s a le and p u rch a se o f a g r ic u lt u r a l p ro d u cts and m ach inery, p lu s th e p r o f i t s from i t s own p r o j e c t s , nam ely, A z iz iy a h G innery, A z iz iy a h E l e c t r i c i t y Scheme and th e F ish e r y P r o je c t. T o ta l accum ulated revenue from th e s e ch arges and p r o f i t s in March, 1 9 5 1 , was ID 1 1 7 ,9 8 4 , w hich in d ic a t e s th a t th e B ank's fin a n c e d c o n d itio n was fa v o r a b le a t th a t tim e . B orrow in gs. — To se c u r e a d d itio n a l funds to le n d to fa rm ers, th e Law a u th o r iz e d th e Bank to borrow from th e p u b lic , th e T reasury and sem i-governm ent a g e n c ie s , by is s u in g n e g o tia b le bonds, or any o th e r method approved by th e governm ent. 18 Annual Report o f th e A g r ic u ltu r a l Bank o f I r a q . op. c l t . . p . 5 * 3-9 The Waqayi* a A l- I r a q ly a , No. 2846 o f June 1 5 , 1 9 5 0 . 61 Two p o in t s should he n o tic e d in t h i s r e s p e c t: f i r s t , th e Law or th e R e g u la tio n s o f th e Bank d oes not s e t th e maximum amount w hich can be borrowed; seco n d , th e government d oes n ot n e c e s s a r ily secu re e ith e r th e p r in c ip a l o r th e i n t e r e s t . To d a te , th e Bank has n ot is s u e d any bonds, b u t in 1952 i t borrowed ID 150,000 from th e N a tio n a l Bank o f Iraq., and w ithdrew o n ly ID 2 5 ,0 0 0 o f i t . Current and f ix e d d e p o s it s a c c e p ta n c e . — The Bank i s empowered to a c c e p t cu rren t and f ix e d d e p o s it s , w ith o r w ith o u t i n t e r e s t . This a u th o r ity i s n e c e ssa r y to se c u r e a d d itio n a l funds fo r th e Bank. The I r a q i D ate A s s o c ia tio n , in 1 9 5 2 , d e p o site d ID 1 0 0 ,0 0 0 w ith th e Bank to be advanced to th e d a te grow ers in B asra p r o v in c e . In March, 1951, th e t o t a l cu rren t and f ix e d d e p o s it a cco u n ts amounted to ID 2 5 8 ,8 0 ^ .^ 0 C on seq u en tly, th e t o t a l Bank c a p it a l a v a ila b le f o r le n d in g in 1952 was ID 6 7 5 ,0 0 0 ; p a id -in c a p it a l ID 5 5 0 ,0 0 0 , lo a n from th e N a tio n a l Bank ID 2 5 ,0 0 0 , and th e f ix e d d e p o s it from th e Ir a q i D ate A s s o c ia tio n ID 1 0 0 ,0 0 0 . For an a g r ic u lt u r a l cou n try l i k e Ir a q , i t i s e a sy to r e c o g n iz e th a t: I 20 Annu a l Report o f th e A g r ic u ltu r a l Bank o f I r a a . ! 1 9 5 0 -1 9 5 1 , p . 8 . ! ! i __________ . i The r e so u r c e s o f th e s t a t e owned A g r ic u ltu r a l Bank, th e o n ly a g r ic u lt u r a l c r e d it I n s t i t u t i o n , a re I n s u f f i c ie n t to meet e x i s t i n g n eed s f o r c r e d it . In many c a se s farm ers must e it h e r borrow money from p r iv a te le n d e r s a t e x o r b ita n t r a te s o f I n t e r e s t or s e l l t h e i r cro p s In advance o f th e h a r v e st a t s u b s ta n tia l d is c o u n t. . . .2 1 T herefore th e M issio n o f th e I n te r n a tio n a l Bank su g g e ste d th a t: " . . . th e Developm ent Board p ro v id e s u f f i c ie n t funds to r a i s e th e p a id - in c a p it a l o f th e Bank to about ID 2 ,0 0 0 ,0 0 0 . . . I t sh ou ld be m entioned h ere th a t th e Bank u s u a lly k eep s i t s le n d in g n o te s u n t i l th e tim e o f m a tu r ity , a s th e r e i s no agency w hich d e a ls w ith th e d isc o u n t o f th e n o te s . T his f r e e z e s a c o n sid e r a b le p o r tio n o f th e Bank*s c a p it a l and red u ces i t s le n d in g a b i l i t y . F u n ctio n s o f th e Bank The Bank has m a n ifo ld fu n c tio n s ; b e s id e s ad vancing p ro d u ctio n and r e a l e s t a t e lo a n s fo r fa rm ers, th e Bank a c ts as a m ed ia to r, r e n t a l and s a l e agen cy, a g r ic u lt u r a l e n tr e p ren eu r and h e lp s in th e e sta b lish m e n t o f c o o p e r a tiv e s . P rod u ction and r e a l e s t a t e lo a n s . — A r t ic le I I o f th e Law o f 1 9 ^0 2^ s ta te d th e fu n c tio n s o f th e Bank tow ards ^ The Economic Developm ent o f I r a q , re p o r t p u b lish e d f o r I.B .E .D . (London: The Johns Hopkins P r e s s , 1 9 5 2 ), pp. 29>-*20. j 22 L oc- o l t . 1 ^ The W aqaylt s A l-I r a q ly a , No. 1785 of March 31» 11940.................................................... .... ............................................................................................................................................................................................... 63 th e developm ent o f a g r ic u ltu r e . The ty p e o f p ro d u ctio n lo a n s w hich th e Bank u n d ertak es a re to : 1 . Pay th e o p e r a tin g ex p en ses o f b orrow ers. 2 . Buy m achinery and liv e s t o c k . 3 . S e t t l e t r i b a l I n d iv id u a ls on th e c u lt iv a b le la n d . b . A s s is t farm ers s u f f e r in g from n a tu r a l d is a s t e r s or h a z a r d s. The r e a l e s t a t e lo a n s c a r r ie d o u t by th e Bank a re: 1 . To fin a n c e th e improvement on la n d s , l i k e b u ild in g s , d r a in a g e , and orch ard s. 2 . To r e fin a n c e p r e v io u s r e a l e s t a t e m ortgage on la n d s . In r e s p e c t t o p ro d u ctio n c r e d it , th e Bank d oes not g iv e lo a n s t o fin a n c e commodity s to r a g e . The a b sen ce o f modern sto r a g e f a c i l i t i e s and e s p e c ia ll y w areh ou ses, may be th e main rea so n fo r n ot ex ten d in g c r e d it in t h i s f i e l d . On th e o th e r hand, th e Bank d o es n o t advance lo a n s f o r p u rch a sin g a farm o r a d d itio n a l la n d . The w r ite r b e lie v e s th a t th e e x is t i n g la n d ten u r e system has g r e a t in flu e n c e on r e s t r i c t i n g th e fu n c tio n o f th e Bank in t h i s re g a rd . j P urch asin g and h o ld in g th e p r o d u c ts . — In a d d itio n [len d in g fu n c tio n , th e Bank has th e power to le v y , h o ld , s e l l , and o th e r w ise d e a l in com m odities. The k in d o f com m odities and th e c o n d itio n s under w hich th e Bank under ta k e s such m easures w ere not m entioned in th e Bank* s Law or in i t s R e g u la tio n s . G e n era lly sp ea k in g , th e Bank sh o u ld u se t h i s power o n ly under em ergency c o n d itio n s such a s d r a s t ic f a l l in th e p r ic e of, u n p er ish a b le com m odities. However, in p r a c t ic e th e Bank step p ed in to th e market o n ly in such c a s e s . ^ R en ta l and s a le a g e n c y . — The main o b je c t iv e o f th e Bank i s to d ev e lo p and im prove a g r ic u ltu r e . A long t h i s l i n e , and in o rd er to secu re th e u se o f c r e d it f o r i t s In ten d ed p u rp o se, th e Bank s e l l s on a payment b a s i s , m achin e r y , l iv e s t o c k , f e r t i l i z e r , and s e e d s , In ste a d o f g iv in g ca sh c r e d it . As th e c o s t o f b u yin g m achinery i s so h ig h , e s p e c ia ll y in th e ab sen ce o f a c t iv e c o o p e r a tiv e s , th e Bank r e n ts t h i s m achinery to farm ers a t low c h a r g e s. U ndoubtedly, th e se two fu n c tio n s a re o f g r e a t h e lp to fa rm ers, a lth o u g h th ey a re n o t p r a c tic e d t o a la r g e e x te n t . In J u ly , 1937* th e A g r ic u ltu r a l and I n d u s t r ia l Bank, w hich i s th e o r ig in a l o f th e e x i s t i n g A g r ic u ltu r a l Bank, step p ed in th e m arket to m ed iate in th e s a le o f c o t t o n , a s p r ic e s o f t h i s commodity went sh a rp ly down. The r e s u l t s o f t h i s o p e r a tio n w ere b e n e f ic ia l t o th e c o tto n grow ers and th e Bank, a s th e p r ic e o f c o tto n r o s e from ID 12 t o ID 15 per to n , w hich gave th e c o tto n grow ers ID 3 p e r ton p r o f i t . . . . N et p r o f it o f th e Bank was ID 1 ,0 9 0 , in c lu d e in g com m ission. Annual R eport o f th e A g r ic u ltu r a l and I n d u s t r ia l Bank o f Ir a q . 1937-1938 (Baghdad: Government Pre s s . 193 8 ). pp . 8 - 9 .________________________________ 65 E n tr e o r e n e u r la l f u n c t io n . — The Bank has th e r ig h t to e s t a b lis h i t s own a g r ic u lt u r a l p r o j e c t s or p a r t ic ip a t e in e x i s t i n g o n es. There i s , in many c a s e s , a g r e a t n e c e s s it y f o r th e e sta b lish m e n t o f a c e r ta in p r o j e c t (a s w a r eh o u ses), b u t, b eca u se o f th e la c k o f p r iv a t e c a p it a l, o r b ecau se in d iv id u a ls h e s it a t e t o undertake th e r i s k , su ch a p r o je c t d id n ot come in to e x is t e n c e . In t h i s c a se th e governm ent sh o u ld s te p in and e s t a b li s h th e p r o j e c t o r p a r t ic ip a t e in i t s e sta b lish m e n t to encourage in d iv id u a ls . C on seq u en tly, g iv in g th e r e s p o n s i b i l i t y to th e A g r ic u ltu r a l Bank i s con s id e r e d to be v e r y b e n e f ic ia l to th e co u n try . The e x i s t i n g Bank-owned p r o j e c t s a re: A z iz ly a h G innery, A z iz ly a h E l e c t r i c i t y Scheme, F is h e r y P r o j e c t, Baghdad G innery, and M edical C otton P r o j e c t / The l a s t two m entioned a re in th e e sta b lish m e n t p r o c e s s , M oreover, th e Bank p a r t ic ip a t e d in tw enty p er c e n t o f th e c a p it a l o f th e A g r ic u ltu r a l Export and Import Company. The Company’ s main o b j e c t iv e i s to im port a g r ic u lt u r a l equipm ent and s e l l i t to farm ers a t m oderate p r ic e s , and i I | ^ For th e year ended March 31» 1951* n et p r o f it o f (A zizly a h G innery was IB 1 0 ,293# n e t l o s s o f th e F is h e r y P r o je c t was ID 9»^29, and n e t l o s s o f A z iz ly a h E l e c t r i c i t y Scheme was ID 9 3 8 . Annual R eport o f th e A g r ic u ltu r a l Bank o f I r a q , o p . c i t . , p . 33• ! 66 ex p o rt th e a g r ic u lt u r a l p ro d u cts fo r th e farm ers * b e n e f i t . Loans to farm c o o p e r a tiv e o r g a n iz a tio n s . — In accord an ce w ith i t s law o f 19M), th e Bank i s c o n sid e r e d a c o o p e r a tiv e Bank. A r t ic le I I , D iv is io n (13) s t a te d th a t the Bank sh ou ld h elp in th e esta b lish m en t o f a g r ic u ltu r a l producers* c o o p e r a tiv e o r g a n iz a tio n s and to fin a n c e them, in c lu d in g lo a n s to pay o p e r a tin g ex p e n se s, fin a n c e p a tr o n s, fin a n c e commodity s to r a g e , fin a n c e b u ild in g s , and equipm ent. Checking on th e annual r e p o r ts o f th e Bank, no s te p has been tak en in t h i s m a tte r . I t seem s th a t t h is i s due p a r t ic u la r ly to two f a c t s . F i r s t , th e r e i s no c o o p e r a tiv e o r g a n iz a tio n , e x c e p t th e one on th e D u ja ila h P r o je c t. Second, th e r e s p o n s i b i l i t i e s o f th e Bank a re so la r g e th a t th e r e i s n ot much tim e d ev o ted to th e e sta b lish m e n t o f c o o p e r a tiv e o r g a n iz a tio n s . The M issio n o f th e I n te r n a tio n a l Bank recommended t h a t : . . . e f f o r t s sh ou ld b e made t o o rg a n iz e c o o p e r a tiv e s on a sm a ll, ex p erim en ta l s c a le among e x i s t i n g sh a re cr o p p ers. Such c o o p e r a tiv e s , a s s i s t e d by th e A g r ic u ltu r a l Bank, m ight c o n fin e th em selv es i n i t i a l l y to r e l a t i v e l y m odest o p e r a tio n s , such a s th e p r o v is io n o f se e d and sim p le t o o l s . 26 The above su g g e s tio n may be r ig h t in th e sh o rt run, |but i t s r e s u lt s w i l l be lim it e d and i t s c o n tr ib u tio n to th e [ !_______________________ 26 The Economic Development o f I r a q , op. c i t . , p . 3 1 . 67 developm ent o f th e c o o p e r a tiv e movement w i l l be v ery narrow. The f lo u r is h in g o f th e c o o p e r a tiv e i s con n ected d i r e c t l y w ith th e la n d te n u r e system . R e s p e c tiv e ly , a s lo n g a s la r g e h o ld in g s s t i l l e x i s t , th e c o o p e r a tiv e o r g a n iz a tio n w i l l be lim it e d and weak. IV. L O A M PROCEDURE A M D POLICY OF TH E AGRICULTURAL BANK O r d in a r ily , an a p p lic a tio n fo r a lo a n i s f i l e d w ith th e T reasurer o f th e Bank in th e main o f f i c e , or w ith th e D ir e c to r o f th e Branch i f th e r e i s a b ran ch , or w ith th e jRevenue D ir e c to r , who i s co n n ected w ith th e M in istr y of 'F inance, when th e r e i s no b ran ch . The I n v e s tig a tio n j Committee makes an in v e s t ig a t io n and w r it t e n rep o rt a s to th e c h a r a c te r and f in a n c ia l p o s it io n o f th e a p p lic a n t, and th e adequacy o f th e s e c u r it y o f fe r e d . B efo re any lo a n i s made f o r Improvement o f la n d , th e a p p lic a tio n i s r e fe r r e d to th e Bank a p p r a ise r who makes a w r itte n r e p o r t upon th e la n d o ffe r e d a s s e c u r it y . E l i g ib l e A p p lic a n ts A g r ic u ltu r a l Bank lo a n s a re n ot lim it e d to I r a q i c i t i z e n s o r c o o p e r a tiv e s , and to a g r ic u lt u r a l com panies w ith m ost o f th e c a p i t a l b elo n g in g to Ir a q i p e o p le I There i s a c o n tr a d ic tio n betw een th e sta tem en t o f th e 68 i i Law o f 1940 and th e R e g u la tio n s o f th e A g r ic u ltu r a l Bank No. 40 o f 1 947. The Law s ta te d th a t lo a n s sh o u ld be lim it e d to a g r ic u lt u r a l com panies w ith most o f th e c a p it a l b e in g owned by I r a q i s .2 ? The Act p o in te d out th a t a l l th e c a p it a l of th e s e com panies sh o u ld be owned by I r a q i s .2 ® In t h i s case* w hich p r o v is io n sh o u ld th e Bank fo llo w ? I t i s o b v io u s th a t th e law i s en fo rc e d by P a rlia m e n t, w h ile th e Act i s en fo rced by th e M in is tr ie s C o u n cil. T h erefo re, th e Law sh o u ld be -fo llo w e d . M oreover, th e sta tem en t o f th e Law i s more fa v o r a b le f o r c o n d itio n s in Ira q , b eca u se o f th e la c k o f c a p it a l su p p ly . At t h i s tim e , th e re i s a g rea t su p p ly o f c a p it a l in th e Sheikdom o f A l-K uw ait, w hich d oes not have any demand. By e n fo r c in g th e statem en t o f th e Law, th e r e i s a g r e a t p o s s i b i l i t y th a t th e flo w o f t h i s c a p it a l to Iraq w ould fin d in v estm en t o p p o r tu n itie s , w hich would b e n e f it b o th th e Ir a q i fa n n e r s and th e K uw aiti f in a n c i e r s . Term o f Loans The term o f th e Bank lo a n s la fo r n ot more than te n ■years. The maximum lim it i s n ot in d ic a te d in th e Law. In ^ The W aqayl1 a A l- I r a q ly a , No. 1 7 8 5 , op. c l t . , A r t ic le V II, D iv is io n (57* I The W aqaylf a A l- I r a q lv a , No. 2518 o f Septem ber 1 , 2-947, A ct o f th e A g r ic u ltu r a l Bank o f I r a q , No. 40 o f 1947, j iD iv is io n 0 7 . ! 69 p r a c t ic e th e term o f lo a n s ranged from one year to s i x , and th e average term I s fo u r y e a r s . In 1953.* th e r e were no lo a n s fo r a term o f one o r s ix y e a r s . Terms o f th e t o t a l lo a n s gran ted c o n s is te d o f; term o f two y ea rs— 1 p e r thousand; th r e e y e a r s — 9 per thousand; fo u r y ea r s— 75 p e r cen t and f i v e y ea rs— Zb p er c e n t .29 Amount o f Loans The o r i g in a l maximum amount o f lo a n s , a s w e ll a s th e minimum, have h een In crea sed to ID 3*000 and ID 15* r e sp e c t i v e l y . But t h i s does not in c lu d e lo a n s to c o o p e r a tiv e s , as th e Bank can ex c ee d th e maximum amount i f n e c e ssa r y . A com parison o f th e d if f e r e n t s i z e s o f lo a n s gran ted by th e Bank f o r 1950-1951* g iv e s th e le a d to lo a n s ra n g in g from ID 101 to ID 5 0 0 , as th e y c o n s is t o f 6 3 .0 5 p er c e n t o f th e t o t a l lo a n s . No lo a n s o v er ID 1 ,1 0 0 w ere advanced (T able IV ). T h is means th a t th e Bank i s t r y in g to d i s t r i b u te I t s lim it e d fun ds to th e la r g e s t number o f farm ers p o s s i b le . At any r a t e , A r t ic le X III o f th e Law o f 19*10 s t ip u la t e d th a t lo a n s sh o u ld be in p ro p o rtio n to th e v a lu e o f th e u n d e r ly in g s e c u r it y , and lo a n s should n ot be more than th e ^ Pom plied from th e Annual Report o f th e A g r ic u ltu r a l Bank, 1950-1951* o£» c l t . . p . 18. 70 TABLE IV COM PARISON BETW EEN TO TAL AM O UNTS O F LOANS, 1950-1951 Number o f Loans Amount o f Each Loan T o ta l Amounts o f Loans I.D . P er cen ta g es Number o f Loans Amount o f Loans 161 1 5 -1 0 0 1 0 ,8 8 1 3 0 .6 3 7-53 210 1 0 1 -3 0 0 4 4 ,9 8 0 3 9 .9 2 3 1 .1 0 109 3 0 1 -5 0 0 4 6 ,2 1 0 2 0 .7 2 3 1 .9 5 6 501-700 4 ,0 5 0 1 .1 4 2 .8 0 7 701-900 5 .5 0 0 1 .3 3 3 .8 0 33 9 0 1 -1 1 0 0 3 3 .0 0 0 6 .2 7 2 2 .8 2 5 26 1 4 4 ,6 2 1 1 0 0 .0 0 1 0 0 .0 0 Source: Annual R eport o f th e A g r ic u ltu r a l Bank, 1950-1951 (Baghdad: Trading and P re ss Company, 1 9 5 2 ), p . 19* 71 fo llo w in g p e r c e n ta g e s: 70 p e r cen t o f th e v a lu e o f th e u n d e r ly in g g o ld h a r e , 60 p er cen t o f th e u n d er ly in g s i l v e r h a r e , honds, s h a r e s , d e p o s it s , h i l l s , r e a l e s t a t e , and th e m arket p r ic e o f th e a g r ic u ltu r a l and anim al p r o d u c ts. Loans a g a in s t o th e r c o l l a t e r a l w hich are not I n d ic a te d ab ove, sh o u ld n ot he more than 40 p er eent o f t h e i r v a lu e . When th e Bank s e l l s a g r ic u ltu r a l m achinery on an in s ta llm e n t b a s i s , th e down payment sh o u ld he a t l e a s t 25 p er c en t o f i t s v a lu e . Loans a g a in s t J o in t g u aran tee sh o u ld not he more than one hundred Ir a q i d in a r s p er p erso n , and th e loan sh o u ld he u sed f o r p a y in g o p e r a tin g ex p en ses o n ly . In order to keep th e s e p r o p o r tio n s betw een lo a n s and v a lu e s o f th e s e c u r i t i e s , th e Bank has th e r i g h t , i f th e v a lu e o f th e s e c u r it y d e c lin e s by 15 p e r c e n t, to ask th e borrow er e it h e r t o in tr o d u ce a d d itio n a l s e c u r it y eq u al to th e d e c lin e in th e v a lu e , o r to pay t h is amount in ca sh w ith in e ig h t d a y s. R e s t r ic t io n s on th e Use o f C red it There a re some c a s e s where th e Bank r e s t r i c t s th e use o f i t s c r e d it . A r t ic le s VI and V II o f A ct Ho. 40 s e t s fo r th two c a s e s : 1 . I f th e Bank d e a ls in s e l l i n g c e r t a in ty p e s o f | j m achines and equipm ent, th e borrow er i s n o t a l l owed t o u se j 72 th e Bank* s lo a n f o r "buying th e same k in d o f m achinery; o th e r w is e , th e amount o f th e lo a n w i l l be co n sid er ed due. 2 . When th e Bank has im proved b reed s o f l i v e s t o c k , th e borrow er who w ants a p a r t ic u la r k in d o f l i v e s t o c k , sh o u ld be g iv e n c r e d it f o r b u y in g from t h e Bank, and no cash lo a n sh ou ld be g ra n ted to him . C o lla t e r a l and U n d erlyin g S e c u r ity Loans o f th e A g r ic u ltu r a l Bank a re req u ired to be secu red by l e g a l l y a ccep ted ty p e s o f s e c u r i t i e s . The ty p es o f s e c u r i t i e s a c c e p ta b le by th e law a re m ortgages on immov a b le p ro p erty and th e le g a l r ig h t s r e la t e d to i t , m ovable p r o p e r ty , J o in t g u aran tee and government g u a ra n tee. M ortgage on Immovable p r o p erty . — A m ortgage on r e a l e s t a t e o r r ig h t s r e la t e d to i t , i s u s u a lly g iv e n when th e amount o f th e lo a n i s o f a s i z e th a t w i l l r e q u ir e s e v e r a l y e a r s fo r th e borrow er to rep a y , or when th e le n d e r f e e l s th a t th e lo a n w i l l not be a d eq u a te ly se cu red by a m ortgage on p e r s o n a l p r o p e r ty . The Bank r e q u ir e s th a t a p r io r m ortgage be p a id b e fo r e an oth er m ortgage can be g ra n ted . In th e c a se o f common p r o p e r ty , th e borrow er sh ould own a t l e a s t o n e -fo u r th o f i t in o rd er to be e l i g i b l e fo r b orrow in g. I j The Bank p o lic y , s in c e i t s e s ta b lis h m e n t, i s to i Ip refer t h i s ty p e o f s e c u r it y more than th e o th e r s , a lth o u g h 73 th e Bank does n ot make lo a n s fo r th e p u rch ase o f lan d or b u ild in g s . The r e a so n s f o r t h i s p r e fe r e n c e a re th e n o n -r is k n a tu re o f S e a l e s t a t e m o rtg a g es, th e ab sen ce o f p u b lic w areh ou ses, and th e Inadequate farm a c c o u n tin g sy stem . For th e y ea r 1951* lo a n s were backed by m ortgages on Immovable p r o p e r ty . O ther y e a r s, a lm o st 98 p er c e n t o f th e t o t a l lo a n s were p led g ed by th e same ty p e o f s e c u r it y . Movable p r o p e r ty . — The c o l l a t e r a l g iv e n here a s s e c u r it y c o n s is t s o f: c h a t t e l m ortgage lo a n s ( li v e s t o c k , m ach inery, c r o p s ), w arehouse r e c e ip t s and c o l la t e r a l s e c u r i t i e s (governm ent bonds, tr e a s u r y b i l l s ) . A r t ic le s XVI, XVII and XVIII o f A ct No. M O s t a t e d th e c o n d itio n s under w hich cro p s can be u sed a s s e c u r it y ; ( l ) i t must be sto r e d in th e Bank*s s t o r e a t th e expense o f th e b orrow er, (2) i t must be Im p erish a b le, (3 ) th e te r n s o f th e lo a n sh ou ld be f o r one y ea r o r l e e s , s u b je c t to one renew al f o r th e same p e r io d , and, ik)' no lo a n i s advanced on th e g r e e n . The Bank has n ot y e t made any lo a n a g a in s t m ovable p r o p e r ty b ecau se o f th e la c k o f modern s t o r e s , and th e d e s ir e o f th e Bank to keep i t s lim it e d fu n d s more s e c u r e . Joint guarantee. — Moral security is offered in this i r e s p e c t . J o in t g u a ra n tee i s an agreem ent betw een th r e e or more borrow ers from one v i l l a g e o r cou n try and th e Bank. 7k The borrow ers s ig n a n o te a g r e e in g to repay th e lo a n on a c e r t a in d a te . The maximum amount w hich can be lo a n ed to each p erson i s one hundred I r a q i d in a r s . The Bank h as th e r ig h t o f r e co u rse t o a l l o f them in th e c a se o f d e fa u lt on th e p a r t o f any one o f them. A n o te p r e s e n te d by one farm er i s n ot a c c e p te d , u n le s s i t i s en d orsed by two o th e r farm ers from th e same v i l l a g e or c o u n tr y . Loans f o r c o o p e r a tiv e s on J o in t g u aran tee a re not s u b je c t t o th e maximum l i m i t . The Annual R eport o f th e Bank f o r 19^8-194-9 shows th a t th e t o t a l o u tsta n d in g lo a n s gra n ted a g a in s t J o in t g u a ra n tee was IB 23,395* Government g u a r a n te e . — The governm ent m ight some tim es gu aran tee th e repayment o f th e p r in c ip le and I n t e r e s t . Law No. 18 and A ct No. ko in d ic a t e th a t th e government g u a ra n tees lo a n s advanced fo r : 1 . The se ttle m e n t o f trib esm en on a g r ic u lt u r a l la n d s , and se c u r in g th e n e c e ssa r y a g r ic u lt u r a l p ro d u ctio n f o r them. 2 . The a s s is t a n c e o f farm ers in ev en t o f n a tu r a l d is a s t e r s d e s tr o y in g a l l or m ost o f t h e i r cro p s. 3 . C oop eratlve s . In March, 194-8, the o u tsta n d in g amount o f lo a n s g u a ra n teed a g a in s t th e governm ent g u a ra n tee was ID 11,915* 75 R eg a rd less o f th e ty p e o f s e c u r it y In tro d u ced , I f i t i s ca p a b le o f b e in g d estro y e d by f i r e , th e Bank r e q u ir e s th a t th e p ro p erty sh ou ld be in su r ed a g a in s t f i r e w ith an In su ra n ce company approved by th e Bank, a t th e exp en se o f th e borrow er. From th e ty p e o f s e c u r it y s ta n d p o in t, th e Bank can be c o n sid e r e d a s a farm m ortgage bank, w h ile i t i s an interm ed i a t e c f e d i t bank from th e term p o in t o f v ie w . Repayment R e g u la tio n s Every Bank lo a n must be rep a y a b le on an a m o r tiz a tio n p la n by means o f a f ix e d number o f annual in s ta llm e n ts o f i n t e r e s t and p r in c ip a l w hich w i l l pay th e lo a n co m p le te ly when th e l a s t payment has been made. The Bank i s a u th o r iz e d to a ccep t o r r e fu s e prem ature repaym ents. The p e n a lty f o r repayment o f lo a n s b e fo r e m a tu r ity i s th a t th e borrow er has to pay I n t e r e s t f o r one month s t a r t in g from th e repaym ent d a te . I f th e p e r io d l e f t i s one month or l e s s , th e borrow er has t o pay th e rem ainder o f th e c a p it a l and i n t e r e s t . Renewal o f a payment i s a ccep ted b u t f o r n ot more than two y ea rs from th e due d a te o f th e paym ent. T o ta l paym ents due in 1951 were ID 285*530, w h ile o n ly 38 p er c e n t o f i t was p a id . The d e fe r r e d paym ents amounted to, 18 p e r s e n t , and th e unpaid paym ents w ere kk p er 76 cen t.30 R ates o f I n t e r e s t and Other C oats L e g a lly , I n t e r e s t r a t e s may n ot be more than 6 p er c e n t , ex cep t tinder c e r ta in c o n d itio n s when th e y can be r a is e d by an a c t to 9 p er c e n t . N e ith e r th e Law o f th e A g r ic u ltu r a l Bank nor i t s a c t s t a t e d th e in t e r e s t to be ch arged . Act No. ko gave th e B an k 's Board o f D ir e c to r s th e r ig h t to d eterm in e th e r a t e s o f i n t e r e s t on lo a n s and s a l e by in s t a llm e n ts from tim e to t im e . In making lo a n s to fa rm ers, th e Bank must p a ss on th e a p p lic a t io n , exam ine th e s e c u r it y o f f e r e d , prepare p ap ers and c o n tr a c ts , k eep r e co rd s and make c o l l e c t i o n s . These t a s k s r e q u ir e a c o n sid e r a b le amount o f tim e and fu n d s. The Bank m ust be a b le to cover th e s e c o s t s by ch a rg in g f e e s to b o rro w ers. A r t ic le X X III o f A ct No. kO re q u ir e d th e borrow er e i t h e r to pay in advance or to add to th e amount o f th e lo a n th e fo llo w in g f e e s : 1 . The a p p lic a t io n f e e to cover the, c o s t .o f a p p r a is a l. 2 . The c o s t o f t i t l e search* 30 I h ld . , p . 3 0 . 77 3 . The p rep a ra tio n o f an a b s tr a c t. The r e co r d in g o f p a p e r s. 5 . The in su ra n ce premium. 6 . The c o s t o f s to r a g e . 7 . A ll c o s t s o f corresp on d en ce and c o l l e c t i o n . In th e Act* th e r e i s no maximum o r minimum l i m i t to th e amount o f f e e s to be ch a rg ed . But a s lo n g a s th e o b je c t i v e o f th e Bank i s to h elp farm ers and n ot to make a p r o f i t , i t i s b e lie v e d th a t th e s e ch a rg es sh ou ld be v e r y lo w . The amount o f th e s e ch a rg es in 1951 was ID **28 on lo a n s t o t a li n g ID 1 4 ^ ,6 2 1 , w h ich means th a t th e p e r c en ta g e o f ch a rg es was a lm ost 3 p er thousand. V. COLLECTION AND FORECLOSURE PROCEDURES F o r e c lo su r e u s u a lly a r i s e s in th e c a se o f d e f a u lt o f th e m ortgagee. The n ex t s te p o f f o r e c lo s u r e i s s e l l i n g th e m ortgaged p r o p e r ty . Default of Mortgagee Mr. Lee s t a t e d b r i e f l y th e o a se s under w hich th e m ortgagor s h a ll have th e r ig h t to f o r e c lo s e . These c a s e s a re: . . . (1) f a l l i n g to make payments o f e ith e r th e I n t e r e s t o r p r in c ip a l when d u e, (2) f a l l i n g to pay t a x e s and a sse ssm e n ts o f th e p r o p e r ty , (3 ) f a i l i n g to k eep p rem ises in r e p a ir , (*j) f a l l i n g to m a in ta in 78 in su ra n ce on p r e m ise s, and (5 ) abandoning th e p r e m ise s. . . .3 1 There a re two e v id e n c e s o f what i s co n sid er ed a d e f a u lt in Ir a q , a s p ro v id ed by th e Act and th e Law o f th e Bank: 1 . The f a i l u r e o f th e m ortgagee to pay th e due pay ment a f t e r r e c e iv in g a r e g is t e r e d l e t t e r from th e Bank one month p r io r to th e due d a te . 2 . Waen th e v a lu e o f th e m ortgaged p ro p erty i s d e c r e a se d by 15 p e r cen t o f i t s o r ig in a l .v a lu e, th e Bank w i l l n o t if y th e m ortgagee to e it h e r pay in cash or d e p o s it any a c c e p ta b le p r o p e r ty eq u a l to th e d e c lin e in th e v a lu e o f th e o r ig in a l s e c u r it y , w ith in e ig h t d a y s. I f th e m ortgagee f a i l s to meet t h i s r e q u e s t, a l l th e lo a n w i l l be c o n sid e r e d d u e, and fo r e c lo s u r e w i l l a r i s e . F o r e c lo su r e S a le A f o r e c lo s u r e s a le i s commonly p reced ed by a co u rt judgm ent. In Ira q th e r e i s no such o b lig a t io n . F o r e c lo su r e s a le o f r e a l e s t a t e . —- F o r e c lo su r e s a le o f r e a l e s t a t e s t a r t s w ith th e demand o f th e Bank, by a iw r itte n a p p lic a t io n , to th e Tapu D ir e c to r a te to s e l l th e I p r o p e r ty a t p u b lic a u c tio n . The Tapu D ir e c to r a te sen d s a 79 w a rra n tee to th e borrow er or h is r e p r e s e n ta tiv e to pay th e d eb t w ith in one w eek. I f th e d eb to r r e f u s e s to pay or can n ot o f f e r an a c c e p ta b le s e ttle m e n t, th e p u b lic a u c tio n s t a r t s . The a u c tio n p r o c e ss i s to p u b lis h n o t ic e in th e l o c a l new spapers, or by o th e r m eans, s e v e r a l days in advance o f th e s a l e . The law r e q u ir e s th a t th e p u b lic b e g iv e n a r e a so n a b le o p p o r tu n ity to le a r n th e tim e , p la c e and n a tu re o f th e s a l e . 32 F o r e c lo su r e s a le o f m ovable p r o p e r ty . — I f th e m ortgaged p r o p e r t ie s are c r o p s , l i v e s t o c k , m achines o r any jkind o f m ovable p r o p e r ty , th e Bank p rep a res a b i l l c o n ta in in g th e d e t a i l s o f th e amounts to be c o l l e c t e d from th e d e b to r . When th e d eb to r d o es n ot m eet h is o b lig a t io n , th e s h e r i f f can p u t a l i e n on any p ro p erty o f th e d eb to r and s e l l i t a t p u b lic a u c tio n . The r ig h t o f r e c o u r s e . — In c a se th e m ortgaged p r o p e r ty d oes not s e l l f o r enough t o pay th e d e b t, th e Bank can c o l l e c t th e d e f i c i t through a " d e fic ie n c y judgm ent."33 { On th e o th e r hand, i f th e s a le p r ic e i s more than I s u f f i c i e n t to co v er th e d eb t and th e c o s t s o f th e f o r e c lo s u re p r o c e e d in g s, th e su rp lu s g o e s to th e m ortgagee. i | | Al-Samraara11, op. c l t . , The B i l l o f Immovable P ro p er ty M ortgage, pp. 3 1 0 -3 1 3 - 33 L oo, p i t . 80 •However, I f some o th e r p a r ty has a ccla im on I t , th e su rp lu s would be d e p o s ite d w ith th e c o u r t .3^ The Redemption Period The p e r io d a llow ed to J u n io r c r e d it o r s and th e p re v io u s owner to p urch ase th e p ro p erty v a r i e s a cco rd in g to d if f e r e n t c o u n tr ie s , from no tim e a t a l l to more than two y e a r s . The Law o f th e A g r ic u ltu r a l Bank d oes n ot p ro v id e fo r a redem ption p e r io d a t a l l in c a se o f m ovable p ro p erty m ortgages; b u t I f th e d eb tor o r h is t r u s t e e p a id th e d eb ts and th e c o s ts b e fo r e th e co m p letio n o f th e s a l e , th e Bank w ould sto p th e e x e c u tio n o f th e p u b lic a u c tio n . In th e ca se o f r e a l e s t a t e m ortgage th e B y-A ct o f th e A g r ic u ltu r a l Bank g iv e s th e d eb to r a redem ption p e r io d o f th r e e y e a r s . 35 In s p i t e o f a l l th e s e d e f i n i t e p r o v is io n s o f th e Law, and, in s p it e o f a l l th e pow ers g iv e n th e Bank, th e r e i s a h ig h p ercen ta g e o f unpaid d e b ts in th e t o t a l m atured lo a n s ev ery y e a r . The p e rc e n ta g e o f u np aid lo a n s t o th e m ature lo a n s 3** The Waqayl*a A l— Ira q l.y a , No. 1785* op. c l t . , A r t ic le X II I , D iv is io n Ik The W aaay^a A l- I r a q lv a , No. 2518 o f Septem ber 1 , 19^7» By-A ct o f th e A g r ic u ltu r a l Bank, A r t ic l e V II. 81 In 1951* 1950 and 19^9* w ere kk, 15 and 1 9 1 r e s p e c t iv e ly . I f th e d e fe r r e d paym ents a re added to th e unpaid paym ents, th e p e rc en ta g e w i l l r i s e to 62, k2, and 3 8 . V I. SU M M A R Y AND CONCLUSION The fo r e g o in g d is c u s s io n s e t f o r t h th e main fe a tu r e s o f th e I r a q i a g r ic u lt u r a l c r e d it system , p a r t ic u la r ly th e A g r ic u ltu r a l Bank o f Ir a q . I t i s th e aim now to summarize th e e s s e n t i a l p o in t s o f th a t system . Summary I n d iv id u a ls , m erch an ts, and d e a le r s accou n t f o r a c o n sid e r a b le p erc en ta g e o f b o th sh o rt-ter m farm p ro d u c tio n lo a n s and lo n g -ter m farm m ortgage lo a n s . T h eir i n t e r e s t r a t e s a re h ig h and terras l e s s fa v o r a b le . Commercial, banks are o f m inor im portan ce in fin a n c in g a g r ic u lt u r e . Over h a lf o f th e e x is t i n g com m ercial banks a re b ran ch es o f f o r e ig n banks who aim to m axim ize t h e ir p r o f i t s r a th e r than to d ev elo p th e econom ic c o n d itio n s o f th e c o u n tr y . The r e s t o f th e banks a re new ly e s t a b lis h e d and p la y m inor r o le s in th e c r e d it a c t i v i t i e s a s a w h o le. In 1935* th e governm ent e s ta b lis h e d th e A g r ic u ltu r a l i ;and I n d u s t r ia l Bank o f Iraq w ith a c a p it a l o f ID 1 5 0 ,0 0 0 , 1 j w hich was in c r e a se d in 1937 to ID 5 0 0 ,0 0 0 . I t was in te n d ed 1 th a t th e Bank sh o u ld d ev elo p a g r ic u ltu r e and in d u s tr y j 82 through ad vancing c r e d it and e s t a b lis h in g i t s own p r o j e c t s . B ecau se o f th e g r e a t r e s p o n s i b i l i t i e s o f th e Bank and i t s lim it e d fund r e s o u r c e s , .the Bank co u ld n ot a c h ie v e i t s o b j e c t iv e s . In 19*K>, th e governm ent e n a cted Laws N os. 12 and 18 se p a r a tin g th e Bank in t o two B anks, th e A g r ic u ltu ra l. Bank and th e I n d u s t r ia l Bank. However, th e A g r ic u ltu r a l and I n d u s t r ia l Bank co n tin u ed i t s a c t i v i t i e s u n t i l 19^6, when th e two banks s t a r t e d t h e ir o p e r a tio n s . « The A g r ic u ltu r a l Bank o f Iraq assum ed th e ta sk o f f in a n c in g farm ers in A p r il, 19^ 6. The c a p it a l o f th e Bank tod ay i s two m illio n Ira q i d in a r s , w hich m ost o f i t i s not p a id up. I t makes sh o r t and in te r m e d ia te -te r m lo a n s on farm r e a l e s t a t e , m ovable p r o p e r t ie s , j o in t g u a ra n tee and govern ment g u a ra n te e. The Bank may le n d up to 70 p er cen t o f th e v a lu e o f th e g o ld and up to 60 p er c e n t on th e v a lu e o f any o th e r p ro p erty put up as c o l l a t e r a l . The term o f lo a n s cannot be more than te n y e a r s . The r a t e o f in t e r e s t i s f ix e d from tim e to tim e by th e Board o f D ir e c t o r s . Today i t ra n g es betw een 6 and 7 p er c e n t . B e s id e s ad vancing lo a n s to fa rm ers, th e Bank has i t s own a g r ic u lt u r a l p r o j e c t s and d e a ls in th e s a l e and p u rch ase o f a g r ic u lt u r a l m ach inery, f e r t i l i z e r and l i v e s t o c k . The t o t a l o f o u tsta n d in g Bank lo a n s in 1950 was ID 573»910, and i t s t o t a l a s s e t s w ere ID 1 ,0 2 2 ,3 6 6 . 83 E valu atIon and S u g g e stio n s The w r ite r i s o f th e b e l i e f th a t any c r it ic is m o r s u g g e ste d amendments to th e e x i s t i n g A g r ic u ltu r a l Bank o f Iraq i s w o r th le s s from th e lo n g run developm ent p o in t o f v ie w . The Bank i s o n ly a l i n k in th e ch a in o f co rru p t econ om ic, p o l i t i c a l and s o c i a l s t r u c t u r e s . To have a sound r u r a l c r e d it sy ste m , i t i s n o t adequate to in c r e a se th e fund r e so u r c e s o f th e Bank, or to change i t s c r e d it p o l i c y . The e x i s t i n g la n d te n u r e system w i l l by e v e r y means r e ta r d th e ach ievem en t o f th e Bank’ s o b j e c t iv e s . The s h e ik s , aghas and c i t i e s ' n o ta b le s w i l l u se th e Bank to s e r v e t h e ir p u r p o se s. Ira q I s one o f: . . . a number o f u n d er-d ev elo p ed c o u n tr ie s w here th e c o n c e n tr a tio n o f econom ic and p o l i t i c a l power in th e hands o f a sm a ll c l a s s , w hose main I n t e r e s t i s th e p r e s e r v a tio n o f i t s own w e a lth and p r i v i l e g e , r u le s out th e p ro sp e c t o f much econom ic p r o g r e ss u n t il a s o c i a l r e v o lu tio n h a s e f f e c t e d a s h i f t in th e d is t r ib u t io n o f income and p o w e r . 36 The f i r s t s te p in th e s o c i a l r e v o lu tio n seems to be th e d is t r ib u t io n o f m lr l la n d s , b o th e l r f and g ra n ted in la zm a , to th e la n d le s s f e lla h e e n , who a re th e a c tu a l c u l t i v a to r s o f th e la n d . The d is t r ib u t io n sh ou ld be In a manner to a c h ie v e fa m ily -ty p e farm ow n ersh ip , t h a t i s , to g iv e an 36 Paul A. Baran, " N ation al Economic P la n n in g ," A Survey o f Contemporary E conom ics, 1 1 I I (Septem ber, 1 9 5 2 ), p . 3 8 2 . 8J^ a v era g e o f two hundred I r a q i donums to ea ch farm er, depend in g on th e lo c a t io n , s i z e and n a tu r a l c o n d itio n s o f th e la n d .37 T his i s what happened r e c e n t ly in some o f th e M iddle E astern c o u n tr ie s , n am ely, Ira n , S y r ia and E gyp t. I t i s beyond th e s u b je c t o f t h i s t h e s i s to d is c u s s th e d e t a i l s o f th e la n d d is t r ib u t io n p la n ; i t i s con cern ed o n ly w ith th e r o le o f th e Bank in th e p la n . Having th e m lr l la n d d is t r ib u t e d , a new s tr u c tu r e o f a g r ic u lt u r a l banking sh ou ld be c r e a te d . Below i s th e w r ite r * s s u g g e s tio n o f th e main o u t lin e o f such a bank in g sy stem . The Proposed Agricultural Banking System At th e p r e s e n t tim e , t h e A g r ic u ltu r a l Bank i s th e o n ly a g r ic u lt u r a l f in a n c ia l i n s t i t u t i o n . I t s head o f f i c e i s in Baghdad and i t has ten b r a n c h es. L ending a u th o r ity o f th e d ir e c t o r s and su p e r in te n d e n ts o f b ran ch es i s lim it e d . They have to g e t th e ap proval o f th e c e n t r a l o f f i c e in order J The e x i s t i n g r a t e s o f d is t r ib u t io n o f m lr l a lr f la n d a s th ey have been s e t by a law p a sse d by P arliam en t in th e sp r in g o f 1951 are: u n it s up to 20 donums in m ountain la n d s , 100 donums in f lo w -I r r ig a t e d la n d s , 200 donums in la n d s ir r ig a t e d by l o w - l l f t pumps and *K )0 donums in d ry - farm ing la n d s . M in istr y o f A g r ic u ltu r e , The Committee o f | Developm ent and E x p lo ita tio n o f M lrl S ir f L an d ,M The Law o f Developm ent and E x p lo ita tio n o f M lrl S i r f Land, No. o f 1 9 5 1 » ” The Laws and R e g u la tio n s R esp ectin g th e Developm ent o f M lrl S ir f Land in Ir a q i (1953)» P« 1* 85 to advance any loan. This centralization leads to a high cost of credit and requires a long time to finish credit procedures. Structure. — To avoid the above mentioned defects, the structure of the agricultural banking system should consist of fourteen agricultural banks, one bank for each province of Iraq, and a central agricultural bank located in Baghdad. Each province bank should have its own board of directors and be headed by a director. The board of direc tors of the Bank should be given full authority for granting loans to farmers. The only relations of the agricultural central bank with the provincial banks should be to discount their notes, to furnish them with loans and to unify their procedures and activities. The central bank, of course, should be headed by a general director, and should have its own board of directors. Every bank should be divided Into three credit departments; real estate, production, and cooperatives. Functions of the province agricultural banks. — The present Agricultural Bank carries out some functions which are of minor Importance to farmers— like establishing its own agricultural project. While, on the other hand, it neglects some of the vital functions like tenant-purchase credit. 86 The p rop osed scheme ta k e s th e s e a s p e c ts in to c o n s id e r a t io n . F u n ctio n s o f each a g r ic u ltu r a l hank w ould he: 1 . To su p p ly to farm ers th e lo n g term c r e d it w hich w ould en a b le them t o d ev elo p and expand t h e i r fa n n in g o p e r a tio n s . Long term c r e d it sh ou ld he exten d ed t o in c lu d e : p u rch a se o f a farm , purchase o f a d d itio n a l la n d , fin a n c in g o f b u ild in g s , d r a in a g e , o rch a rd s, and r e fin a n c in g any one o f th e ab ove. I t i s su g g e ste d th a t th e governm ent sh ou ld d is t r ib u t e th e m lr l la n d to la n d le s s f e lla h e e n . In a d d itio n , th e w r it e r s u g g e sts t h a t t h i s d is t r ib u t io n sh o u ld not be f r e e o f c h a r g e . The la n d sh ou ld b e s o ld to th e s e farm ers a t a very low p r i c e , sa y , a t an a v era g e o f one hundred I r a q i D in ars p er farm . Each farm er sh o u ld pay o n e -te n th o f th e v a lu e in advance as a down paym ent, th e rem ainder to be p a id o f f w ith in te n y e a r s .38 Each a g r ic u lt u r a l bank would ta k e th e r e s p o n s i b i l i t y o f r e c e iv in g th e down payment in i t s r e g io n , and fin a n c in g th e rem ainder a g a in s t a f i r s t m ortgage on th e farm . Some p e r so n s m ight o b je c t th a t th e amount o f down 38 The same p r in c ip le has been a p p lie d in th e U n ited S t a t e s o f Am erica in th e p e r io d 1 7 8 7 -1 8 2 0 . E arl S. Sparks, H is to r y and Theory o f A g r ic u ltu r a l C red it in th e U n ited S t a t e s (Hew York: Thomas Y. C row ell Company, 1932'J", PP* 225-5 244. I 87 payment i s h ig h , and th e term o f th e m ortgage i s s h o r t. The w r ite r would a g re e w ith t h i s o b je c tio n i f th e la n d a v a ila b le f o r d is t r ib u t io n w ere more than th e number o f e l i g i b l e f e lla h e e n fo r fa rm s. But t h i s i s not th e s i t u a t i o n . The w r ite r b e lie v e s th a t th e above su g g e ste d term s o f m ir i la n d d is t r ib u t io n seem r e a so n a b le . On th e o th e r hand, he b e lie v e s th a t when th e I r r ig a t io n p r o j e c t s are b u i l t and more la n d w i l l be brought in to c u l t i v a t i o n , th e term s o f la n d d is t r ib u t io n sh o u ld be amended to reduce th e down payment to on e- tw e n tie th o f th e farm v a lu e and t o ex ten d th e term o f th e j m ortgage to tw en ty y e a r s . C on seq u en tly, t h i s would en ab le th e f e lla h e e n in th e sm all incom e b ra ck et t o have t h e i r own fa r m s. The d is t r ib u t io n o f m lr l la n d s to d a y , w hich i s lim i te d t o c e r ta in a r e a s , i s ta k in g p la c e w ith o u t any ch arge to th e farm er. T h is p r o v is io n i s r e je c t e d by th e author fo r th r e e r e a s o n s . F i r s t , making farm ers pay a sm a ll c o s t fo r a c q u ir in g la n d w i l l c r e a te a c o n sid e r a b le revenue f o r th e governm ent, w hich should b e a llo c a t e d to th e a g r ic u ltu r a l bank o f th e p r o v in c e where th e payments o r ig in a t e d . Second, th e au th o r a g r e e s w ith th e M issio n o f th e I n te r n a tio n a l Bank t h a t : . . . T his i s a l l th e more n e c e ssa r y in order n o t to 88 w iden unduly th e d is p a r it y betw een th e econom ic s t a t u s o f th e fa v o red s e t t l e r s and th a t o f . . . c u lt iv a t o r s who w i l l c o n tin u e to work under much l e s s fa v o r a b le c o n d itio n s . Such paym ents need n ot be e x c e s s iv e ly burdensom e, s in c e th e y c o u ld be sp read o v er a number o f y e a r s .39 T hird, a p s y c h o lo g ic a l f a c t o r , t h a t i s , when any p erso n r e c e iv e s som ething f o r n o th in g , i t i s e a sy f o r him to g iv e i t away or to n e g le c t i t . When a farm er f e e l s th a t he p a id money to se c u r e th e farm , he w i l l t r y harder t o keep i t and ta k e ca re o f i t . The fu n c tio n o f r e a l e s t a t e lo a n s w i l l be g iv e n in th e “r e a l e s t a t e c r e d it departm ent." 2 . To make sh ort and In te rm ed ia te p ro d u ctio n c r e d it a v a ila b le to ev e ry farm er. The p ro d u ctio n c r e d it departm ent sh o u ld fu r n is h th e farm er w ith c r e d it t o be u sed to (1 ) buy s e e d , f e e d , and f e r t i l i z e r , ( 2 ) pay o p e r a tin g e x p e n se s, (3 ) buy liv e s t o c k f e e d e r s , range liv e s t o c k and d a ir y c a t t l e , (k) buy m achinery, equipm ent or t r a c t o r s , (5 ) fin a n c e commodity sto r a g e and (6 ) fin a n c in g any one or com b ination o f a b o v e .^ 3 . To make d ir e c t p ro d u c tio n and r e a l e s t a t e lo a n s to farm c o o p e r a tiv e s . I t i s s t a t e d above th a t e s t a b lis h in g th e a g r ic u lt u r a l banking s tr u c tu r e on a firm b a s is i s not by i t s e l f enough to | j ^ The Economic Developm ent o f I r a q , o p . c l t . , p . 1 6 . j Murray, op. c l t . , p . 1 8 . 89 have a sound a g r ic u lt u r a l e r e d it system ; i t sh ou ld be supplem ented by rem oving th e e x i s t i n g la n d ten u re sy stem . M oreover, th e s e two s te p s sh o u ld be accom panied by th e o r g a n iz a tio n o f farm ers in to c o o p e r a tiv e s o c i e t i e s ; (not o n ly sh ou ld th e farm ers th e m se lv e s u n d ertak e to b r in g t h is a b o u t, but . . . la w s sh ou ld be p a ssed t o f a c i l i t a t e th e fo rm a tio n o f su ch b u s in e s s o r g a n iz a tio n s in a g r i c u l t u r e .) ^ vThe a g r ic u lt u r a l banks can p la y an im portant p a rt in en cou ragin g th e e sta b lish m e n t o f c o o p e r a tiv e o r g a n iz a tio n s through d is c r im in a tio n in c r e d it p o lic y betw een le n d in g t o c o o p e r a tiv e members and non-members. I t i s hoped th a t th rou gh t h i s d i v i s i o n and c l a s s i f i c a tio n o f f u n c t io n s , th e banks co u ld g e t th e ad van tages o f s p e c ia liz a t i o n w h ich i s la c k in g in th e e x i s t i n g sy stem . F u n ctio n s o f th e c e n t r a l a g r ic u lt u r a l bank. — The c e n t r a l a g r ic u lt u r a l bank w i l l a c t as a bank fo r th e fo u r te e n a g r ic u ltu r a l banks. I t s fu n c tio n s sh o u ld be: 1 . To advance money to th e a g r ic u lt u r a l banks by means o f purch ase or d isco u n t o f fa rm ers’ n o te s . 2 . To make lo a n s to th e s e banks. 3 . To c o n tr o l and s u p e r v is e t h e ir o p e r a tio n s . ^ James B. Morman, and John Lee C o u lte r , The P r in c ip le s o f R u ral C r e d its (New York: The M acm illan Company* 1919 b P. *W. I k. To ca r ry out e d u c a tio n a l propaganda throughout th e co u n try on th e p r in c ip le s o f a g r ic u lt u r a l co o p er a tio n and on th e p rop er u se o f c r e d i t . I t i s p rop osed th a t t h i s c e n tr a l a g r ic u lt u r a l hank sh o u ld he e s s e n t i a l l y a hank o f d isco u n t fo r a g r ic u lt u r e . L ike th e F ed era l In term ed ia te C red it Banks in th e U n ited S t a t e s , th e c e n t r a l a g r ic u lt u r a l hank w ould he d e s ig n e d , . . . to p r o v id e a permanent and dependable so u rce o f fu n d s through w hich le n d in g o r g a n iz a tio n s may fin a n c e th e se a so n a l p ro d u ctio n and m arketing c r e d it n eed s of farm ers and ra n eh ers a t r e a so n a b le r a t e s o f in t e r e s t and w ith term s ad ap ted to th e n eed s o f a g r ic u lt u r e , . . .^2 The c e n t r a l a g r ic u lt u r a l hank w ould make no d ir e c t lo a n s to in d iv id u a ls nor a cc ep t d e p o s it s . B ecause o f th e sm a ll a re a and p o p u la tio n o f Ir a q , compared to th e U n ited S t a t e s , i t i s not a d v is a b le t o e s t a b lis h s p e c ia l i n s t i t u t i o n s to d isc o u n t th e a g r ic u lt u r a l p a p ers g iv e n a g a in s t farm p u rch a se lo a n s . C o n seq u en tly , th e d is c o u n t o f such p ap ers can he done a ls o w ith th e c e n t r a l a g r ic u lt u r a l hank. Source o f fu n d s o f th e p ro v in ce a g r ic u lt u r a l banks — One o f th e m ajor c r it ic is m s o f th e p r e s e n t A g r ic u ltu r a l Bank i s i t s In ad eq u ate so u rc es o f fu n d s, d ev o ted to le n d in g 42 I . W . Duggan, and R alph U. B a t t l e s , F in a n cin g th e Farm B u sin e ss (New York: John W iley and S o n s, I n c ., 1 9 5 0 J, p . 3 0 7 . 91 p u r p o se s. C o n seq u en tly , many p erso n s h ave su g g e ste d th a t th e government sh o u ld In c r e a se th e B ank's nom inal and p a id In c a p i t a l . The w r ite r th in k s th a t th e main rea so n why th e Bank h as i n s u f f i c i e n t c a p it a l i s i t s r e lia n c e on th e govern ment a s a mere so u rce o f f in a n c e . For t h i s rea so n and to a v o id th e in adequ acy o f c a p i t a l , th e w r ite r s u g g e s ts th a t each p ro v in ce a g r ic u lt u r a l bank sh ould be fin a n c e d through th e s e means: 1 . An o r ig in a l, c a p it a l sto c k am ounting t o ID 1 0 0 ,0 0 0 t o be borrowed from th e Developm ent M in is tr y , w ith o u t i n t e r e s t , and to be p a id o f f w ith in f i f t y y e a r s . 2 . The p ro ce ed s o f th e s a le o f th e ro lrl la n d on a b a s is th a t each p ro v in ce a g r ic u lt u r a l bank w i l l ta k e o n ly th e p ro ceed s o f i t s p r o v in c e . Taking in t o c o n s id e r a tio n f i r s t , th e b e fo r e su g g e ste d p r i n c i p l e s , th a t th e a verage fa m ily farm w i l l be two hundred donums, and th a t each farm er p ays an a v era g e o f one hundred I r a q i D inars p e r farm; te n D in ars a s a down payment and f in a n c e s th e r e s t f o r a p e r io d o f te n y e a r s . Second, th a t th e t o t a l a rea o f m lr l la n d , a cco rd in g to th e C a d a stra l Survey up to F ebruary 8 , 1951* was **2,895*5^7 d o n u m s.^ ^ The Economic Developm ent o f I r a q , o p . c l t . , p . 179* But i t sh o u ld be n o tic e d t h a t T lT th e C a d a stra l Survey in c lu d e s o n ly 50 p er cen t o f th e t o t a l a r e a o f Ira q , (2) the' m lr l la n d in th e M untafig p r o v in c e i s unknown, and th e j 92 Then, th e e x p ected t o t a l p ro ce ed s from th e s a le o f m lr l la n d w ould b e ID 2 1 ,4 4 7 * 7 7 3 ; th e banks w ould r e c e iv e one te n th o f t h i s w hich amounts to ID 2 ,1 4 4 ,7 7 7 a s a down paym ent, and would r e c e iv e f o r te n y ea rs an annual payment o f a p p ro x i m a tely th e same amount. The d is t r ib u t io n o f th e p ro ceed s among th e a g r ic u lt u r a l banks o f th e d if f e r e n t p r o v in c e s i s shown in T able V. I t w i l l be n o tic e d th a t th e sh a re o f some banks i s f a r h ig h e r than th e o t h e r s . The w r it e r b e l ie v e s th a t th e r e i s no harm in t h i s u nequ al d is t r ib u t io n , due t o th e f a c t th a t when th e r e i s a la r g e a rea f o r d is t r ib u t io n , th e r e w i l l be i jmore p ro ceed s f o r th e d i s t r i c t bank, and th e r e w i l l be a t th e same tim e , more fa n n ers to be fin a n c e d . 3 . Borrow ing from th e c e n tr a l a g r ic u lt u r a l bank. 4 . D isco u n t th e farm ers* n o te s w ith th e c e n tr a l a g r ic u lt u r a l bank. Source o f fu n d s o f th e c e n tr a l a g r ic u lt u r a l b an k . — As th e c e n tr a l a g r ic u lt u r a l bank w i l l r e p la c e th e e x i s t i n g A g r ic u ltu r a l Bank, th e n a tu r a l consequence would be th a t a l l Iw riter e s tim a te s i t as fo u r m illio n Donums b ecau se th e t o t a l a re a o f th e p r o v in c e i s 5 ,8 3 2 ,4 0 0 Donums and b ecau se i t i s jknown th a t m ost o f th e la n d s in t h i s p r o v in c e a re m ir i lazma iand, (3 ) t o t a l m lr l lazmah la n d as i t i s s t a te d in th e above iso u rc e i s 7 , 8 5 7 ,0 1 1 donums, w h ile th e c o r r e c t t o t a l i s 1 7 ,8 5 7 ,1 2 2 donums, and th e t o t a l m lr l s i r f i s 3 1 ,0 7 5 ,5 3 0 donums, w h ile i t sh ou ld be 3 1 ,0 3 8 ,4 2 5 donums. 93 - r- TABLE 7 TH E DISTRIBUTION OF PROCEEDS F R O M THE SALE O F MIRI LAND A M O N G - PROVINCE AGRICULTURAL BANKS P ro v in ce T o ta l Area o f M lrl Land (Donums) T o ta l V alue ID T o ta l Down Payments ID Baghdad 4 ,7 8 1 ,9 1 4 2 ,3 9 0 ,8 5 7 2 3 9 ,0 8 5 Kut 5 ,4 0 7 ,2 1 0 2 ,7 0 3 ,6 0 5 2 7 0 ,3 6 0 K erb ela 9 1 3 ,0 5 6 4 5 6 ,5 2 8 4 5 ,6 5 2 B asra 8 1 3 ,3 4 9 4 0 6 ,6 7 4 4 0 ,6 6 7 Amara 2 ,8 0 6 ,2 5 1 1 ,4 0 3 ,1 2 0 1 2 0 ,3 1 2 D iw anlya 1 , 3 2 1 ,5 6 0 6 6 0 ,7 8 0 6 6 ,0 7 8 Du1 aim 8 ,3 5 9 ,4 6 4 4 ,1 7 9 ,7 3 2 4 1 7 ,9 7 3 E r b il 1 ,2 8 8 ,4 9 5 6 4 4 ,2 4 7 6 4 ,4 2 4 S u lelm a n ly a 6 7 ,3 7 1 3 3 ,6 8 5 3 ,3 6 8 Mosul 9 , 2 0 3 ,6 6 1 4 ,6 5 1 ,3 3 0 4 6 5 ,1 3 3 Kirkuk 1 ,4 2 6 ,7 2 9 7 1 3 ,3 6 4 7 1 ,3 3 6 H il la 1 ,2 7 8 ,1 9 9 6 3 9 ,0 9 9 6 3 ,9 0 9 D iy a la 1 ,2 2 8 ,2 8 8 6 1 4 ,1 4 4 6 1 ,4 1 4 M untafig 4 ,0 0 0 ,0 0 0 2 , 0 0 0 ,0 0 0 2 0 0 ,0 0 0 T o ta l 4 2 ,8 9 5 ,5 4 7 2 1 ,4 4 7 ,7 6 5 2 ,1 4 4 ,7 7 6 S ource: T otal Area o f M lrl Land Compiled From: The Economic Developm ent o f Iraq (London: The Johns Hopkins P r e s s , 1 9 5 2 ), p . 1 7 9 . 9k a s s e t s and l i a b i l i t i e s o f t h i s Bank sh o u ld be tr a n s fe r r e d I to th e c e n tr a l bank a s o r i g in a l c a p it a l. T o ta l a s s e t s o f th e A g r ic u ltu r a l Bank a s o f March 3 1 , 1951» amounted t o ID 1 ,0 2 2 ,3 6 6 p lu s th e unpaid in c a p it a l irh ich i s ID 1 ,^ 5 0 , 0 0 0 . Then th e o r i g in a l c a p it a l o f th e e e n t r a l a g r ic u lt u r a l bank would be ID 2 ,^ 7 2 ,3 6 6 .^ The secon d so u rce o f fu n d s co u ld b e borrowed from th e p u b lic by is s u in g d e b e n tu r e s. I f th e p u b lic sh ou ld h e s i t a t e in ta k in g th e r is k o f in v e stm e n t, i t i s su g g e ste d th a t th e governm ent sh o u ld gu a ra n tee b o th th e I n te r e s t and th e p r in c ip a l. The B ank's borrow ing a u th o r ity sh o u ld be lim it e d to betw een th r e e t o f i v e tim es i t s c a p it a l and s u r p lu s . T h is w ould p ro v id e th e c e n tr a l bank w ith a d d i t i o n a l funds o f betw een sev en and a h a lf m illi o n s t o tw e lv e and a h a lf m illio n Ir a q i d in a r s . The r e d isc o u n t o f sh o rt term fa rm ers' p ap ers w ith th e com m ercial banks would be th e t h ir d so u rce o f fu n d s. T h is su g g e stio n m ight sound str a n g e or even am using to an American ec o n o m ist, as th e s it u a t io n in th e U n ited S ta t e s i s q u it e th e c o n tr a r y , th a t i s , th e com m ercial banks them s e l v e s r e d isc o u n t th e farm ers' p ap ers w ith , fo r exam ple, th e F ed era l In te rm ed ia te B anks. But th e econom ic c o n d itio n s! * * * * Annual R eport o f th e A g r ic u ltu r a l Bank, op. c l t . . p p . 8— 25• 951 in I r a q , a s shown in Chapter I I and th e secon d p a r t o f t h is c h a p te r , are q u ite d i f f e r e n t . The com m ercial hanks have no i n t e r e s t in f in a n c in g fa rm ers. W hile, on th e o th e r hand, th e y a re th e main f in a n c ia l i n s t i t u t i o n s in th e c o u n tr y , th e y have to he brought to t h e a g r ic u lt u r a l fin a n c in g m a rk et. The w r it e r b e lie v e s th a t th e b e s t and e a s i e s t way to a llo w th e com m ercial banks to a ccep t th e r e d isc o u n t o f sh o r t-te r m fa rm ers' p apers w ould be to p a s s l e g i s l a t i o n to amend A r t ic le IX S e c tio n (2) o f th e Law o f Banking Con t r o l . ^ In th e f i r s t p la c e th e amendment sh o u ld r e q u ir e th e com m ercial banks to have a t l e a s t 10 p er cen t o f t h e ir t o t a l cu rren t and f ix e d d e p o s it s in th e form o f a g r ic u lt u r a l p a p e r s. Second, th e banks sh o u ld be r e q u ir e d to d e p o s it h a lf o f i t w ith th e N a tio n a l Bank o f Ir a q , as a p a rt o f th e r e q u ir e d l e g a l r e s e r v e . T o ta l cu rren t and f ix e d d e p o s it s o f th e com m ercial banks in December, 1951, amounted to ID 1 5 ,6 6 8 ,0 0 0 . S o , th e t h ir d so u rce o f fun ds would su p p ly th e c e n t r a l a g r ic u lt u r a l bank w ith ID 1 ,5 6 6 ,8 0 0 .^ F in a n cin g th e su g g e ste d a g r ic u lt u r a l banking ^ Kammel Al-Ssmmara' i , op., c l t . , p . 1*K ^ The Annual Report o f th e N a tio n a l Bank o f I r a q , { 1951 (Baghdad: Thomas P r e s s , n . d , ) , p . 1 0 . 96 structure by the methods analyzed above would not put all the burden of financing on the treasury on the one hand, and i it does not cost the government any additional funds except I the IB 1,400,000, original capital of the province agricul tural banks which could be borrowed from the Ministry of Development. Regarding the credit policy and procedures of the agricultural banks, they could follow the same policy of the existing Agricultural Bank except that the terms of the real estate loans should be made for twenty or twenty-five years. It should be emphasized here again that credit alone cannot cure all the ills of agriculture. The Farm Credit Administration has provided the American farmer with the finest agricultural credit system in the world . . . but after all, credit or capital is only one of the factors needed for productive efficiency, and no single factor can achieve successful results if there is a lack of other factors. . . .4 7 The first and vital step, then, to be taken towards the improvement of economic, political and social conditions of Iraq, is the distribution of mlrl land to create a large number of small holdings farmers and to raise the living, health and educations standards of the masses. 47 Anwar Iqibal Oureshi, Agricultural Credit (London: Sir Isaac Pitman and Sons, Ltd., 1 9 3 6 ), p. 167* CHAPTER IV TH E INDUSTRIAL BANK O F IR A Q , In 19*K), th e governm ent r e a liz e d th e inadequacy o f th e e x i s t i n g A g r ic u ltu r a l and I n d u s t r ia l Bank to prom ote In d u str y . As a r e s u l t , Law No. 12 o f 19^0 was e n a c t s to e s t a b l i s h a government owned i n s t i t u t i o n , nam ely, th e I n d u s t r ia l Bank o f Ira q , to d e a l w ith in d u s t r ia l fin a n c in g . T his c h a p te r w i l l d e a l w ith th e p r in c ip le s o f in d u s t r i a l fin a n c e , th e in d u s t r ia l fu n c tio n s o f th e A g r ic u ltu r a l and I n d u s t r ia l Bank, th e esta b lish m en t o f th e I n d u s t r ia l Bank, th e lo a n p ro ced u res and p o l i c i e s o f th e Bank, i t s c o l l e c t i o n and f o r e c lo s u r e p r o c e d u r e s, and summary and c o n c lu s io n . I . , PRINCIPLES O F INDUSTRIAL FINANCE Funds c o n s t it u t e th e prim e req u irem en t in s t a r t in g and o p e r a tin g any in d u s t r ia l e n t e r p r is e , and by fa r th e la r g e s t p a rt o f a l l f in a n c ia l a c t i v i t i e s c o n s is t s o f th e r a is in g o f fu n d s. I The f i e l d o f in d u s t r ia l fin a n c e i s v e r y la r g e . Only i |th e m ethods o f r a i s in g fun ds f o r e s t a b lis h in g or fo r •e n la r g in g an e n t e r p r is e w i l l be d is c u s s e d h e r e . The d is c u s s io n w i l l a ls o d e a l o n ly w ith th e 98 I n d u s t r ia l fu n c tio n s o f th e A g r ic u ltu r a l and I n d u s t r ia l Bank* a s i t s o th e r a s p e c ts have been d is c u s s e d in th e p r e c e d in g c h a p te r . M ethods o f F in a n c in g an E n te r p r ise Methods o f fin a n c in g an e n te r p r is e a re num erous. The s im p le s t one i s when th e owner o r prom oter in v e s t s h is own money in h is e n te r p r is e ; and th e m ost co m p lica ted one i s when th e e n te r p r is e i s in c o r p o r a te d and i t s sto c k s and o th er s e c u r i t i e s a re s o ld to th e p u b lic . F in a n cin g by the ow ner. — The u s u a l and s im p le s t method o f fin a n c in g an e n t e r p r is e i s when th e owner fu rn is h e s th e re q u ir ed c a p it a l from h is own money. A c tu a lly , t h i s method i s n o t alw ays p r a c t ic a b le , e s p e c ia ll y in t h i s age when la r g e e n te r p r is e s and m a n ifo ld c o m p e titio n a re p red om inan t. The g ra d u a l developm ent m ethod. — A ccording to t h i s m ethod, th e a e tu a l b u ild in g up o f th e e n t e r p r is e comes from: th e a v a ila b le fu n d s a t th e s t a r t o f th e e n t e r p r is e , th e n th e p r o f i t o f th e e n t e r p r is e i t s e l f , accom panied, p erh a p s, by funds secu red from o th e r s o u r c e s , u n t i l th e In fa n t e n te r p r is e becomes a s e l f - s u s t a i n i n g and p r o f it a b le u n d erta k in g . t What i s s a id in c r i t i c i z i n g th e f i r s t method can be la p p lle d h ere t o o . However, when t h i s method i s a p p lic a b le , I i t i s i d e a l . 99 I t a v o id s th e r i s k s , th e m is ta k e s , th e exp en se o f c o s t ly ex p er im e n ts, and th e prem ature developm ent more or l e s s c h a r a c t e r is t ic o f a l l f u l l y fin a n c e d e n t e r p r is e s in w hich th e managers a re in e x p e r ie n c e d or where th e n a tu re o f th e "business i s new and n ot f u l l y u n d e r sto o d .1- A lthough t h i s method i s n o t as im portant a s i t once was in h ig h ly d ev elo p ed c o u n tr ie s l i k e th e U n ited S t a t e s o f A m erica, i t i s b e lie v e d a ls o th a t i t ean b e p r a c t ic a b le in an u n d erd evelop ed cou n try l i k e Ira q , w here modern in d u s t r ia l jdevelopment i s J u st b e g in n in g . Borrowed c a p i t a l . — A t h ir d m ethod o f fin a n c in g a firm and one w hleh i s commonly employed i s to borrow th e money re q u ir ed in w hole or in p a rt by is s u in g bonds. Borrow ing may be from in d iv id u a ls , th e l o c a l banks, o r in th e form o f c r e d it fo r g o o d s. The p r a c t ic e o f borrow ing has been lo n g fo llo w e d by c o r p o r a te o r g a n iz a tio n s as w e ll a s o th e r form s o f b u s in e s s e n t e r p r is e s , such a s p a r tn e r sh ip s and p r o p r ie to r s h ip s . Moneyed p a r tn e r s . — In co r p o r a tin g an e n te r p r is e and s e l l i n g i t s sh a r e s o f sto c k t o th e p u b lic i s one o f th e more im portan t m ethods o f fin a n c in g in many c o u n tr ie s a t th e p r e s e n t tim e . I t found M . . . i t s f i r s t g r e a t sp h ere o f u s e f u ln e s s in th e econom ic ex p a n sio n w hich fo llo w e d th e * Hugh R. Oonyngton, F in a n cin g an E n te r p r ise (New York: The Ronald P r e ss Company, 1923)* p p . 1 8 -1 9 . 100 I n d u s t r ia l R e v o lu t io n ."2 i In a c o r p o r a tio n th e r e may he two ty p e s o f s to c k — common and p r e fe r r e d . There a re many o th e r c l a s s i f i c a t i o n s , a l l o f w hich a re ou t o f th e J u r is d ic t io n o f t h i s t h e s i s . 3 Government In te r v e n tio n In I n d u s tr ia l F in a n c in g Many governm ents have come to r e a l i z e th e I n a b i l i t y o f e x i s t i n g p r iv a t e hanking system s t o a d eq u a tely s a t i s f y th e f in a n c i a l req u irem en ts o f In d u stry . As e a r ly a s 1900, many s p e c ia liz e d le n d in g i n s t i t u t i o n s w ith government sp o n so rsh ip or p a r t ic ip a t io n had heen e s t a b lis h e d . Government in te r v e n tio n in fin a n c in g in d u str y grew r a p id ly a f t e r th e f in a n c ia l s t r a in o f World War I and th e s e v e r e i n f l a t i o n w hich fo llo w e d in some c o u n tr ie s . Many governm ents moved to supplem ent p r iv a te banking sy stem s w ith new s p e c ia liz e d i n s t i t u t i o n s . Among th e c o u n tr ie s con cern ed were F ran ce, B elgiu m , Sweden, and Germany. N e v e r th e le s s , th e fin a n c in g o f p r iv a t e in d u s tr y by p u b lic or s e m i-p u b lic i n s t i t u t i o n s rem ained o f sm a ll impor ta n c e u n t i l th e 1 9 3 9 's . P re v io u s t o th a t d a te: . . . many o f th e m easures tak en w ere so lim it e d in 2 Avard L on gley B ish o p , The F in a n c in g o f B u sin e s s E n te r p r ise (New Xork: Harper and B r o th e r s, P u b lis h e r s , 1929)» p . 6 2 . For fu r th e r r e a d in g s e e i b i d . . p p . 176-190♦ 101 sco p e or so a d m in iste r ed a s to be u n p ro d u ctiv e o f s i g n i f i c a n t r e s u l t s . . . i t was by no means g e n e r a lly conceded th a t a gap e x i s t e d w hich p r iv a t e f in a n c i a l i n s t i t u t i o n s w ere u n ab le to fill.* * ' Samples o f governm ent in t e r v e n t io n . — During th e 1 9 3 0 * 8 , due to th e f in a n c ia l c o lla p s e accom panying th e d e p r e s s io n on th e one hand, and th e grow ing r e a liz a t io n accord ed th e problem s o f I n d u s t r ia l fin a n c in g on th e o th e r , a la r g e number o f f in a n c ia l i n s t i t u t i o n s w ere o rg a n iz ed b y, o r under th e a u s p ic e s o f , governm ents. A few t y p ic a l exam p les, s im ila r ly p r a c tic e d in Ira q , w i l l b e c i t e d . In Sweden, th e governm ent, w ith th e p a r t ic ip a t io n of th e p r iv a t e b an k s, e s ta b lis h e d th e I n d u s tr ia l C red it Company. T his o r g a n iz a tio n was w illi n g to make lo a n s a v a ila b le fo r renew al or enlargem ent o f e n t e r p r is e , fo r th e f u lf ill m e n t o f lo n g term c o n t r a c t s . In Horway, th e governm ent, In 1 9 3 6 , e s t a b lis h e d an in d u s t r ia l bank t o a s s i s t and f a c i l i t a t e th e developm ent o f new in d u s t r ia l e n t e r p r is e s . As in Ir a q , th e South American c o u n tr ie s w ere so 'an xiou s f o r in d u s t r ia l e x p a n sio n , th e y made p r o v is io n fo r ! jthe su p p ly o f p ro m o tio n a l c r e d it s or sh a re c a p it a l. Most ^ D ouglas R. F u lle r , Government F in a n c in g o f P r iv a te E n te r p r is e (S ta n fo rd : S ta n fo r d U n iv e r s ity P r e s s , 1 9 ^ 8 J, P . 6 ? . U n iv e r s ity at S m u b a m C M l H l f r a t i 102 le n d in g was lim it e d to e s t a b lis h e d in d u s t r ie s w ith re a so n a b ly c le a r p r o s p e c ts , and, v e r y g e n e r a lly , th e s e c u r it y o f a f i r s t m ortgage was r e q u ir e d . In In d ia , th e S ta te A id to I n d u s tr ie s A cts have been in o p e r a tio n s in c e 1923* They en a b le th e government to g iv e f in a n c i a l a s s is t a n c e t o in d u s t r ie s in v a r io u s form s: lo a n s , g u a ra n tee o f ca sh c r e d it s w ith banks, p u rch ase o f sh a re s and d e b e n tu r e s, g u a ra n te ein g I n t e r e s t on c a p i t a l , g r a n ts o f lan d or raw m a te r ia ls , and s u b s id iz a t io n o f r e s e a r c h .5 The U n ited S t a t e s ' e x p e r ie n c e s in t h i s f i e l d s t a r t e d m a in ly d u rin g World War I , and w ere co n c e n tr a te d on p ro v id in g w orking c a p it a l f o r c o n tr a c to r s by m aking advance paym ents and su p p ly in g c r e d it beyond th e l i m i t s o f banking r e s o u r c e s . During th e d e p r e s s io n governm ent in te r fe r e n c e in in d u s t r ia l fin a n c e in c r e a se d . The F e d e r a l R eserve A ct o f 1913 was amended to advance c r e d it d i r e c t l y to in d u str y under c e r ta in c i r c u m s t a n c e s .^ M oreover, th e R ec o n stru ctio n F in an ce C orp oration was i n s t i t u t e d , and was a u th o r iz e d t o su p p ly lo a n s to in d u s t r y .? < P. S. Lokanathan, I n d u s t r ia l O rg a n iz a tio n in In d ia (London: George A lle n and Unwin, L t s . , 1935)» PP» 2 5 l- 2 £ 2 . ^ Roy L. S j a r i s , P r in c ip le s o f Money. C r e d it. and B anking (New York: The M acm illan Company, 193^)» P* 8 5 2 . ^ H. V. Prochnow, American F in a n c ia l I n s t it u t io n s (New York: P r e n t ic e -H a ll, 1951)» P* 239* 103 A ll th e s e exam ples show th a t governm ent in t e r e s t in i ■financing in d u s tr y , d ir e c t l y o r in d i r e c t l y , has grown r a p id ly s in c e World War I , b e c a u se , in many in s t a n c e s , o f n e c e s s i t y , to supplem ent th e in d u s t r ia l e r e d it su p p ly o f p r iv a t e i n s t i t u t i o n s . In some c o u n tr ie s t h i s I n te r v e n tio n took th e form o f e s t a b lis h in g in d u s t r ia l banks or com panies owned p a r t i a l l y or w h o lly by th e governm ent; in o th e r c o u n tr ie s i t to o k th e form o f d ir e c t o r in d ir e c t le n d in g by th e governm ent to in d u s t r ie s . I I . THE AGRICULTURAL AND INDUSTRIAL BANK In th e p r e v io u s c h a p te r , th e c a p i t a l , management, le n d in g p o lic y and a g r ic u lt u r a l fu n c tio n s o f th e A g r ic u l t u r a l and I n d u s t r ia l Bank o f Iraq have b een ex p la in ed .® Now i s th e tim e to t r e a t th e B a n k 's in d u s t r ia l fu n c tio n s w h ich , h e r e to f o r e , have been n e g le c t e d . P r io r to th e e s ta b lish m e n t o f th e A g r ic u ltu r a l and I n d u s t r ia l Bank In 1935» th e r e was no e v id e n c e o f in d u s t r ia l c r e d it t r a n s a c t io n s . T his may have been due to th e f a c t th a t in d u str y was in i t s in fa n c y , or i t may have been due to th e a b sen ce o f in d u s t r ia l c r e d it i n s t i t u t i o n s and th e I I I j . - . . . . . . . . . . . . . . . . . . . . - . . . . . . . . . . . . . . . . . . . . . . . ^ ££.* a n t e , pp. 55-59* 1 0 4 c a r e le s s n e s s o f th e governm ent In not en co u ra g in g d o m estic i in d u s t r ie s . The com m ercial b a n k s, a t th a t tim e , w ere a l l jbranches o f B r i t i s h banks and th e y w ere n o t to o con cern ed in ] th e developm ent o f th e c o u n tr y 's econom ic r e s o u r c e s . Conse q u e n tly , th ey d id n ot advance c r e d it f o r in d u s tr y . The Need fo r I n d u s t r ia l Bank In th e t h i r t i e s , th e governm ent r e a liz e d th e impor ta n c e o f e s t a b lis h in g and en cou ragin g d o m e stic in d u s t r ie s in d e v e lo p in g th e co u n try and r a i s in g i t s sta n d a rd o f l i v i n g . The governm ent r e a liz e d a ls o th e ab sen ce o f in d u s t r ia l fin a n c in g i n s t i t u t i o n s and th e h e s it a t io n o f in d iv id u a ls to u n d ertak e th e r i s k o f e s t a b lis h in g new e n t e r p r is e s . In ord er to meet t h e s e c o n d itio n s , th e governm ent e s t a b lis h e d th e A g r ic u ltu r a l, and I n d u s t r ia l Bank o f Ir a q . The in d u s t r ia l fu n c tio n s o f th e Bank can b e c l a s s i f i e d in t o th r e e m ain c a t e g o r ie s . S u p p lyin g o f lo a n s t o p r iv a t e in d u s t r ia l fir m s , e s ta b lish m e n t o f i t s own e n te r p r i s e s , and p a r t ic ip a t io n In new ly e s t a b lis h e d or e x i s t i n g p r o j e c t s . S u p p ly in g o f Loans The Bank undertook to su p p ly sh o rt,, medium, and lo n g term in d u s t r ia l lo a n s . The term o f lo a n s was n ot t o ex ceed te n y e a r s , and th e maximum amount o f a lo a n was ID 1 ,5 0 0 . j I ______________________________________________________________________________________________ i The Bank u s u a lly re q u ir e d a f i r s t m ortgage on r e a l - e s t a t e or m a ch in es, as c o l l a t e r a l , b u t, t o a lim it e d e x t e n t , som etim es i a c c e p te d p e r s o n a l n o te s . T o ta l in d u s t r ia l lo a n s advanced, in th e f i s c a l year ended March, 19h6, was ID 1 5 ,3 5 0 , m o stly secu red by r e a l e s t a t e and c h a t t e l m o rtg a g es. Loans advanced a g a in st p e r s o n a l s e c u r it y c o n s is te d o f o n ly about ? p er cen t o f t o t a l in d u s t r ia l lo a n s . The t o t a l o f o u tsta n d in g in d u s t r ia l lo a n s fo r th e same p e r io d was ID 2 0 ,3 3 1 , w hich I s o n ly 8 p er c e n t o f th e Bank’ s o u tsta n d in g lo a n s to b o th a g r ic u ltu r e and in d u s t r y .9 f I * j T his le a d s one t o th e c o n c lu sio n th a t th e Bank has co n c e n tr a te d m ost o f i t s le n d in g a c t i v i t i e s on a g r ic u lt u r e , r a th e r than In d u str y . A ls o , I t sh ou ld be n o ted th a t th e bank h as r e s t r ic t e d i t s o p e r a tio n s to one p ro v in ce o n ly , n am ely, in Baghdad. On th e o th e r hand, th e Bank d id n o t make lo a n s f o r a p e r io d in e x c e ss o f s i x y e a r s , a lth o u g h th e maximum l i m i t in th e la w a llo w e d te n y e a r s . A c tu a lly , t h i s le n g th o f tim e was n o t enough, e s p e c ia ll y i f th e e n te r p r is e in v e s te d th e borrow ed fu n d s f o r p u rch a sin g m achinery o r new b u ild in g s . s ^ T ft® Annual Report o f th e A g r ic u ltu r a l and In d u s- t r i a l Bank o f I r a q , 19*±5-19&> (Baghdad: The Government P r e s s , 1 9 k ? J 7 p p . 1 7 -2 ^ . 10 6 By way of summery, the loan supplying function of the Bank was very narrow and did not have an active effect In i developing industry as was intended. Establishing Mew Enterprises The Bank was authorized to establish and operate its own enterprises. The Law of the Bank did not indicate the circumstances under which the Bank could have its own firms. But, naturally, this should not be undertaken unless there was public demand for an enterprise and a hesitation on the part of individuals in taking the responsibility of organlz- i ing the particular enterprise. At any rate, during its life of ten years, the Bank did not establish an industrial plan of its own, as it did in the agricultural field. Limited capital of the Bank and its policy of preferring participation in enterprises rather than taking the risk alone, probably are the reasons why the Bank did not establish an industrial project. Part1cipation in the Enterprises The participation of the Bank in newly established or in existing industry can be considered its most important industrial function. It has rendered a great deal of help I in developing the economic conditions of the country in general and in advancing the more necessary industrial firms. Until March, 1946, the Bank had participated in three industrial firms, namely, the Iraqi Gement Company, the Vegetable Oil Extraction Company, and the Trading and Milling Company. The total amount of investment of the Bank in these companies was ID 158,000 of which the Bank paid in ID 118,000. The large part of Investment of the Bank (amounting to ID 120,000) was in the Iraqi Cement Company. The Iraqi Cement Company, and the Trading and Grain Milling Company, up to the above-mentioned date, had not begun their operations, so no profits have accrued to the Bank. The Cement Company, in 1946, increased its capital from ID 200,000 to ID 400,000, but the Bank did not increase its participation. The underlying reasons are that (l) the Bank’s policy is to encourage individuals to undertake the risk of establishing and developing the industry, rather than making profits, and (2) there was a great demand for the Company’s shares by the public. The only company which distributed profits was the Vegetable Oil Extraction Company. The Bank’s share of the profits was ID 2,700 and ID 1,800 for the years ending ] March, 1945 and 1946 respectively. When the Industrial Bank started its operation in late 1946, all the industrial assets and liabilities of the ! Agricultural and Industrial Bank were transferred to the 108 form er as p a rt o f i t s c a p i t a l. By way o f summary, i t i s known th a t a lth o u g h th e e f f e c t o f th e A g r ic u ltu r a l and I n d u s t r ia l Bank on in d u s tr y was v e r y lim it e d , i t w as, a t th e same tim e , a s u c c e s s f u l t r i a l from w hich th e I n d u s t r ia l Bank l a t e r b e n e f it e d . I I I . ESTABLISHMENT OF THE INDUSTRIAL BANK OF IRAQ At th e b e g in n in g o f th e n in e te e n f o r t i e s , th e govern ment r e a liz e d th e im portance o f in d u str y in d e v e lo p in g th e econom ic r e so u r c e s o f th e co u n try and r a is in g th e p e o p le 's sta n d a rd o f l i v i n g . I t r e c o g n iz e d , a l s o , th a t th e th en e x i s t i n g A g r ic u ltu r a l and I n d u s t r ia l Bank was not ca p a b le o f a c h ie v in g i t s r e s p o n s i b i l i t i e s under i t s e x is t i n g s t r u c t u r e . C o n seq u en tly , th e government p a sse d Law No. 12 o f 19*K > to e s t a b l i s h a s e p a r a te I n d u s t r ia l fin a n c in g agency c a l le d th e I n d u s t r ia l Bank o f Ir a q . B ecau se o f th e d i f f i c u l t i e s c r e a te d by World War I I , th e Bank d id n o t b eg in i t s op era t io n u n t i l 19^6. The fo llo w in g p ages o f t h i s p a rt w i l l e x p la in th e management o f th e Bank, i t s so u r c e s o f fu n d s, and i t s f u n c t io n s . i Bank Management ! The Bank i s headed by a Board o f D ir e c to r s , c o n s i s t - in g o f a chairm an and fo u r a p p o in ted members. The Chairman 109 i s th e G eneral D ir e c to r o f th e Bank. The fo u r members are ch osen in a manner so th a t one sh ou ld r e p r e s e n t th e M in is tr y o f F in a n c e , th e se co n d , th e M in is tr y o f E conom ics, th e t h ir d , th e e x p e r ts in in d u s tr y , and th e fo u r th , th e m erchants or th e i n d u s t r i a l i s t s . Hone o f th e a p p o in ted members are ch osen on a r e g io n a l b a s i s , b u t i t i s c le a r th a t each i s s e le c t e d on a fu n c tio n a l b a s is and each I s t o be th e spokesman o f a s p e c i a l grou p . The a p p o in ted members, In c lu d in g th e chairm an, must be o f good m oral c h a r a c te r and o f u n q u e stio n a b le I n t e g r it y and r e s p o n s i b i l i t y . M oreover, none o f them can be a d eb to r t o th e Bank. The Chairman and th e members a re t o be a p p o in ted by th e C ou n cil o f M in is te r s , and by th e is s u e o f a R oyal D ecree ( Iradeh M elek leh ) . The fo u r ap p oin ted members h o ld o f f i c e f o r a term o f fo u r y e a r s , b u t two o f them sh ou ld be changed ea ch two y e a r s . I t i s p e r m is s ib le to r e a p p o in t a member who h as se rv e d h is term . Each member o f th e Board i s e n t i t l e d to r e c e iv e an annual s a la r y . The com p en sations are: ID 120 f o r th e C hair man, ID 200 f o r ea ch nongovernm ent o f f i c i a l member, and ID 100 f o r each governm ent o f f i c i a l member. Whenever a vacancy in th e Board o f D ir e c to r s o c c u r s, i o th e r than by e x p ir a tio n o f term , th e M in is te r o f F in an ce a p p o in ts a s u c c e s s o r to com p lete th e u n ex p ired term o f th e 110 member con cern ed . A ls o , I f th e c a p it a l o f th e Bank i s in c r e a s e d and i t s a c t i v i t i e s a re ex ten d ed , an a d d it io n a l member i s a p p o in ted by th e C ou n cil o f M in is t e r s . In March, 195©» an a d d it io n a l member o f th e Board o f D ir e c to r s was a p p o in ted as a r e s u lt o f ex p a n sio n o f th e Bank*s o p e r a tio n s . T h e r e fo r e , th e B oard, a t th e p r e se n t tim e c o n s is t s o f th e Chairman and f i v e a p p o in ted members.^® A u th o r itie s o f th e B oard . — The Board fo r m u la te s r u le s and r e g u la tio n s n e c e ssa r y fo r th e d isc h a r g e o f i t s r e s p o n s i b i l i t i e s , th e d ir e c t io n and a d m in is tr a tio n o f th e Bank, and fo r th e rem oval o f a l l o f f i c e r s and em p loyees o f th e Bank, w ith th e e x c e p tio n o f th e G eneral D ir e c to r . S p e c i f i c a l l y , th e Board d eterm in es th e amount o f lo a n s , the r a t e o f i n t e r e s t , th e Issu a n c e o f b on d s, and th e w r it in g - o f f or renew al o f paym ents. The G eneral D ir e c to r o r Chairman may u nd ertak e some o f th e s e a u t h o r it ie s , a cco rd in g to a d e c is io n taken by th e Board. The “E sta b lish m en t C o n tra ct1 1 o f th e Bank, in A r t ic le V II, gave th e Board th e o p tio n o f ch an ging th e Bank to a c o r p o r a tio n to b e owned by th e governm ent and I n d iv id u a ls . The C ontract c o n sid e r e d th e governm ent ap p roval and d l s l n - te r r u p tio n o f th e Bank1s o p e r a tio n a s n e c e s s a r y m a tte r s to 1 0 The T hird Annual R eport o f th e I n d u s tr ia l Bank o f j I r a q , 19^9-1950 (Baghdad: A l-R a b lteh P ress’, 1951) , p . 7 . I l l be tak en in to c o n s id e r a tio n In a c h ie v in g t h is c h a n g e . 1 ^ A r t ic le V, S e c tio n (1) o f th e By-Laws o f th e Indus t r i a l Bank a u th o r iz e s th e Board o f D ir e c to r s to e s t a b l i s h or remove any branch o f th e Bank and t o a p p o in t a r e p r e s e n ta t i v e ©f th e Bank in r e g io n s where th e r e a re b ra n ch es. Up to 1950* no branch o f th e I n d u s t r ia l Bank had been opened. In s te a d , th e Board a p p o in ted th e branches o f th e A g r ic u ltu r a l Bank t o r e p r e se n t th e I n d u s t r ia l Bank a g a in s t com m ission . In p r o v in c e s w here th e r e a r e no b ran ch es o f th e A g r ic u ltu r a l Bank, th e Board a p p o in ted D ir e c to r s o f R evenue. In i t s second Annual R ep ort, th e Bank cla im ed t h a t no n e c e s s it y fo r o p en in g any b ran ch , w heth er in Baghdad o r any o th e r p r o v in c e , h as a r is e n . I t seem s th a t th e Bank m easures th e n e c e s s it y f o r e s t a b lis h in g a branch by th e number o f a p p lic a t io n s advanced f o r lo a n s . However, t h is i s an in c o r r e c t m easure, a s many in d u s t r ia l men, e s p e c ia ll y in th e im portan t p r o v in c e s , h e s i t a t e to ask f o r lo a n s b eca u se th e c o s t i s so h ig h and th e p ro ced u res a r e q u ite le n g th y . In a d d it io n , th ey m ust a w a it th e ap p ro v a l o f th e head o f f i c e in Baghdad. The b e s t p r o c e s s , a s th e w r ite r b e l i e v e s , i s to e s t a b l i s h b ran ch es Kamil Al-Sammera* 1 , C om p ilation o f Laws C oncerning ‘th e R a tio n a l Bank o f Iraq (Baghdad: Al-Hokmeh P r e s s , 1 9 5 1 ), p . 2 5 7 . 1 j 112 where th e r e a re Im portant in d u s t r ie s in th e p ro v in ce w hich need t o be en cou raged, and w hloh seem s u c c e s s f u l. T here f o r e , th e Bank sh o u ld have a branch in B a sr a , H llle h , and K e r b e la 'a p r o v in c e s , where th e r e a re im portan t d o m estic in d u s t r ie s , nam ely, c o tto n sp in n in g and w ea v in g . Concen t r a t in g a l l th e a c t i v i t i e s o f th e Bank in Baghdad, a s i s th e p r a c t ic e tod ay in ev ery econom ic f i e l d , may c r e a te w ide s o c i a l r e g io n a l d if f e r e n c e s betw een th e p o p u la tio n . More o v e r , t h i s fa v o r itis m t o Baghdad may c a u s e , in th e lo n g run, th e m ig r a tio n o f th e p o p u la tio n from th e d if f e r e n t p r o v in c e s I to th e C a p ita l, Baghdad. In d eed , t h i s i s happening to d a y . S o u rces o f Funds A r t ic le I I o f th e E sta b lish m en t C on tract o f th e Bank s t a t e d th a t th e so u r c e s o f fu n d s c o n s is t o f c a p i t a l , w hich i s a lo a n p ro v id ed by th e governm ent, p r o f i t s and I n t e r e s t , and borrow ing from th e p u b lic or banks o r seriii-governm ent a g e n c ie s . C a p ita l. — The o r ig in a l c a p it a l o f th e bank was ID 5 0 0 ,0 0 0 p ro v id ed by th e governm ent a s a lo a n w ith o u t i n t e r e s t and f o r a term o f 60 y e a r s . The o r ig in a l c o s t o f th e sh a r e s o f th e d is s o lv e d A g r ic u ltu r a l and I n d u s t r ia l Bank in th e d if f e r e n t in d u s t r ia l e n t e r p r is e s , and i t s lo a n s to jth e v a r io u s firm s a re tr a n s fe r r e d to th e I n d u s t r ia l Bank | r - - U 3 and c o n sid e r e d a s p a rt o f i t s c a p i t a l . I 2 In June 1950» t&e c a p i t a l was in c r e a s e d to one m illio n I r a q i d in a r s , a s a r e s u l t o f th e ex p a n sio n o f th e Bank*a a c t i v i t i e s . A c tu a lly , t h i s augm entation o f c a p it a l t/as due to i n f l a t i o n , w hich p r e v a ile d a t th a t tim e , a s th e in d ex number f o r th e c o s t o f l i v i n g was 1*81.9 in 19^9 and 520 in 1951» ta k in g 1939 a s th e b a s ic y e a r . The p a id - in c a p it a l, up t o February 1951» amounted to o n ly ID 6 0 0 ,0 0 0 . Taking in t o c o n s id e r a tio n th e w id e resp on s i b i l i t i e s o f th e Bank, and th e grow ing n eed f o r d o m estic I n d u s t r ie s , th e c a p it a l o f th e Bank i s n o t s u f f i c i e n t to co v e r th e s e r e s p o n s i b i l i t i e s and to s a t i s f y th e s e n e e d s. The c a p it a l must be a t l e a s t f i v e m illio n Ir a q i D in ars and must a l l be p a id - in . T his in c r e a s e in th e c a p it a l can be s u p p lie d from o i l r o y a l t ie s w hich have In crea sed r e c e n t ly . P r o f it and I n t e r e s t . — The B an k 's second so u r c e o f fun ds i s p r o f i t from i t s p a r t ic ip a t io n in some in d u s t r ia l p r o j e c t s , i n t e r e s t on lo a n s and com m issions a g a in s t th e ex p o rt and im port s e r v ic e s , w hich th e Bank advances t o in d u s t r ia l m e n . t I 12 I b ia . » p . 258. i ^ 7he Waqua.vi'a A l- I r a o lv a . No. 1783 o f March 2 5 , 19*K>, Law o f th e E sta b lish m en t o f an I n d u s t r ia l Bank, No. 12 o f 194o"TBaghdad: Government P r e s s , 19*K)) , A r t lc le XVII. 1 1 4 The Bank, so f a r , has p a r t ic ip a t e d in s i x e n te r p r i s e s , m ost o f w hich a re n ew ly e s t a b lis h e d and w h ich have not reach ed a p r o f it a b le s t a g e . At any r a t e , th e accumu la t e d p r o f i t s o f two com panies, fo r th e two y ea rs en d in g 'March, 1950, w ere ID 1 2 ,9 0 0 . One o f th e fu n c tio n s o f th e Bank i s t o advance c r e d it f o r in d u s tr y . M oreover, i t h e lp s th'e i n d u s t r i a l i s t s to ex p o rt t h e ir p r o d u c ts and to im port raw m a te r ia ls and m achinery a g a in s t a f ix e d com m ission. F or th e y ea r 1 9 5 0 , th e r e tu r n to th e Bank from I n t e r e s t and com m issions amounted to ID 1 2 ,3 9 6 , compared to ID 1 0 ,6 8 9 in 1949* The incom e o f th e Bank from m inor m is c e lla n e o u s item s in 1950 was ID 2 , 1 2 0 . These f ig u r e s show th a t th e Bank i s in a fa v o r a b le c o n d itio n , and a lth o u g h i t s main o b je c t i s to d e v e lo p and en cou rage in d u s t r ie s , i t h as b een and I s s u c c e s s f u l a s a government b u s in e s s e n t e r p r is e . B orrow ings ♦ — The Bank i s endowed w ith th e p r iv il e g e o f is s u in g d e b e n tu r e s, or t o borrow in any o th e r way, and t o accum u late fun ds f o r making advances to I n d u s t r ia l e n te r p r i s e s . N eith er th e Law o f th e Bank nor i t s By-Laws or I r e g u la tio n s s e t up th e maximum l im it to t h i s b orrow in g. The 14 The T hird Annual R eport o f th e I n d u s t r ia l Bank, op . c i t . , p , 29* *5 L oc. c i t . I 115 governm ent g u a ra n te es th e p r in c ip le and 5 p e r cen t I n t e r e s t on th e bonds to b e Issu e d by th e I n d u s t r ia l Bank I f t h e ir term d o es not ex c ee d te n y e a r s .16 The Bank, u n t i l F eb ru ary, 1951* had n ot is s u e d bonds. I n s te a d , th e Bank borrowed ID 200,000 from th e N a tio n a l Bank o f Ir a q , ID 100,000 from th e G eneral D ir e c to r a te o f A l- Awqoff (T r u s t), ID 20,000 from th e Ottoman Bank and ID 20,000 from th e Committee o f th e governm ent o f f i c i a l In su ra n ce P la n .^-7 Except fo r th e lo a n from th e Ottoman B ank, w hich was secu red by I r a q i Government b ond s, th e r e was Ino c o l l a t e r a l b eh in d any o f t h e s e b o rro w in g s. A c c o r d in g ly , th e t o t a l f in a n c ia l r e so u r c e s o f th e Bank amount t o ID 9*K),000 and a s th e t o t a l p a id up amount o f th e p a r t ic ip a t io n o f th e Bank in d if f e r e n t e n t e r p r is e s i s ID 629,272, th en o n ly ID 310,728 i s l e f t f o r ad vancing c r e d i t s . T hereby, i t i s c le a r th a t th e B ank's fun ds a re a b s o lu t e ly not a d eq u a te, compared w ith i t s in ten d ed o b je c t i v e s . The w r it e r a g re es w ith th e Bank th a t th e p r e s e n t econom ic c o n d itio n o f Iraq i s not s u it a b le fo r borrow in g from th e p u b lic , b u t, a t th e same tim e , he d o es n o t a g ree V 1 6 The W aquayl1 a A l- I r a q ly a , No. 28kQ o f J u n e, 1950, Amendments o f Law o f th e E sta b lish m en t o f an I n d u s tr ia l Bank. No. 37 of 1 9 5 0 (Baghdad: Government P r e s s , 1 9 5 0 )• ^ fffae Second Annual R ep o rt, o p . c i t . , p . 12. t 116 th a t I t I s v e r y d i f f i c u l t t o se c u r e lo a n s from abroad. The g u a ra n tee o f th e governm ent o f th e p r in c ip le and 5 p er cen t in t e r e s t o f th e Bank*s d eb en tu res and a fa v o r a b le c o n d itio n o f th e Bank w ould b e v er y h e lp f u l in se c u r in g lo a n s from th e fo r e ig n m onetary m arkets in g e n e r a l and from th e I n te r n a tio n a l Bank in p a r t ic u la r . I t i s r e a s o n a b le , th e n , fo r th e Bank to make a lo a n o f , s a y , a m illi o n Ir a q i D inars e i t h e r w ith th e I n te r n a tio n a l Bank d i r e c t l y o r by th e g u a ra n tee o f th a t Bank. A ls o , th e I n d u s tr ia l Bank co u ld se c u r e ID 1 ,5 6 6 ,8 0 0 a s e x tr a funds from th e d isc o u n t o f i t s p a p ers w ith th e I com m ercial b an k s, i f A r t ic le IX, S e c tio n (2 ) o f th e Law o f Banking C on trol w ould be amended to make i t o b lig a to r y f o r th e com m ercial banks to a c c e p t th e s e n o t e s . I t i s n e c e s sa r y and im portant to in v o lv e th e com m ercial banks in a g r ic u lt u r a l and in d u s t r ia l a c t i v i t i e s a s th e y a re th e m ajor, i f n ot th e o n ly , c e n te r f o r se c u r in g fu n d s. In d o in g s o , th e com m ercial banks a re n ot r is k in g t h e ir fu n d s, as th e y a re not d e a lin g d i r e c t l y w ith th e farm ers o r I n d u s t r ia l le a d e r s ; t h e ir r e la t io n i s w ith th e non-com m ercial banking j I n s t i t u t i o n s w h ich a re governm ental e n t e r p r is e s . The co u n try w i l l be more p ro sp ero u s i f I t s f in a n c i a l i T O C f. a n t e , pp. 8 2 -8 3 . | 117 • in s t it u t io n s h e lp and c o o p e r a te w ith each o th e r . I t i s th e flo w o f money w h ich m u lt ip lie s th e fund r e so u r c e s o f th e c o u n tr y . So, k eep in g th e com m ercial h an k s' funds i d l e in th e form o f ca sh n ot o n ly a f f e c t s th e developm ent o f th e c o u n tr y , hut a ls o d e p r iv e s th e hanks th e m se lv e s o f g a in in g p r o f it a b le o p p o r tu n itie s . There a re s t i l l o th e r m ethods o f in c r e a s in g th e funds o f th e Bank. I t i s s ta te d in th e Law o f th e E sta b lish m en t o f th e Bank th a t i t s main o b j e c t iv e i s to h e lp d e v elo p th e in d u s tr y o f th e co u n tr y . I t i s not th e o b je c t o f th e Bank, th e n , to seek p r o f i t . I f th e Bank has p a r t ic ip a t e d in an e n te r p r is e to h e lp i t s e s ta b lis h m e n t, and th e e n t e r p r is e hasj su cc eed ed , i t i s l o g i c a l t o assum e th a t th e Bank must s e l l i t s sh a re in t h i s e n te r p r is e to th e p u b lic t o se cu re more fu n d s in ord er t o p a r t ic ip a t e in o th e r n eed y e n t e r p r is e s . In accordance w ith t h i s p r i n c i p l e , th e Bank then sh ou ld g r a d u a lly s e l l i t s sh a res in th e V eg eta b le Q ll E x tr a c tio n Company and th e Cement Company as th e y su c c e e d in t h e ir o p e r a tio n s and a s t h e ir s t o c k 's m arket v a lu e i s more than i t s nom inal v a lu e . The e x tr a funds f o r th e Bank from th e s a l e o f th e s e sh a r e s w i l l amount (a t a c o s t v a lu e ) t o ID 2 7 3 ,7 5 0 .^ ^ The m arket v a lu e o f some o f t h e s e e n t e r p r is e s in November 1 3 , 1 9 5 3 , w ere as f o llo w s : Cement Company 118 In c o n c lu s io n , th e Bank must In c r e a se I t s f in a n c i a l r e s o u r c e s in o rd er to a c h ie v e i t s r e s p o n s i b i l i t i e s . T his a x t r a fund can be secu red th rou gh in c r e a s in g i t s c a p i t a l , I borrow ing from th e I n te r n a tio n a l Bank, d is c o u n tin g i t s p a p ers w ith th e com m ercial b a n k s, th e s a le o f i t s sh a r e s in th e V eg e ta b le O il E x tr a c tio n and Cement com panies, and th e a c c ep ta n ce o f f ix e d and cu rren t d e p o s it s . Funct io n s o f th e Bank The o b je c t o f th e Bank as s ta te d in Law No. 12 i s to prom ote through e s ta b lis h m e n t, p a r t ic ip a t io n and c r e d it o p e r a tio n s , th e a c t i v i t y , Improvement, tr a n sfo r m a tio n and ex p a n sio n o f I r a q i in d u s t r ia l e n t e r p r is e s ; e s p e c ia ll y in a s s i s t i n g in th e developm ent o f new f a b r ic a t io n s , th e tr a n sfo r m a tio n and m o d ern iza tio n o f p la n t s and in th e r e o r g a n iz a tio n o f n a tio n a l in d u s t r ie s . To perform t h i s o b j e c t iv e , th e Bank has th r e e main f u n c t io n s , nam ely: (1) to g ra n t in d u s t r ia l c r e d it on medium, and o c c a s io n a lly , on a lo n g -te r m b a s is ; (2 ) th e e s t a b lis h ment o f i t s own e n t e r p r is e s o r p a r t ic ip a t io n in new o r e x i s t i n g ones; and (3 ) t o a s s i s t in th e e x p o r ta tio n o f Ir a q i |IB 2 ^ ,7 5 0 , O il E x tr a c tio n Company IB 1 ,5 0 0 , C otton S p in n in g ;IB 1 2 ,0 0 0 , w h ile t h e ir fa c e v a lu e s were ID 1 0 .0 0 , IB 1 .0 0 , ;and ID 1 0 .0 0 r e s p e c t iv e ly . Al-Zaman, No. 5373 (S a tu rd a y , i (November 1^ , 1 9 5 3 ), p . 8 . i (produ cts and In th e im p o r ta tio n o f m achinery and raw m ater i a l s .^ * These fu n c tio n s w i l l " b e b r i e f l y e x p la in e d . g ra n tin g I n d u s t r ia l c r e d i t s . — The Bank i s n ot lim it e d in i t s c r e d it o p e r a tio n s to a s p e c i f i c s i z e o f e n t e r p r is e . I t can exten d c r e d it t o s m a ll, medium or la r g e s i z e in d u s t r ie s . C red it may be advanced i f i t i s to be I u sed fo r th e f o llo w in g o b j e c t iv e s : 1 . To ex p o rt in d u s t r ia l p ro d u cts or t o im port raw i i m a t e r ia ls . In th e amendment o f 195© th e Bank was a u th o r iz e d to ex ten d c r e d it a ls o fo r th e purch ase o f m achinery and equipm ent. 2 . To o r g a n iz e , to e n la r g e , o r to d ev elo p an in d u s t r i a l e n t e r p r is e . 3 . M oreover, ithe Bank may exten d lo a n s to th e m erchants who d e a l w ith th e c o r p o r a tio n s in w hich th e Bank has a sh a r e . T o ta l lo a n s g ra n ted f o r th e y ea r en d in g March, 195©> amounted to ID 1 3 2 ,1 1 0 compared w ith ID 50*298 f o r th e p r e v io u s y ea r . T h is shows th e r a p id ex p a n sio n o f th e B ank's jo p e r a tio n s and th e in c r e a s in g n eed s o f in d u s t r ie s f o r ic r e d it f a c i l i t i e s . At th e end o f F ebruary, 1951* th e Bank had outstanding! 26 ! The W aquavl'a A l- I r a a ly a , No. 1783 o f March 25* I 194-0, A r t ic le I I . I 120 lo a n s t o t a l i n g ID 2 3 8 ,6 5 0 . The d i f f e r e n t ty p e s o f I n d u s tr ie s t o w hich about 75 p e r c e n t o f th e t o t a l lo a n s were g ra n ted a re: cem ent, f lo u r - m l ll l n g , le a t h e r , t e x t i l e s and d a te J u ic e I n d u s tr ie s . There i s no in d ic a t io n in th e annual r e p o r ts o f th e Bank re g a rd in g t h e I d e n t i f ic a t i o n o f th e lo a n s g r a n te d , a cc o rd in g t o t h e i r u s e . As i s s t a te d in th e f i r s t c h a p ter o f t h i s t h e s i s , th e annual r e p o r ts do n ot c o n ta in s u f f i c i e n t in fo r m a tio n fo r th e r e se a r c h and stu d y o f th e Bank’ s a c t i v i t i e s . They need t o be r e v is e d and r e o r g a n iz e d to r e f l e c t th e v a r io u s a c t i v i t i e s o f th e Bank. E n tr e p r e n e u r ia l F u n ctio n The Bank can e s t a b lis h i t s own e n t e r p r is e s , p a r t i c i p a t e in a new ly o rg a n ized e n t e r p r is e , or in an e x i s t i n g one. Bp to d a te , th e Bank h as not o r g a n iz ed an e n te r p r is e o f i t s own. On th e s id e o f p a r t ic ip a t io n , th e Bank in h e r i t e d from th e d is s o lv e d I n d u s t r ia l and A g r ic u ltu r a l Bank o f Iraq th e sh a re s o f th r e e com p anies, nam ely: Iraq Cement, V e g e ta b le O il E x tr a c tio n , and th e Iraq T rading and C rain M illin g . But th e I n d u s tr ia l Bank has in c r e a s e d I t s p a r t i c i p a tio n in th e s e com panies from ID 1 5 8 ,0 0 0 in 1946, when i t x 21 The Economic Developm ent o f I r a q . r e p o r t p u b lish e d f o r th e I n te r n a tio n a l Bank fo r R e c o n str u c tio n and D evelop ment (London: The Johns Hopkins P r e s s , 1 9 5 2 ), p . 3 9 . i I 121 s t a r t e d I t s o p e r a tio n to ID 2 9 8 ,7 5 0 , a l l o f w hich has been p a id i n . 22 B esid e t h a t , th e Bank has p a r t ic ip a t e d in th r e e o th e r in d u s t r ie s , c o tto n sp in n in g and w eavin g, le a t h e r , and r iv e r d r e d g in g , in th e amount o f ID 329*150, o f w hich ID 2 9 7 ,9 0 0 had been p a id in up t o March, 1950. T his b r in g s th e p a r t i c ip a t io n o f th e Bank to 26 p er c e n t o f th e t o t a l c a p i t a l o f th e s i x e n t e r p r is e s . As a p r i v i l e g e o f th e p a r t ic ip a t io n , th e Bank has one or two r e p r e s e n t a t iv e s on th e Board o f D ir e c to r s o f each company. I t i s w orth n o t ic in g th a t th e G eneral D ir e c to r o f th e Bank r e p r e s e n ts th e Bank in th r ee o f th e com p anies. In Ir a q , w here in d iv id u a ls p r e fe r to in v e s t t h e i r . money in r e a l e s t a t e or commerce, and h e s i t a t e to be p io n e e r s in in d u s tr y , p a r t ic ip a t io n o f th e Bank i s an e s s e n t i a l f a c t o r in b r in g in g th e s e funds to in d u s t r ia l fin a n c in g . The Bank h as rend ered im portant s e r v ic e s , b u t n o t to a la r g e ie x te n t b ecau se o f th e la c k o f f in a n c i a l r e s o u r c e s . Export and Import a g en cy . — A nother group o f s e r v i c e s w hich th e Bank u n d ertak es in ord er t o h elp th e c o u n tr y ’ s in d u s tr y i s to a s s i s t in th e e x p o r ta tio n and im p o rta tio n o f i 22 The Annual Report o f th e A g r ic u ltu r a l and In d u s- ; t r i a l Bank o f I r a q , 19^6, o p . c i t . , p . 2 6 , a n d The T hird j Annual Report o f th e I n d u s t r ia l Bank, 1950* 22>* o i t ♦ . p . 2k., 122 p ro d u c ts f o r th e I n d u s t r i a l i s t s . The Bank h e lp s to f a c i l i t a t e th e e x p o r ta tio n o f I r a q i in d u s t r ia l p r o d u c ts, and th e im p o r ta tio n o f m ach in ery, equipm ent and raw m a te r ia ls needed by p r iv a t e e n t e r p r is e s , governm ent and sem i-governm ent i n s t i t u t i o n s . 23 The Bank re n d er s th e s e s e r v ic e s a g a in s t com m issions to be f ix e d from tim e t o tim e by th e Board o f D ir e c to r s . At th e p r e s e n t tim e com m issions ran ge from 1 to 2 p er c e n t . In Ju n e, 1948, a s p e c ia l s e c t io n was e s t a b lis h e d in th e Bank to u n d ertak e t h i s fu n c tio n as a consequence o f i t s in c r e a s in g im p ortan ce. The v a lu e o f t h i s ty p e o f tr a n sa .c tio n in c r e a s e d from ID 1 8 ,5 7 0 in 1948 to ID 5 4 ,5 8 3 in 1 9 5 0 . The t o t a l rev en u e o f th e Bank from th e s e tr a n s a c t io n s in 1950 was ID 1 ,4 7 2 .25 I t sh ould b e n o tic e d th a t th e Bank i t s e l f in s u r e s th e m erchan d ise a g a in s t a l l d i s a s t e r . But th e Bank has no d ir e c t a u th o r ity to open c r e d it on fo r e ig n t r a n s a c t io n s . The Board o f th e Bank asked th e governm ent to a u th o r iz e th e Bank t o perform t h i s fu n c tio n d i r e c t l y in s t e a d o f d oin g i t 2^ ^he Waqayl* s A l-I r a q jy a , Ho. 2518 o f Septem ber 1 , 1947» By-Law o f th e I n d u s tr ia l Bank, No. 4-1 o f 1947 (Baghdad: Government P r e s s , 194-7) * A r t ic l e s XXII-XXX. 2* * ^he Third Annual R ep o rt, o p . c i t . , p . 19* 25 IM <i. , p . 2 9 . 123 th rou gh th e com m ercial b an k s. I t I s u n n ecessa r y to Bay th a t th e governm ent sh o u ld approve th e g iv in g o f t h i s a u th o r ity t o th e Bank, a s i t would sa v e th e Bank and i t s c l i e n t s c o n s id e r a b le c o s t and tim e . j A g r e a te r exp an sion in t h i s fu n c tio n o f th e Bank i s ex p ec te d a f t e r th e r e a liz a t io n o f th e f a c i l i t i e s o f th e Bank j compared t o th a t o f th e Commercial Banks. R en tal and s a le a g en cy . — The Law o f th e E s ta b lis h ment o f th e Bank d o es n ot c o n ta in a p r o v is io n co n cern in g th e jsa le and r e n ta l o f in d u s t r ia l m achinery and equipment a s one l Jof th e fu n c tio n s o f th e Bank. However, A r t ic le I I o f th e By-Laws o f th e Bank enum erates I t a s one o f th e Bank*s f u n c t i o n s . 2 ^ The s a le o f in d u s t r ia l m achinery and equipm ent by th e Bank may b e on a payment b a s is . The minimum down payment a c c e p ta b le I s 25 p er cen t o f th e v a lu e o f th e a r t i c l e , w ith th e rem ainder o f th e p r ic e t o be p a id in m onthly o r annual paym ents, p lu s a s p e c i f i c r a te o f in t e r e s t to b e d ecid ed from tim e t o tim e by th e Board o f D ir e c t o r s . So f a r , th e r e i s no e v id e n c e in th e annual r e p o r ts o f th e Bank, w hich in d ic a t e s th a t th e Bank h as p r a c tic e d t h i s f u n c t io n . I t seem s to th e w r it e r th a t i t w ould be more j 2 6 I The W aqayj1 a A l- I r a q ly a , Ho. 2518 o f Septem ber 1 , 119^7, op,, c i t . , A r t ic l e I I . i p r a c t i c a l , h e lp f u l and p r o f it a b le f o r th e Bank t o e s t a b l i s h j and p a r t ic ip a t e in a c o r p o r a tio n d e a lin g in th e s e l l i n g o f in d u s t r ia l m achinery and equipm ent on a c a sh o r in s ta llm e n t payment p r in c ip le . In order fo r th e c o r p o r a tio n t o have ad eq u ate f in a n c ia l r e s o u r c e s , th e Bank m ust be a u th o r iz e d to d is c o u n t, a t a m oderate r a t e , th e n o te s g iv e n by th e in d u s t r i a l i s t s to th e c o r p o r a tio n . M oreover, to h elp th e c o r p o r a tio n in i t s o p e r a tio n , th e Bank m ust n o t advance any c r e d it to an i n d u s t r i a l i s t f o r u se in p u rch a sin g m achinery or equipm ent s im ila r t o th a t w hieh th e c o r p o r a tio n s e l l s . In o rd er to prom ote th e p u b lic w e lfa r e in Ir a q , w ith I j i t s p e c u lia r c o n d itio n s , th e w r ite r f e e l s th a t some in d u ce ment and enforcem ent m easures r e l a t i v e t o in d iv id u a l sa v in g s have to be ta k e n . I n d iv id u a ls p r e fe r to hoard t h e i r money, r a th e r than I n v e s t I t , w h ile s o c ie t y , on th e o th er hand, i s in g r e a t need o f th e s e h o a rd in g s fo r in v e stm e n t. As th e s e in d iv id u a ls have co n fid e n c e in governm ent e n t e r p r is e s , th e governm ent has to p a r t ic ip a t e in many p r o j e c t s , even th o se o f a p r iv a te n a tu r e . In t h i s manner th e I n d iv id u a l's h o a rd in g would b e w ithdraw n. These id e a s may seem v e r y u n u su a l to an American r e a d e r , b u t, a c t u a lly , i t i s conven ie n t and s u it a b le to th e s it u a t io n in Ir a q . In term s o f i ^Keynesian E conom ics, th e s e p r iv a t e h o a rd in g s break th e I I ic lr c u lt flo w o f m oney, w hich can be r e s to r e d in Iraq o n ly by' 125 government participation, directly or indirectly. IV. LOAM PROCEDURE AMD POLICX OF THE INDUSTRIAL BANK Applications for loans are usually filed with the main office in Baghdad, or with the Director of the Branch, if a branch, or with the Director of Revenues, when there is no branch. The Bank sends the applications for investiga tion by economic authorities, the Ministry of Economics, the Chambers of Commerce, or any other expert committee elected by the Board of Directors of the Bank. The investigating authority, after the investigation of the application, sends a written report regarding the adequacy of the security offered, the character and financial position of the appli cant, and eligibility of the application. The final authority to decide whether the credit is to be advanced or not, its size and terms, is the Board of Directors. Eligible Applicants The Bank advances credit only to Iraqi citizens, or to enterprises with over 50 per cent of its capital owned by Iraqi citizens. Even in the latter ease the application should be filed by an Iraqi citizen. The applicant should file a written application indicating the amount and the purpose of the loan required, 126 and the character and location of the security offered. ! Loans for establishing a new enterprise. — If a loan is required for the establishment of an enterprise the application should be accompanied by a document showing: 1. Production capacity, amount of production of the enterprise, cost of production and expected consumption markets. j 2. law materials to be used by the enterprise, and whether they are produced locally or have to be Imported. 3. Necessary capital for the enterprise, divided into fixed and operating capital. I h. Sources of capital* whether it is supplied by one individual or many individuals through a partnership or a corporation. 5. Finally, the present paid-in capital and expected part to be paid after the establishment of the enterprise. Loans for expansion. • — Loans for improvement or expansion of an enterprise should be filed with the General Director of the Bank. With the application there should be a report indicating the productive conditions before the J expansion or improvement, the used capital, summary of financial statements for the last three years, the type of expansion or improvement, the necessary capital for this purpose, and the expected results from this change. 12? It is mentioned above that the Industrial Bank loans are limited to Iraqi citizens or to companies with capital subscribed by Iraqis. The writer thinks that this restric tion would be beneficial were there sources of adequate funds within the country to finance- expected development in its economic conditions. As this situation is quite the jreverse, and as Iraq^ aims in the long run are towards stronger relations with the other Arabian countries, the Bank, in particular, and all government economic policies in general, should consider the flow of capital from the other Arabian countries as capital from the internal market. The writer refers specially to the Sheikdom of Kuwait and the Kingdom of Saudi Arabia. In both of these countries there is a great amount of idle capital waiting for investment. Inducing the capitalists to invest their money in Iraq, rather than hoarding It In the form of gold or silver, would benefit these two countries. The writer feels that this step, beside its economic consequences, is a necessary prerequisite to any further political and social unification of the Arabian countries. Term of Loans No loan shall be granted for over a period of ten years. The minimum period limit is not stated in the Law of the Bank, but it is actually for not less than six months. 1 2 8 In practice, the Bank*s term of loans ranges from six months to five years. The number o f lo a n s , t h e i r term s and p e r c e n ta g e s to th e t o t a l lo a n s g ra n ted in th e year en d in g March, 1951* are shown b elow in T able V I. I t i s c le a r th a t lo a n s fo r a term o f two y ea r s le a d , fo llo w e d by lo a n s f o r term s o f s ix m onths, and f o r term s o f th r e e y e a r s. No lo a n was g ra n ted fo r o v er f i v e y e a r s . What industry actually needs is long-term credit. A check on the schedule shows" that no long-term credit was advanced, and that loans granted for five years consisted of only 5.2 per cent of total loans granted. First, the Bank must change its policy and advance loans for more than six years, and second, the Law of the Bank should be amended to extend the term of the Bank*s loans to twenty years, as the Industrial Bank is the only industrial financial organization in the country. The Size of Loans Under the Law of the Agricultural and Industrial Bank, the maximum limit of a loan was ID 1,500, and the minimum was ID 5* ?he maximum, as well as the minimum limit of loans to any individual or corporation has been increased by the Law of the Industrial Bank to ID 10,000 and ID 100, respectively. But, loans for the purpose of establishment, 1 2 9 TABLE V I COMPARISON BETWEEN THE TERMS OF LOANS, -MARCH, 1950 Term ( in y e a r s) Number o f Loans P e r cen ta g es o f T o ta l Amounts 2 14 2 6 .5 - 1 / 2 31 2 4 .3 3 10 2 3 .9 1 13 1 0 .1 5 5 5 .2 1 - 1 /2 6 4 .3 4 1 3 .8 2 - 1 /2 1 1 .9 S ou rce: Compiled from The T hird Annual R eport o f th e I n d u s t r ia l Bank o f I r a q , March, 1950 (Baghdad: A l-R a b lte h P r e s s , 1951)» P* 3 4 . 130 enlargement and Improvement of an enterprise are excluded from that maximum limit.2? The number of loans granted In the year ending March, 1950, wae eighty-one loans, with a total value of ID 132,110. Loans ranging from ID 150-500 were fifty-two in number and ID 22,520 in value, while loans ranging from ID 7>000—10,000 were only three, totaling ID 27,500. Only one loan was granted over the maximum limit, and that wae for a total value of ID 12,500. Medium-size loans which range from ID 1,000-5>000 consist of 36 per cent of the total loans granted.2® In any event, the amount of loans to be made should be in proportion to the value of underlying security. The size of loans to be granted against security of government bonds shall not exceed 75 per cent of the value of the security; while loans against security of goId.bars and ornaments shall not exceed 70 per cent, and loans against security of silver bars, shares in companies, immovable property and rights related to immovable property shall not exceed 60 per cent of the value of the security as appraised ^he Waqa.vl1 s Al-Iraolya, No. 2518 of September, 19^7, o p. cit., Article III. j 2® The Third Annual Report of the Industrial Bank, 1 op. cit., p. 53* 131 by th e Bank. Loans a g a in s t o th e r ty p e s o f s e c u r it y , n ot m en tio n ed , s h a ll n o t ex ceed 4-0 p er cen t o f th e s e c u r it y . In 1 9 5 0 , an amendment in th e Law o f th e Bank was made to a u th o r iz e th e Bank to le n d up to ID 3 ,0 0 0 a g a in s t p e r s o n a l s e c u r it y . From th e above sta te m e n ts on p r o p o r tio n s o f lo a n s to th e ty p e s o f s e c u r it y , i t i s c le a r th a t th e Law o f th e Bank ! p r e f e r s governm ent bonds to g o ld b a rs and immovable prop e r t y . There i s no J u s t i f i c a t i o n f o r t h i s f a v o r it is m , ex cep t th a t th e governm ent w ants t o encourage th e p e o p le t o buy th e s e s e c u r i t i e s . I t seem s t o t h i s w r it e r th a t t h i s p r in c i p l e throw s th e Bank in to p o l i t i c s and r i s k s i t s lim it e d f i n a n c i a l r e s o u r c e s , e s p e c i a l l y i f i t i s known th a t th e m arket v a lu e o f th e government bonds i s alw ays under t h e i r p a r v a lu e by ab out 10 p er c e n t . To keep th e p ro p o rtio n betw een lo a n s and t h e ir s e c u r i t i e s a t a l l tim es when th e v a lu e o f a s e c u r it y d e c r e a s e s , th e reb y ca u sin g a d e f ic ie n c y in th e r a t e s men tio n e d above w ith r e fe r e n c e to th e amount o f th e lo a n , th e Bank may demand a d d it io n a l s e c u r it y o r redem ption o f th e lo a n by an amount co rresp o n d in g to such d e fic ie n c y * I t sh o u ld be n oted h ere th a t A r t ic l e X III o f th e Law o f th e Bank does n ot s t a t e t h a t , i f th e d e f ic ie n c y o ccu rs w ith r e fe r e n c e to th e unredeemed p a r t o f a lo a n , th e Bank may ask! f o r a d d itio n a l s e c u r it y . The A r t ic le s t a t e s th a t th e Bank has t h a t r ig h t i f th e v a lu e o f th e u n d e r ly in g s e c u r it y d e c r e a s e s 15 p er c e n t or more than i t was a t th e tim e th e lo a n was g r a n t e d . ^9 i t i s apparent t h a t t h i s p r o v is io n iB n o t l o g i c a l , a s th e v a lu e o f th e s e c u r it y m ight f a l l o v e r 5©j p e r c e n t from what i t was a t th e d a te o f le n d in g , b u t i t may, be s t i l l f a r more th an th e unredeemed p a r t o f th e lo a n . So, t h i s A r t ic le must be amended to r e s t r i c t th e r ig h t o f th e Bank t o c a l l f o r a d d itio n a l s e c u r it y , o n ly i f th e p r o p o r tio n b etw een th e u n d e r ly in g s e c u r it y and th e unredeemed p a r t f a l l s b elow th e l e g a l p e r c e n ta g e s . !C o lla t e r a l and U n d erly in g S e c u r ity I t i s th e r u le o f th e Bank th a t when a lo a n i s made, th e Bank ta k e s , a s s e c u r it y , immovable p r o p e r ty , r ig h t s r e l a t in g to Immovable p r o p e r ty , m ovable p r o p e r ty , and r e c e n t ly , p e r s o n a l g u a ra n tee. A ll s e c u r i t i e s tak en by th e I n d u s t r ia l Bank m ust c o n s t it u t e f i r s t m o rtg a g es. M ortgage on immovable p r o p e r ty . — U s u a lly , when the repaym ent o f a lo a n ta k e s s e v e r a l y e a r s , th e le n d e r r e q u ir e s a m ortgage on immovable p r o p e r ty , or th e r ig h t s r e la t in g to i t , a s u n d e r ly in g s e c u r it y . i i The W aqayl*a A l- I r a a lv a , No. 1783 o f March 2 5 , 19*40, op. c i t . , A r t ic le X I I I . 1 3 3 1 i The I n d u s t r ia l Bank i t s e l f , a cc o rd in g t o i t s By-Laws, d o es n ot gran t any lo a n fo r a term o f o v er th r e e y e a r s u n le s s i t i s secu red by immovable p r o p e r ty and t o b e u sed o n ly f o r th e e s ta b lish m e n t o f an e n te r p r is e or th e e n la r g e ment o f an e x i s t i n g e n t e r p r is e . M oreover, th e Bank r e q u ir e s th a t no p r e v io u s m ortgage sh o u ld e x i s t on th e p r o p e r ty , and i f t h is p ro p erty i s owned commonly, th e sh a re o f th e borrow er sh ou ld not be l e s s than o n e - f i f t h . A lthough lo a n s fo r term s o f o v er th r e e y ea r s c o n s is te d o f o n ly 9 p e r cen t o f t o t a l lo a n s , f o r th e year 1950 about 56 p er cen t o f th e Bank’ s lo a n s w ere secu red by f i r s t m ortgages on immovable p r o p e r ty and r ig h t s r e la t in g th e r e t o . 30 T his shows th a t th e Bank p r e fe r s t h i s ty p e o f se c u r i t y r a th e r than th e o t h e r s . I t i s a c t u a lly a n a tu r a l con sequ en ce o f th e p r e v a ilin g c o n d itio n s in Ir a q , a s immovable p r o p e r ty i s s t i l l c o n sid e r e d th e b e s t ty p e o f p r o p e r ty . M ortgage on m ovable p r o p e r ty . — Movable p r o p e r ty a c c e p te d by th e Bank c o n s is t s o f g o ld and s i l v e r b a r s , company sh a re s and bonds, d e p o s it s in com m ercial b a n k s, Ifoe T h ird Annual R ep ort o f th e I n d u s t r ia l Bank, o p . c i t . , p p . 32^!Pk i 1 3k f a c t o r i e s , m a ch in es, equipm ent ana I r a q i governm ent b on d s. i In 1 9 5 0 , th e Bank advanced 31 p er cen t o f i t s lo a n s a g a in s t t h i s ty p e o f s e c u r it y . Comparison o f t h i s p ercen ta g e betw een th e A g r ic u ltu r a l Bank and th e I n d u s t r ia l Bank shows th a t th e I n d u s t r ia l Bank i s more l i b e r a l in i t s c r e d it p o l i c y th an th e A g r ic u ltu r a l Bank w hich d id n o t advance lo a n s a g a in s t m ovable p r o p e r ty .31 T his i s p a r t ly due to th e f a c t th a t th e I n d u s t r ia l Bank d e a ls m a in ly in th e c i t i e s where tr a n s a c tio n s in m ovable p ro p erty s t a r t e d to g a in a n o tic e a b le p o s it io n in th e f in a n c i a l m ark et. I f th e m ortgaged m ovable p ro p erty I s p e r is h a b le , the Bank can ask th e borrow er to ta k e th e n e c e s s a r y p r e c a u tio n s to p rev e n t t h is danger w ith in f i v e d a y s. I f th e d e b to r d e la y s , th e Bank can u nd ertak e t h i s s te p by I t s e l f and ch arge th e c o s t t o th e d e b to r . I f th e d anger i s u n a v o id a b le th e Bank can s e l l th e m ortgaged p ro p erty im m ed ia tely , but a f t e r n o t if y in g th e borrow er. For fu r th e r p r o t e c t io n , th e Bank r e q u ir e s th a t prop e r t y a cc ep te d a s s e c u r it y must be In su red a g a in s t f i r e , w ith th e Bank a s b e n e f ic ia r y . P er so n a l s e c u r i t y . — A fte r a sh o r t p e r io d o f ex p er ie n c e in th e le n d in g f i e l d , th e Bank found th a t th e r e a re ^1 ££• a n t e , p . 6k . j ' 135 some p erso n s In n eed o f sm a ll amounts and who have a v er y sound c r e d it r e p u ta tio n . There was no s e n s e In s e t t i n g up co m p lic a ted c r e d it p ro ced u res fo r such p e rso n s s in c e th e y ought to he a b le to secu re lo a n s on th e b a s is o f p e r s o n a l s e c u r it y . The r e a liz a t io n o f t h is m a tter le d to th e amend ment o f th e E sta b lish m en t Law o f th e Bank by a u th o r iz in g th e Board o f D ir e c to r s to advance c r e d it a g a in s t p e r so n a l s e c u r it y up to th r e e thousand I r a q i D in a r s, and fo r n o t over a term o f one y e a r . 3 2 Loans g r a n ted a g a in s t t h i s ty p e o f s e c u r it y amounted to about 13 p er c e n t o f th e Bank*s t o t a l lo a n s in 1 9 5 0 .3 3 At th e p r e s e n t tim e , i t can be n o ted from th e above d is c u s s io n , th a t th e Bank d o es n ot ex ten d c r e d it a g a in s t com m od ities. The main rea so n fo r t h is i s th e a b sen ce o f modern bonded w a reh o u ses. The M issio n o f th e I n te r n a tio n a l Bank f e l t t h i s d e f e c t and su g g e ste d in i t s Report th a t: A side from making lo a n s f o r p r o d u c tio n f a c i l i t i e s , th e I n d u s t r ia l Bank co u ld a s s i s t in d u s tr y by fin a n c in g th e c o n s tr u c tio n o f a bonded w arehouse a t Baghdad, so th a t c r e d it c o u ld be exten d ed on m a te r ia ls sto r e d th e r e in . The a b sen ce o f such w arehouse f a c i l i t i e s h as cau sed a ch ro n ic sh o r ta g e o f w orking c a p it a l in m ost in d u s t r ia l e n t e r p r is e s , fo r under e x i s t i n g c o n d itio n s much o f t h e ir The W aoav^a A l- I r a o lv a . No. 2840 o f Ju n e, 1950, o p . c i t . , A r t ic le XV. The T hird Annual R eport o f th e I n d u s t r ia l Bank, lo o ♦ cl.t» * 136 c a p it a l I s t i e d tap in s to c k o f su p p lie s.3 & The w r ite r b e lie v e s i t i s v ery hard fo r th e Indue- i i t r i a l Bank, w ith i t s lim it e d so u r c e s o f fu n d s , and w ith th e i Igreat n eed s o f in d u s tr y f o r th e s e fu n d s, to u nd ertak e th e r e s p o n s i b i l i t y o f fin a n c in g th e su g g e ste d b u ild in g o f a w areh ou se. I t w ould be more p r a c t ic a l i f th e governm ent, th rou gh th e M in is tr y o f D evelopm ent, p a r t ic ip a t e d w ith th e com m ercial banks and th e la r g e i n d u s t r i a l i s t s in e s t a b l is h in g a co r p o r a tio n to u n d ertak e t h i s f u n c t io n . The w arehouse r e c e ip t s would n o t o n ly h e lp advance c r e d it on com m od ities, but a ls o d e a lin g in th e w arehouse r e c e ip t s would be a s te p tow ards th e e s ta b lish m e n t o f a modern commodity exchange m ark et. The p u rp ose o f th e w r it e r in b r in g in g th e commer c i a l bank in to th e p ic tu r e i s to e s t a b l is h more in tim a te c o n ta c ts betw een them and in d u s tr y . F or t h i s purpose th e y sh o u ld come to g e th e r and a s s i s t in th e fin a n c in g o f new in d u s t r ia l com p anies. I t f o llo w s th a t in i t s e l f i t w i l l open a v a s t f i e l d o f u s e fu l c o o p e r a tio n and en d ea v o r, as i s th e c a s e o f most o f th e European c o u n tr ie s .25 .Repayment r e g u la tio n s The Bank’ s lo a n s a re rep a y a b le on m onthly o r annual 321 I The Economic D evelopm ent o f I r a q , l o o , c i t . 35 Lokanathan, op . c i t . . pp. 2 3 5 -2 8 2 . 1 3 7 payment p la n e , in a manner w hereby th e l a s t payment i s made, th e p r in c ip le and in t e r e s t w i l l be w r it t e n o f f c o m p le te ly . A d eb to r to whom a lo a n , redeem able in in s t a llm e n t s , h as b een made may redeem th e w hole or p a r t o f such lo a n b e fo r e e x p ir a tio n o f th e o r i g in a l p e r io d o f red em p tion . The Bank, in t h i s e a s e , may a c c e p t o r r e fu s e th e paym ent. I f th e Bank a c c e p ts I t , th e borrow er has t o pay one m onth's i n t e r e s t , s t a r t in g from th e d a te o f prem ature paym ent. The Bank may demand o f a d e b to r , who d e la y s an in s t a llm e n t when repayment i s d u e, th e w h ole o f th e lo a n even b e fo r e th e e x p ir a tio n o f th e o r ig in a l p e r io d o f redemp t i o n . The ren ew al o f th e w h ole or a p a rt o f a payment i s a c c e p te d but not f o r more than th r e e t im e s , w hich sh o u ld not ex ceed a th r e e y e a r s p e r io d . In s p i t e o f a l l th e s e r e s t r i c t i o n s and p r o t e c t io n s , th e amount o f t o t a l unpaid and renew ed paym ents in 1950 was 53 p er cen t o f th e t o t a l paym ents d u e .^ On th e o th e r hand, th e Bank to o k l e g a l p ro ced u res in two c a s e s o n ly and s o ld th e m ortgaged p r o p e r ty .3? 3^ The T hird Annual R eport o f th e I n d u s tr ia l Bank, o p . c i t . , p . 37 I b id . , p . 2 1 . 138 R ate o f I n t e r e s t and Other C o sts The Board o f D ir e c to r s s e t s th e d if f e r e n t r a t e s o f I n t e r e s t to be ch arged on d if f e r e n t ty p e s o f lo a n s . The I n t e r e s t ch arges a re c a lc u la t e d from th e d a te o f s ig n in g th e c o n t r a c t . Other ch a rg es to be added to th e c o s t o f th e lo a n a re: in su r a n c e , m ortgage, I n v e s t ig a t io n f e e s , sto r a g e and r e c o r d in g o f p a p e r s . The borrow er e i t h e r p ays t h e s e ch arges in c a sh or th e y a r e added, w ith i n t e r e s t , to th e o r ig in a l amount o f th e lo a n . There i s no le g a l maximum lim it fo r th e se c h a r g e s, but i t i s hoped th a t as lo n g as th e o b j e c t iv e o f th e Bank i s n ot to;m ake p r o f i t th e s e ch a rg es w i l l n o t be e x c e s s iv e . V. COLLECTION AND FORECLOSING- PROCEDURES When a d e b to r f a l l s to m eet any o f th e p r o v is io n s o f th e c o n tr a c t and d oes not make an a c c e p ta b le arrangem ent w ith th e Bank, f o r e c lo s u r e p ro ced u res may a r i s e . D e fa u lt o f Debt or In th e Law, By-Laws and o th e r r e g u la tio n s o f th e Bank, th e r e a re th r e e c a s e s w h ich are c o n sid e r e d to be d e f a u lt o f a d e b to r . These a re: I j 1 . I f th e borrow er f a l l s to pay th e in s ta llm e n t iw h o lly or p a r t ly , a f t e r r e c e iv in g one m onth’ s n o t ic e on 139 lo a n s rep a y a b le on an annual in s ta llm e n t b a s is . 2 . When th e v a lu e o f th e u n d er ly in g s e c u r it y f a l l s i i 15 p e r een t b elow i t s o r ig in a l v a lu e and th e d eb to r d o es not p la c e a d d itio n a l s e e u r lt y , o r pay th e d if f e r e n e e in c a s h . 3 . I f a d e b to r 's e n te r p r is e i s in a bad f in a n c i a l s i t u a t i o n , a s a r e s u lt o f bad management o r m isu se o f th e ow n ers, w hich makes c o n tin u a tio n o f b u s in e s s Im p o s sib le . F o r e c lo su r e S a le In Ir a q , th e r e i s no n eed f o r a co u r t Judgment to p reced e a f o r e c lo s u r e s a le a s in o th e r c o u n tr ie s . The f o r e c lo s u r e s a le s t a r t s d i r e c t l y a f t e r th e end of th e B an k 's n o t i c e . F o r e c lo su r e s a le o f Immovable p r o p e r ty . — Where th e r e i s a m ortgage on immovable p ro p erty o r r ig h t s r e la t in g to i t , th e Bank s t a r t s th e f o r e c lo s u r e s a le by dem anding, w ith a w r itte n a p p lic a t io n , from th e Tapu D ir e c to r a te , s a le o f th e p ro p erty a t p u b lic a u c tio n . The D ir e c to r a te sen d s a n o t ic e to th e borrow er o r h is r e p r e s e n t a t iv e to pay th e d eb t w ith in one w eek. I f th e d eb to r o r h is r e p r e s e n ta tiv e cannot pay in ca sh or o f f e r an a c c e p ta b le s e ttle m e n t, th e p u b lic a u c tio n s t a r t s by p u b lis h in g a n o t ic e in th e l o c a l new spapers o r any o th e r p u b lis h in g m eans, s e v e r a l days in j 1 ' I (advance o f th e s a l e . The p u b lic sh ou ld be w e ll inform ed jregard in g th e tim e , p la c e and n a tu re o f th e p u b lic s a l e . 1*K) F o r e c lo su r e s a le o f m ovable p r o p e r ty . — The Bank, In c a s e o f m ovable p r o p e r tie s o r p e r so n a l g u a r a n te e , p r ep a re s a b i l l c o n ta in in g th e d e t a i l s o f th e amounts to be c o l l e c t e d from th e d e b to r . The b i l l must be se n t to th e S h e r if f f o r c o l l e c t i o n . I f th e d eb to r s t i l l r e fu s e s t o p ay, th e s h e r i f f can put a l i e n on any p r o p e r ty o f th e d eb to r and s e l l i t a t p u b lic a u c tio n . The p u rch a ser can g e t a c le a r t i t l e a t o n c e . R ight o f r e c o u r s e . — In b o th c a s e s , i f th e m ortgaged p r o p e r t ie s do n o t r e a li z e enough t o pay th e d e b t, th e Bank can c o l l e c t th e d e f i c i t through a " d e fic ie n c y Judgm ent." f B u t, i f th e s a le p r ic e i s more th an s u f f i c i e n t t o pay th e o r ig in a l d e b to r and a l l o th e r c o s t s , th e su rp lu s must go to th e d e b to r , u n le s s th e r e a re cla im s o f o th e r p a r t i e s , in w hich c a s e , th e su r p lu s must be d e p o s ite d w ith th e c o u r t. On th e o th e r hand, i f th e m ortgaged immovable prop e r ty co u ld n ot be s o ld f o r a f a i r p r ic e , th e ow nership o f t h i s p ro p erty w i l l be tr a n s fe r r e d to th e Bank. The o r ig in a l owner has the r ig h t to pay h is d eb ts p lu s th e I n t e r e s t and any o th e r c o s t s , w ith in one y e a r and r e g a in th e t i t l e o f h is i p r o p e r ty . I t seems t h a t t h is p r o v is io n has ad van tages fo r th e d e b to r , a s he can p urch ase h is p ro p erty w ith in one y e a r . But h e r e a d is p u te m ight a r i s e when th e v a lu e o f th e 1^1 p ro p erty k eep s d e c lin in g c o n tin u o u sly and th e Bank s o ld th e p ro p e rty a f t e r one y e a r . I f t h i s h appens, what sh o u ld th e d eb to r pay? The d iff e r e n c e betw een h is o r ig in a l d e b t, and th e v a lu e o f th e p r o p e rty a t th e tim e th e debt f a l l s d u e, o r i t s v a lu e a f t e r one year? N e ith e r th e Law nor th e r e g u la t io n s o f th e Bank c o n ta in a c le a r p r o v is io n fo r t h i s problem . I t seem s l o g i c a l and f a i r th a t th e d eb to r sh ou ld ibe r e s p o n s ib le re g a rd in g o n ly th e d if f e r e n c e betw een th e o r ig in a l debt and th e v a lu e o f th e p ro p erty a t th e d a te o f th e f i r s t s a l e . V I. SU M M A R Y AND CONCLUSION A c r i t i c a l a n a ly s is o f th e I r a q i in d u s t r ia l c r e d it system has been s e t fo r th in th e p r e v io u s p a r ts o f t h i s c h a p te r . The h ig h p o in ts o f th a t system w i l l be summarized and e v a lu a te d in th e fo llo w in g p a g e s. Summary The I n d u s t r ia l c r e d it system in Ira q i s s t i l l in i t s in fa n c y . There a r e no sto c k m arket ex ch a n g es, o r investment^ or t r u s t com p anies. Most o f th e e n te r p r is e s a re fin a n c e d by owners through p a r tn e r s h ip s or c o r p o r a tio n betw een f r ie n d s . The com m ercial banks have no c o n n e c tio n or r e la t io n w ith in d u str y ; th e y a re con cern ed o n ly w ith e x ten d in g c r e d it to commerce. Some o f them may som etim es a c t as m id d le men In s e l l i n g com panies sh a re s a g a in s t a f ix e d com m ission. In th e m i d - t h i r t i e s , th e governm ent r e a liz e d th e la c k o f p r iv a t e c a p it a l funds and th e need f o r in d u s t r ia l idevelopm ent. -S u b seq u en tly, i t e s t a b lis h e d th e A g r ic u ltu r a l and I n d u s tr ia l Bank o f Iraq to ex ten d c r e d it to a g r ic u ltu r e and in d u s tr y . A lthough th e Bank p a r t ic ip a t e d in o r g a n iz in g some in d u s t r ia l e n t e r p r is e s , i t s e f f e c t in d e v e lo p in g In d u stry was v e r y lim it e d . The governm ent, in 19^0, se p a r a te d th e Bank in to two in depend en t B anks, th e A g r ic u l t u r a l Bank and th e I n d u s tr ia l Bank. The I n d u s t r ia l Bank d id not s t a r t i t s o p e r a tio n a s a se p a r a te bank u n t i l l a t e in 19^ 6, b eca u se o f th e w ar. The I n d u s t r ia l Bank i s managed by a Board o f D ir e c t o r s headed by th e G eneral D ir e c to r o f th e Bank. The o r i g in a l c a p it a l o f th e Bank was o n ly ID 5 0 0 ,0 0 0 , augmented in 195© to one m illio n I r a q i D in a rs. The Bank has supplem ented i t s fu n d s by b orrow ing from se m i-p u b lic and p r iv a t e i n s t i t u t i o n s . The F u n c tio n s o f th e Bank a re: to e s t a b lis h i t s own in d u s t r ia l e n t e r p r is e s , p a r t ic ip a t e in th e e sta b lish m e n t o f su ch e n t e r p r is e s , ex ten d c r e d it to i n d u s t r i a l i s t s and m erchants who d e a l w ith them , f a c i l i t a t e th e e x p o r ta tio n o f I r a q i I n d u s tr ia l p ro d u cts and th e im p o r ta tio n o f raw m ater i a l s , and to s e l l or ren t I n d u s t r ia l m achinery and j 1^3 equipment. | The B ank's lo a n s a re r e s t r i c t e d t o I r a q is . The Bank t I j&oes not g iv e lo a n s over ID 1 0 ,0 0 0 o r b elo w ID 100 t o any [person or company a t any tim e . In g e n e r a l, th e lo a n s o f th e Bank must be decured by f i r s t m ortgage. E v a lu a tio n During i t s sh o rt l i f e , w hich i s n ot over seven y e a r s, th e Bank has th u s f a r ren d ered a n o ta b le s e r v ic e t o in d u str y in s p i t e o f i t s in a d eq u a te f in a n c i a l r e s o u r c e s . B u t, th e Bank, l i k e o th e r governm ental i n s t i t u t i o n s , r e f l e c t s th e in e x p e r ie n c e and even th e co r r u p tio n p r e v a ilin g in th e econom ic, p o l i t i c a l , and s o c i a l a s p e c ts o f th e governm ental s tr u c tu r e . The bad a f f e c t o f t h e s e f a c t o r s on th e Bank i s c le a r m ain ly on two p o in ts ; management and c a p i t a l . The Bank management. — The Bank management la c k s th e in d u s t r ia l s p i r i t and th e p r a c t ic a l e x p e r ie n c e w hich a re so n e e e s s a r y fo r th e B ank's s u c c e s s . The a d m in is tr a to r s a re n o t a cq u a in ted w ith th e b u s in e s s w orld th o r o u g h ly , and th e y do n o t know w e ll th e in d iv id u a l b u s in e s s and c o n d itio n o f each in d u str y . M oreover, th e Bank la c k s a body o f e x p e r ts who can Judge new p r o p o s a ls , o f f e r a d v ic e , and do o th e r work fo r th e Bank. In many c a s e s th e D ir e c to r s p a ss on new p r o j e c t s w ith o u t th e b e n e f it o f ex p ert a s s i s t a n c e , and, a s a i__________________________________________________________________________________________________________________________________________________________________________________________________________________■ l i|4 r e s u l t , some p h a se s o f a p r o j e c t may he c o m p le te ly o v er lo o k e d . 38 C o n seq u en tly , th e M issio n o f th e I n te r n a tio n a l Bank recommended th a t: . . . th e B an k 's s t a f f . . . be r e o r g a n iz e d to g iv e g r e a te r r e s p o n s i b i l i t y t o th e head o f th e I n d u s t r ia l Schemes S e c tio n who sh ou ld be a p r o p e r ly q u a lif ie d man w ith broad in d u s t r ia l e x p e r ie n c e . Members o f th e I n d u s t r ia l Schemes S e c tio n sh ou ld have thorough t r a in in g and p r a c t ic a l e x p er ien ce in power and m ech an ical en g in e e r in g w ith s p e c ia l r e fe r e n c e to I n d u s t r ia l p la n n in g and la y o u t, and in o p e r a tio n s , management and c o n tr o l o f in d u s tr y w ith s p e e ia l r e fe r e n c e t o c o s t a c c o u n tin g .39 The Bank c a p i t a l . — The r e f l e c t i o n o f th e govern ment 1 s la c k o f good judgment i s more o u tsta n d in g in th e la c k o f th e B ank's c a p it a l. The governm ent h as been sp en d in g m illio n s o f D in ars on a s p e c ts o f secon d ary im portance t o th e p u b lic . Y et, a t th e same tim e th e governm ent i t s e l f d e p r iv e s th e Bank o f an ad eq u ate c a p it a l to a c h ie v e i t s f u n c t io n s th o r o u g h ly . The M issio n o f th e I n te r n a tio n a l Bank s u g g e s te d th a t: . . * The Developm ent Board p ro v id e th e means fo r grad u a lly In c r e a s in g th e B an k 's c a p it a l by about ID 5 ,0 0 0 ,0 0 0 w hich th e Bank would be a u th o r iz e d to u se fo r th e making o f lo a n s t o , and In v estm en ts in , in d u str y w ith in th e framework o f an o v e r a ll program approved by th e Developm ent Board. < 3 0 The Economic Developm ent o f I r a q . o p . c l t . , p . 2 9 5 . 39 Loo. c l t . I b i d ., p . 3 9 . 145 To se c u re more fu n d s (1 ) th e Bank can borrow from th e I n te r n a tio n a l Bank by th e gu a ra n tee o f th e Ir a q i governm ent. (2 ) The Bank sh o u ld and must s e l l I t s sh a r e s In th e compan i e s w hich su cceed in t h e ir o p e r a tio n s and can co n tin u e b u s in e s s w ith o u t th e a s s is t a n c e o f th e Bank. A ls o , (3 ) th e com m ercial banks must be in d u ced and encouraged by la w to d is c o u n t th e sh o r t term n o te s r e c e iv e d by th e Bank. In s h o r t, th e Laws o f th e Bank must be r e v is e d to a v o id th e d e f e c t s w hich have appeared in p r a c t ic e , e s p e c i a l l y th e m anagem ents la c k o f s c i e n t i f i c and p r a c t ic a l in d u s t r ia l know ledge and th e inadequacy o f fund s o u r c e s . CHAPTER V TH E M O R T G A G E BANK O F IRAQ 1 The M ortgage Bank o f Iraq was e s t a b lis h e d by Law No. 18 in 19*4-8, t o p r o v id e c r e d it secu red by r e a l e s t a t e m ort g a g e s . The main o b je c t iv e o f th e Bank i s to h elp c o n str u c t Lew h o u sin g u n i t s , p a r t ic u la r ly f o r th e lo w - and m id d le - incom e grou p s. Housing c o n d itio n s a re o f g r e a t Im portance to th e s o c i a l and econom ic w e ll- b e in g o f any c o u n tr y . A c c o rd in g ly , th e governm ent, in many c o u n t r ie s , has e n te r e d th e home m ortgage m arket, e it h e r t o c lo s e th e gap betw een th e demand fo r lo a n s and i t s su p p ly or t o encourage th e p r iv a te le n d in g i n s t i t u t i o n s t o make t h e ir fu n d s a v a ila b le f o r th a t m arket. In Ira q , w here th e r e i s a la c k o f p r iv a te in v estm en t in th e home m ortgage m arket and where th e r a t e o f I n t e r e s t * ch arged by in d iv id u a ls i s v e r y h ig h , th e government e s ta b l i s h e d th e M ortgage Bank to remove th e s e d e f e c t s . S o, th e Bank i s th e s o le f in a n c i a l i n s t i t u t i o n in th e home m ortgage m arket in Ira q . This ch a p te r i s d ev o ted t o exam ining and a n a ly z in g , f i r s t , th e p r in c ip le s o f h o u sin g c r e d it , e s p e c ia ll y th e in stru m e n ts o f fin a n c e , th e ty p e s o f m ortgages and so u r c e s ! I o f fu n d s; seco n d , th e home fin a n c e c o n d itio n s and so u r c e s w p r io r to th e e s ta b lish m e n t o f th e M ortgage Bank; t h ir d , th e e sta b lish m e n t o f th e Bank; fo u r th , th e c r e d it p o lic y and p roced u res o f th e Bank; f i f t h , th e c o l l e c t i o n and f o r e c lo s ure p ro ced u res; t h i s a n a ly s is i s fo llo w e d by a summary o f th e c h a p te r . I . PRINCIPLES O F H O USING - CREDIT The p r a c t ic e o f p le d g in g r e a l p r o p e r ty as s e c u r it y , fo r th e advance o f funds in co n n e ctio n w ith b o th th e con s t r u c t io n p r o c e s s and th e fin a n c in g o f ow n ersh ip , i s as o ld a s p r o p e r ty i t s e l f . T his p a rt o f t h i s ch a p te r i s d ev o te d to th e d is c u s s io n o f th e in stru m e n ts commonly u sed in h ou sin g fin a n c e , and th e c h ie f so u r c e s o f fu n d s f o r f in a n c in g . t The Instrum ent o f F in ance When a p u r c h a se r 's r e s o u r c e s a re in a d eq u a te, he m ight seek o th e r s w i l l i n g t o j o in r e so u r c e s w ith h i s , he m ight depend on b orrow in g, or he m ight u se b o th o f th a n . As t h i s t h e s i s i s p a r t i a l l y con cern ed w ith th e Mort gage Bank, th e d is c u s s io n h ere w i l l d e a l not w ith a l l th e i fin a n c in g in str u m e n ts, b u t w ith th e m ortgage o n ly , a s a p r o c e s s o f fin a n c in g home ow nership and fin a n c in g new con s t r u c t io n and im provem ents. li*8 Home Ownership Loans In i t s e a r l i e s t form , th e m ortgage was a d eed , th a t i s , i t tr a n s fe r r e d to th e m ortgagee b o th t i t l e and p o s s e s s io n and occup an cy. Today, i t i s c o n sid er ed more in th e n atu re o f a l i e n upon th e p ro p erty to secu re th e perform ance o f o b lig a t io n s , s p e c if i e d in th e in stru m e n t. On th e o th e r hand, in c a s e o f d e f a u lt , th e c r e d it o r has o n ly th e r ig h t to demand t h a t th e p led g ed p ro p erty be o ffe r e d f o r s a le t o m eet th e o b lig a t i o n s . Types o f m o rtg a g es. - - M ortgages may be c l a s s i f i e d a c c o rd in g to t h e i r d eg ree o f p r i o r i t y or to t h e ir method o f repaym ent. A ccording to t h e ir p r i o r i t y , th e r e a re two k in d s , th e s e n io r m ortgage and ju n io r m ortgage. The Ju n ior m ortgage i s th e one w hich i s su b o rd in a te t o a m ortgage o r m ortgages on th e same p r o p e r ty . I t s y i e l d i s u s u a lly h ig h er than s e n io r m ortgage as i t c o n ta in s more r i s k , and i t i s not w r it t e n fo r lo n g p e r io d s . In r e s p e c t o f th e c l a s s i f i c a t i o n a cco rd in g to repay ment m ethods, th e r e a re fo u r ty p e s o f m ortgages: s t r a ig h t term , p a r t ia l paym ent, f u l l y a m o rtized , and “p a st d u e1 * m o rtg a g es. In a s t r a ig h t term m ortgage th e w hole lo a n f a l l s due w a t th e end o f a s t a t e d p e r io d . Accrued i n t e r e s t i s p a y a b le e i t h e r a t s ta te d in t e r v a ls d u rin g th e term or p a y a b le in one payment a t th e en d . The u se o f t h i s ty p e o f agreem ent H . . . le a v e s some u n c e r ta in ty o r c r e a te s an advantage fo r one o f th e p a r t i e s . N o tw ith sta n d in g i t s In a p p r o p r ia te n e ss, th e u se o f th e s tr a ig h t-te r m m ortgage p e r s i s t s ." 3 * I f p a r ts o f th e d eb t a re r e p a id d u rin g th e term o f th e m ortgage and p a r ts rem ain to be p a id when th e d eb t f a l l s d u e, i t i s c a lle d a p a r t i a l l y am ortized m ortgage. T hese paym ents u s u a lly f a l l on a n n u a l, sem i-an nu al., o r q u a r te r ly d a t e s . R e c e n tly , th e m onthly am ortized m ortgage h as b een , and i s b e in g , u sed more and more fr e q u e n tly in m ortgage lo a n s on homes; i t i s c a lle d a f u l l y am o rtized m ortgage. A "past due" m ortgage u s u a lly o c c u r s when th e m ort gage i s p a y a b le on demand o r a f t e r a v e r y sh o rt term . Mr. F is h e r w e ll d e s c r ib e d t h is k in d o f m ortgage by s t a t i n g th a t: . . . A fte r e x e c u tio n o f th e agreem ent o r upon e x p ir a t io n o f th e term , th e o b lig a t io n i s c a r r ie d a s an ’ op en 1 o r *past d u e’ m ortgage. In some in s ta n c e s th e borrow er k eep s h is o b lig a t io n in good sta n d in g m erely by p a y in g i n t e r e s t a t a g reed in t e r v a ls ; in o th e r s he a ls o pays som ething tow ard a m o r tiz a tio n . In b o th c a s e s b oth p a r t ie s assum e th a t th e lo a n w i l l n o t be c a lle d and ^ E rn est M. F is h e r , Urban R eal E s ta te M arkets (New York: N a tio n a l Bureau o f Economic R esea rch , I n c ., 1 9 5 1 ), p . 2 0 . seldom i s . . . .2 The "p ast due" m ortgage g iv e s g r e a t c o n tr o l o v er th e lo a n , by e n a b lin g th e enforcem ent o f any adjustm ent when n eed ed . G on etru otion and new im provem ents lo a n s . — M ortgages m ight a ls o b e u sed t o se c u re lo a n s f o r th e purpose o f f in a n c in g new c o n s tr u c tio n and new im provem ents. The borrow er in t h i s ty p e o f lo a n u s u a lly d o es n ot r e c e iv e th e f u l l amount o f th e lo a n when he s ig n s th e lo a n a greem en t. The lo a n i s advanced to him in s t a te d am ounts a t d e f i n i t e s t a g e s in th e c o n s tr u c tio n p r o c e s s , w ith th e f i n a l advance b e in g made a t th e tim e th e work i s f i n i s h e d . A m ortgage o f t h i s ty p e can be c o n sid e r e d s im ila r to one in w hich th e f u l l amount i s p a id to th e borrow er a t th e tim e o f th e draw ing up o f th e agreem ent and a p a rt r e d e p o s ite d w ith th e c r e d it o r as a p le d g e to in s u r e th e co m p letio n o f th e b u ild in g .3 T rust deed in th e n a tu re o f a m o rtg a g e. — T h is In stru m ent i s a p p lie d in t r a n s a c tio n s in v o lv in g la r g e am ounts. I t p r o v id e s fo r th e conveyance o f t i t l e to a th ir d p erso n who h o ld s i t in t r u s t a s s e c u r it y f o r th e payment o f 2 I b id . , p . 23* 3 Arthur M. W einer, and Homer H oyt, P r in c ip le s o f itlrban R eal E s ta te (New York: The Ronald P r e ss Company, 1 9 ^ 8 ), p . 283. 1 5 1 an o b lig a t io n o f a borrow er. Upon payment o f th e d eb t In accord an ce w ith th e term s o f th e agreem ent, th e t r u s t e e reco n v ey s I t to th e borrow er. In c a se o f d e f a u lt , th e t r u s t e e may s e l l th e p ro p erty and ap p ly th e p ro ceed s to payment o f th e d e b ts , and I f th e r e i s a su r p lu s i t has t o be I p a id to th e b orrow er. ■ S o u rces o f Funds The most im portant f in a n c ie r s o f r e a l e s t a t e p r o j e c t s a re in d iv id u a ls , com m ercial b ank s, l i f e in su ra n ce com p anies, I s a v in g s and lo a n a s s o c ia t io n s , sa v in g s b an k s, m ortgage com panies, t r u s t com panies, and governm ent a g e n c ie s . I n d iv id u a ls . — The o u tsta n d in g f e a tu r e le n d in g by p r iv a t e I n d iv id u a ls i s th a t th e y tak e g r e a te r r is k s than co u ld be a ccep ted by le n d in g i n s t i t u t i o n s . As th e y do not have f a c i l i t i e s f o r se r v in g lo a n s , th e y may not w ish to be b o th er ed by m onthly paym ents and o fte n p r e fe r lo a n s w ith term s o f m oderate le n g th , w h ich p r o v id e f o r p a r t i a l a m o rti z a tio n or no a m o r tiz a tio n . S avin gs and lo a n a s s o c i a t i o n s . — S a v in g s and lo a n a s s o c ia t io n s ^ a r e co n sid er ed to be one o f th e m ost im portant so u r c e s o f funds fo r home ow n ersh ip . The m a jo r ity o f t h e ir __________________ I t 4 ; In E ngland th ey a re c a lle d '’B u ild in g S o c i e t i e s . " I b id . , p . 2 9 0 . 152 lo a n s a re made a g a in s t s e c u r it y o f s in g le - f a m ily h o u se s. They s ta r te d a s sm a ll m utual b e n e f it s o c i e t i e s , b u t, to d a y , th e y n e a r ly resem b le sa v in g s b an k s. (S a v in g s and lo a n a s s o c ia t io n s have p io n e er ed in th e u se o f th e lo n g -ter m lo a n c o n tr a c t c a l lin g f o r eq u al m onthly paym ents and f o r f u l l a m o r tiz a tio n ) .5 Banks and t r u s t com panies. — B ecause o f th e demand n a tu r e , le g a l and custom ary, o f com m ercial bank d e p o s it s , th e banks in v e s t o n ly a lim it e d p o r tio n o f t h e ir fu n d s in home m ortgage, a lth o u g h t o a l e s s e r e x t e n t , th e same i s tr u e co n cern in g th e fu n d s o f sa v in g s banks and t r u s t com p anies. L ife in su ra n ce com p anies. — L ife in su ra n ce com panies a r e a v i t a l p a r t o f th e m ortgage m arket. They f o llo w a c o n s e r v a tiv e le n d in g p o lic y , and th e y a re r e g u la te d by law s co n cern in g th e ty p e s o f m ortgage th ey may h o ld . B ecau se o f t h e i r c a u tio u s le n d in g o p e r a tio n s , t h e i r r a te o f i n t e r e s t i s r e l a t i v e l y lo w . Other p r iv a t e so u rc es o f funds a re o f minor im por ta n c e and th ey can be n e g le c te d . Government a g e n c ie s . — The governm ent, in many c o u n tr ie s , p la y s a le a d in g r o le in home f in a n c in g , e it h e r by J r e g u la tin g th e home m ortgage or by e s t a b lis h in g t h e i r own | 1 ' ' " T . -1 1 I., i R ichard U. R a t c l i f f , Urban Land Econom ics (New ;York: M cGraw-Hill Book Company, I n c ., 1 9 ^ 9 ), P • . 153 le n d in g a g e n c ie s o r by u sin g b o th o f them . ^ The main o b j e c t iv e o f governm ent I n te r v e n tio n i s to r a i s e th e h o u sin g stand ard by su p p ly in g ad eq uate fu n d s f o r h o u sin g lo a n s or by s e t t i n g a stan d ard d e s ig n fo r c o n str u c t i o n . The governm ent m ight a ls o in su r e th e m ortgages o f p r iv a t e le n d e r s t o in c r e a s e th e su p p ly o f fun ds in th e jU nited S t a t e s . T h is ste p f a c i l i t a t e d to a g re a t e x te n t Jmortgage a c t i v i t i e s and h e lp e d b oth le n d e r s and b o rro w ers. But some w r ite r s b e lie v e th a t: . . . c o n tin u a tio n o f m ortgage In su ra n ce as a permanent p a r t o f our home fin a n c in g p a tte r n w i l l b rin g problem s t h a t may n ot be so e a s i l y so lv e d u n le s s c o n se r v a tio n r u le s i t s a d m in is tr a tio n . Too much c o n se r v a tism , o f c o u r s e , d e f e a t s i t s p u r p o s e s .7 At any r a t e , th e home m ortgage m arket i s s i g n i f i c a n t b eca u se i t p la y s so la r g e a r o le in new h o u sin g in v estm en t and th u s in th e p r o v is io n o f e s s e n t i a l l i v i n g accom m odations fo r a l l th e f a m il ie s o f th e n a tio n . And b eca u se o f th e im portan ce o f th e h e a lth o f th e h o u sin g m arket to th e s o c i a l and econom ic w e ll-b e in g o f th e co u n try , th e r e has b een a g r e a t d e a l o f governm ental tam pering w ith th e m ortgage ^ In th e U .S ., th e governm ent a g e n c ie s in th e home m ortgage m arket a r e : F ed era l Home Loan Bank System , F ed er a l S a v in g s and Loan A s s o c ia t io n s , F ed era l S a v in g s and Loan In su ran ce C o rp o ra tio n , Home Owners’ Loan C orp oration and F ed e r a l H ousing A d m in istr a tio n . 7 Henry E. H oagland, R eal E sta te P r in c ip le s (New ] York: M cGraw-Hill Book Company, I n c . , 19^9) * p . 5 9 0 . j IS* market through legislation and statutory modifications of mortgage law. II. HOME FINANCE PRIOR TO ESTABLISHMENT OF THE MORTGAGE BANK OF IRAQ The market for financing home ownership or home con struction was as narrow as the other parts of the financial market. Home owners depended mainly on their funds in undertaking a new construction or in buying houses. But this does not mean that there was no house financing at all. There were quite a few individuals, mainly Jews, who Invested their funds in home mortgages. They charged a high rate of interest which sometimes was over 20 per cent. Individual investors were not subject to regulations and they undertook their business without a permit or license from the government. The mortgages, in most cases, were renewed many times, without limits. This practice resulted in the loss of homes of many poor people after the accumula tion of the unpaid interest. The commercial banks did not grant credit of this type, either medium or short-term. Consequently, the Jews i were the main source of housing credit, prior to the establishment of the Mortgage Bank. 155 I I I . T H E ESTABLISHMENT O F THE M O R TG A G E BANK O F IRAQ The la n d ten u r e system p r io r to th e fo u n d a tio n o f th e Land Survey Com m ittees d u rin g th e t h i r t i e s was in a s t a t e o f c o n fu s io n . P r iv a t e ly owned la n d s w ere r a r e and i t was hard to p rove ow nership.® Under su ch c o n d itio n s , i t was d i f f i c u lt to e s t a b l i s h a hank t o undertake th e r e s p o n s i b i l i t i e s o f advancing c r e d it to in c r e a s e home ow nership o r to en cou rage th e c o n s tr u c tio n o f new d w e llin g u n it s . B u t, a f t e r th e su rvey com m ittees c le a r e d some o f th e in v o lv e d la n d ten u r e sy ste m , and a f t e r th e governm ent r e a liz e d th e d anger o f le a v in g th e home ow ners under th e b le s s in g o f th e u s u r e r s , th e Id ea o f e s t a b lis h in g a m ortgage bank grew more u r g e n t. In 1 9 4 8 , th e governm ent p a ssed th e Law o f th e E stab lish m e n t o f a M ortgage Bank t o h elp th e f i x e d Income groups t o own homes and t o h e lp b r in g down th e r a t e o f i n t e r e s t on m ortgages through ad vancing c r e d it s or form in g c o n s tr u c tio n c o r p o r a tio n s or c o o p e r a tiv e s . In th e rem ainder o f t h i s ch a p te r, th e d is c u s s io n w i l l in c lu d e bank management, so u r c e s o f fu n d s, fu n c tio n s o f th e Bank, c r e d it p o l i c y and fo r e c lo s u r e p ro ce d u r e s. © G f. a n t e , p . ? . 156 ' Bank Management The hank I s managed h y a Board o f D ir e c to r s , composed o f th e G eneral D ir e c to r o f th e Bank, and fo u r a p p o in tee members. The G eneral D ir e c to r i s a p p o in ted by a R oyal D ec ree , and th e fo u r members by an o rd er from th e M in is te r jof F in a n c e . The term o f membership i s two y e a r s . The Members sh ould have e x p e r ie n c e in f i n a n c i a l and econom ic a f f a i r s and sh o u ld be I r a q is . Each member, in c lu d in g th e G eneral D ir e c to r , i s e n t i t l e d t o ID 250 a s an annual s t ip e n d . I t must be n o tic e d th a t n e ith e r th e Law nor th e By- Laws o f th e M ortgage Bank r e q u ir e any s p e c ia l group or a m in is t r y to be r e p r e se n te d on th e Board o f D ir e c to r s . M oreover, th ey do not d is t in g u is h betw een th e annual a llo w ance o f th e member who i s a governm ent o f f i c i a l and one who I s n o t . In c a s e s o f b o th th e A g r ic u ltu r a l Bank and Indus t r i a l Bank th e s e m a tters w ere taken in t o c o n s id e r a tio n . To p r e v e n t f a v o r it is m , th e Law and th e By-Laws o f th e Bank fo r b id th e e x te n d in g o f c r e d it s to th e members o f th e Board, t h e ir son s or w iv e s , and p rev en t s e l l i n g any p ro p erty o f th e Bank t o any member or to any o f h is c lo s e r e l a t i v e s . The fu n c tio n s and a u t h o r it ie s o f th e Board a re: o p en in g b ra n ch es, d eterm in in g from tim e t o tim e th e r a t e o f , i n t e r e s t and o th e r f e e s to be ch arged , a p p o in tin g th e 1 5 7 I n v e s t ig a t io n co m m ittees, is s u a n c e and s a l e o f d e b e n tu r e s, w r itin g o f f bad d e b ts , and a l l m a tters co n cern in g th e o f f i c i a l s o f th e Bank. The Board may d e le g a te some o f i t s { a u th o r itie s to th e G eneral D ir e c to r o f th e Bank. As th e Bank s ta r t e d i t s a c tu a l o p e r a tio n s e a r ly in 1950» and a s i t h a s v e r y lim it e d f in a n c i a l a s s e t s , no branch has y e t been op en ed . But in th e b e g in n in g o f 1951» th e Bank a u th o r iz e d th e Branch o f th e A g r ic u ltu r a l Bank in B asra to be i t s r e p r e s e n ta tiv e in t h i s p r o v in c e . I t i s hoped th a t a f t e r r e c e iv in g a l l i t s a u th o r iz e d c a p i t a l , th e Bank w i l l open many bran ch es in th e main c i t i e s w here th e need f o r 1 h o u sin g c r e d it i s g r e a t. S o u rces o f Funds The B ank's so u r c es o f fun ds a re th e c a p it a l, i t s a u th o r ity to borrow , a c c ep ta n ce o f d e p o s it s and th e in t e r e s t and o th e r ch a r g e s. C a p ita l. — The a u th o r iz e d c a p it a l o f th e Bank was one m illio n Ir a q i D inars to b e p ro v id ed by th e governm ent a s a lo a n w ith o u t i n t e r e s t . The term o f th e lo a n i s n ot in d ic a t e d in th e Law o f th e Bank, but i t i s u n d erstood t o be f o r s e v e n t y - f iv e y e a r s , s im ila r to th a t o f th e I n d u s tr ia l and A g r ic u ltu r a l B anks. But in s p it e o f th e f a c t t h a t th e 1 Law o f th e E sta b lish m en t o f th e Bank h as been c o n sid e r e d j s v a l i d s in c e November, 19^-8, and in s p i t e o f th e f a c t th a t j 158 th e Bank s ta r te d I t s a c tu a l o p e r a tio n s in th e b e g in n in g o f <1950, th e governm ent d id not p a y -ln any p a r t o f th e c a p it a l / o f th e Bank u n t i l March, 1951* when th e Bank r e c e iv e d ID 1 0 0 ,0 0 0 o n ly , a s p a rt o f i t s c a p i t a l . On th e o th e r hand, a s a r e s u lt o f th e recom m endation o f th e M issio n o f th e I n te r n a tio n a l Bank, th e nom inal c a p it a l o f th e Bank was in c r e a s e d , in th e b eg in n in g o f 1952, t o two m illio n Ir a q i D in a r s. At any r a t e , th e p a id - in c a p it a l o f th e Bank up t o March, 1 9 5 2 , was o n ly ID 1 0 1 ,2 0 0 out o f a nom inal c a p it a l o f two m illio n I r a q i D in a rs. Comparing th e g r e a t n eed f o r h o u sin g c r e d it w h eth er f o r c o n s tr u c tio n o r b u yin g new homes, th e two m illio n D in a r s, even i f i t i s a l l p a id - in , i s i n s u f f i c i e n t . The m ortgage market n eed s a t l e a s t f i v e m illi o n D in a rs, e s p e c i a l l y a f t e r th e w ith d raw al o f m ost of th e p r iv a te fu n d s d ev o ted to home m o rtg a g es. The re a so n s f o r t h is w ith d raw al w i l l be d is c u s s e d l a t e r . 9 Borrow ing. — A r t ic le VI o f th e Law o f th e Bank a u th o r iz e d th e Board o f D ir e c to r s to is s u e bonds g u aran teed by th e governm ent. The ap p roval o f th e C ou n cil o f M in is te r s I s r e q u ir e d b e fo r e s te p s can b e taken in t h i s r e s p e c t . The ^ SH♦ a n t e . , p . 1.6#. j ) 159 governm ent d oes not g u aran tee any r a te o f in t e r e s t to th e h o ld e r o f th e b o n d s. The maximum l im it o f th e v a lu e o f bonds to be is s u e d i s not f ix e d by th e Law. So f a r , th e \ Bank has n o t is s u e d d e b e n tu r e s. The p r e s e n t w r ite r f e e l s t h a t , in Ira q , where in d iv id u a ls h e s i t a t e to in v e s t t h e ir money in b on d s, i t i s n e e e s s a r y to f a c i l i t a t e t h i s borrow ing f u n c tio n , and t h e governm ent sh o u ld gu aran tee a c e r ta in r a t e o f in t e r e s t to th e h o ld e r s as i t i s d oin g to th e p r in c ip a l o f th e bonds to be is s u e d by th e I n d u s tr ia l Bank. M oreover, as law s a re u s u a lly en a cted to r e g u la te p r e s e n t and fu tu r e n e e d s, a d iv i s i o n must be added to th e Law o f th e Bank t o li m i t i t s borrow in g a b i l i t y up to th r e e o r f i v e tim e s i t s c a p it a l and s u r p lu s . In th e f i r s t year o f i t s o p e r a tio n , th e Bank fin a n c e d I t s n eed s by borrow ed funds and a c c ep ta n ce o f d e p o s its o n ly , a s th e government d id not p a y -ln any o f i t s a u th o r iz e d c a p i t a l . The Bank, in O ctober 19^9* borrow ed from th e N a tio n a l Bank o f Iraq ID 2 5 0 ,0 0 0 a t 3 p er cen t I n t e r e s t and f o r a term o f one y e a r . The Bank w ithdrew o n ly h a lf o f t h i s amount in th a t y e a r . The lo a n was ex ten d ed tw ic e and was w ithdraw n w h o lly . The Bank, up to March, 1 952, p a id ID 1 ^ ,1 0 ^ as i n t e r e s t to th e N a tio n a l Bank, w hich o th e r w ise would have been added to I t s su rp lu s and In crea sed i t s 160 f i n a n c i a l a b i l i t y , i f th e governm ent had p a id th e B an k 's a u th o r iz e d c a p it a l or p a rt o f i t . The burden of o p e r a tin g on borrow ed c a p it a l has been tr a n s fe r r e d , n a tu r a lly , from th e M ortgage Bank to th e b o rro w ers, who a r e in g e n e r a l th e low -incom e group. The C ou n cil o f M in is te r s , a t th e end o f 1952, au th o r iz e d th e M in is te r o f F in ance to charge n o t more than 2 1 /2 p er cen t on any lo a n exten d ed to th e governm ent owned banks. R e s p e c tiv e ly , th e M ortgage Bank hopes t o u se t h is advantage by re d u cin g th e I n t e r e s t r a t e on i t s borrow ed fu n d s from th e N a tio n a l Bank and by red u cin g th e r a te ch arged by th e M ortgage Bank i t s e l f on i t s le n d in g . D ep osit A ccep ta n ce. — B e sid e i t s le n d in g f u n c t io n , th e Bank can a c c e p t th e d e p o s it s o f in d iv id u a ls o r sem i- governm ent i n s t i t u t i o n s . In th e f i r s t y e a r o f i t s e x is te n c e th e Bank co u ld n ot a ccep t d e p o s it s from in d iv id u a ls a s i t had n ot y et r e c e iv e d any amount o f i t s c a p i t a l . B u t, th a t y e a r , th e Bank came in to agreem ent w ith th e "Minors A ff a ir s D ir e c to r a te " to a c c ep t d e p o s it s o f th e l a t t e r w ith an I n t e r e s t re.te o f k p e r c e n t . The t o t a l amount d e p o s ite d w ith th e Bank under t h is agreem ent, up to March, 1 9 5 2 , was ID 331*000. These d e p o s its w ere v er y h e lp f u l f o r th e i o p e r a tio n o f th e Bank, w hich was in g r e a t need o f fu n d s . j T o ta l in t e r e s t p a id on t h e s e d e p o s its up to th e above 161 m entioned d a te was ID 2 2 ,9 0 6 . T ogether w ith in t e r e s t p a id to th e N a tio n a l Bank, t h i s amount consumed a l l th e p r o f i t o f th e M ortgage Bank and caused l o s s e s in th e f i r s t y e a r . * T his s it u a t io n sh o u ld u rge th e governm ent to pay th e nom inal c a p it a l o f th e Bank r ig h t away. T h is would remove th e burden o f th e h ig h i n t e r e s t r a te now charged by th e Bank on i t s le n d in g in o rd er to com pensate f o r th e I n t e r e s t i t I s p a y in g on i t s b orrow in g. I n te r e s t and o th e r c h a r g e s. — I t i s th e a u th o r ity o f th e Board to f i x th e i n t e r e s t r a t e on th e Bank1s lo a n s from tim e to tim e . A fte r th e e sta b lish m e n t o f th e Bank, t h i s r a t e was 7 p er c e n t to 1953* A lthough t h i s r a te i s c o n sid e r a b ly low compared to th a t charged by th e u s u r e r s , w hich ra n g es from 10 to 20 p er c e n t , i t i s s t i l l h ig h , c o n s id e r in g th e o b j e c t iv e o f th e Bank i s t o h elp in d iv id u a ls r a th e r than t o make p r o f i t . The Bank*s rea so n f o r su ch a h igh r a t e i s b eca u se i t i s o p e r a tin g on borrowed c a p i t a l . At th e end o f 1 9 5 2 , th e C ou n cil o f M in is te r s f ix e d a maximum r a t e o f 5 p er cen t to be ch arged by th e M ortgage Bank on i t s lo a n s . The ip resen t in t e r e s t r a t e i s -5 p e r c e n t. The Bank, m oreover, ch a rg es th e borrow er in v e s t ig a t io n f e e s , am ounting to l e s s than two D in a rs f o r each a p p lic a t io n . The t o t a l accum ulated retu rn o f th e Bank from th e 162 I n t e r e s t r a te up to March, 1 9 5 2 , was ID 7 6 , *4-29, w h ile th e accum ulated r e tu rn from th e in v e s t ig a t io n f e e s was ID 1,3*4-5- I t seems from th e above a n a ly s is th a t th e Bank has o n ly ID 700,63*4-» t o be u sed f o r i t s p u r p o se s, r e p r e s e n tin g i t s p a id - in c a p i t a l , b orrow in g, f ix e d d e p o s it s and th e accum ulated p r o f i t s . But th e Bank has a lr e a d y g ra n ted ID 6 1 1 ,7 7 5 in lo a n s . T h e r efo re , u n le s s th e governm ent fu r n is h e s th e Bank w ith more fu n d s, th e Bank may fin d i t d i f f i c u l t to c o n tin u e i t s o p e r a tio n . The Bank1s F u n ctio n s T ogether w ith i t s le n d in g f u n c t io n , th e Bank can (1) e s t a b l i s h In su ra n ce or c o n s tr u c tio n com p anies, (2 ) p a r t i c i p a te in t h e ir e s ta b lis h m e n t, (3) b u ild new d w e llin g u n it s f o r s a l e to th e p u b lic , and (* » -) und ertak e some o f th e com m ercial banking o p e r a tio n s .-*-® These fu n c tio n s w i l l be d is c u s s e d in some d e t a i l im m ed ia tely . G ranting lo a n s . — The main fu n c tio n o f th e Bank i s to advance lo a n s to th e p u b lic a g a in s t s e c u r it y o f r e a l e s t a t e m ortgage. The Law d o es not r e q u ir e th a t t h i s lo a n A l-W aqayi'a A l-I r a q iy a No. 2672 o f O ctober 2 3 , 19*4-8, Law o f th e E sta b lish m en t o f a M ortgage Bank, No. 18 of| 19*4-8 (Baghdad: governm ent P r e s s , 19*48), A r t ic l e s I and V, j and A l-W aqayi’ a A l-I r a q ly a No. 3075 o f March 20, 1 9 5 2 , The j Amendment Law o f th e E sta b lish m en t o f a M ortgage Bank No. 22 o f 1 9 5 2 ( Baghdad: governm ent P r e s s , 1 9 5 2 ). 163 sh o u ld be used f o r th e c o n s tr u c tio n o f homes o r f o r b u yin g lan d on w hich to b u ild a home. But th e amendment o f th e Law s t a t e s c le a r ly th a t p r e fe r e n c e sh ou ld be g iv e n to lo a n s w ith th e o b je c tiv e o f home c o n s tr u c tio n . In ord er to encourage th e c o n s tr u c tio n o f homes and t o in s u r e th a t th e borrow er u s e s th e borrow ed fun ds in t h is m anner, th e Bank fo llo w s th e p r in c ip le o f p a y in g th e borrow er p a r t ia l payment o f h is lo a n , when th e c o n s tr u c tio n o f a c e r ta in p a r t o f th e home i s com p leted . M oreover, th e Bank d oes not ex ten d i t s lo a n s to home owners o n ly , b u t a ls o t o th o s e who want to b u ild h o s p it a ls and s c h o o ls . There i s no d iv is io n in th e B ank's Law or i t s R e g u la tio n s to advance lo a n s fo r com m ercial b u ild in g . But i t seem s th a t th e Bank can make such lo a n s a s lo n g as A r t ic le I o f i t s Law s t a t e s fr a n k ly th a t th e o b je c t iv e o f th e Bank i s to le n d to I r a q i in d iv id u a ls o r com panies a g a in s t r e a l e s t a t e m ortgages^* w ith o u t m en tion in g any r e s t r i c t i o n s re g a rd in g th e u se o f th e lo a n s . Up to March 1952, th e t o t a l o u tsta n d in g Bank lo a n s amounted to ID 6 1 1 ,7 7 6 . The Annual R ep orts o f th e Bank have not c l a s s i f i e d t h e s e lo a n s a cco rd in g to t h e i r u s e , so i t i s hard to s t a t e how much o f t h i s amount was used f o r th e 11 Loe. c i t . I 16k c o n s tr u c tio n o f d w e llin g u n it s and how much was u sed fo r o th e r p u rp o ses. However, th e r e p o r ts d is t in g u is h e d betw een lo a n s g ra n ted to r e p la c e o ld m ortgages and new lo a n s . In 1 9 5 2 , th e number o f lo a n s advanced was 820, t o t a l i n g ID 3^8,785* The number o f lo a n s gran ted to r e p la c e o ld m ortgages was 6l9» t o t a li n g ID 2 7 6 ,2 2 5 ; w h ile th e number o f new lo a n s was 2 0 1 , am ounting to ID 7 2 ,5 6 0 . ^ I t a p p e a rs, th e n , th a t th e lo a n s gra n ted to r e p la c e o ld m ortgages w ere f a r ah ead , In number and amount, o f th e new lo a n s . T h is s it u a t io n had i t s r e a s o n s . L iq u id a tio n o f th e J e w s1 p r o p e r t ie s . — S in c e 19^8, th e J ew ish p e o p le have s t a r t e d to liq u id a t e t h e ir p r o p e r - i i t i e s , and, as th ey w ere th e m ajor f in a n c ie r s in th e home m ortgage m arket, t h i s c r e a te d a g r e a t demand f o r fu n d s and a g r e a t su pp ly o f h o u ses fo r s a l e . C o n seq u en tly , many p eo p le h a ste n e d to th e Bank a sk in g f o r lo a n s t o r e p la c e t h e i r o ld m o rtg a g es. The Bank, w ith i t s in a d eq u a te fu n d s, co u ld not m eet t h i s new ly c r e a te d demand. To p rev e n t th e sharp d e c lin e In h o u sin g p r ic e s and to save th e poor c l a s s e s from th e p o s s ib le d is a s t e r o f l o s i n g t h e ir hom es, th e Bank su g g e ste d th a t th e governm ent en a ct a law to d e la y th e f -,-TU- T-T TV T- 12 > The T hird Annual R eport o f th e M ortgage Bank o f jlr a q , 1951-1952 (Baghdad: n .n ., 1 9 5 2 ), p . 9* 165! payment o f m atured d eb ts on r e a l e s t a t e m o rtg a g es. In 1950, i P a rlia m en t p a ssed Law No. 38 to d e la y payment o f th e s e d eb ts f o r one y ea r , th en in May, 1951* exten d ed th e Law fo r a n o th er y e a r .^ * 3 In s h o r t, th e Bank, in i t s v er y sh o r t l i f e , h e lp e d , to a g r e a t e x t e n t , th e home ow ners, e s p e c i a l l y th o s e in danger o f lo s i n g t h e i r homes. E n trep r e n e u r ia l f u n c t io n s . — The e n tr e p r e n e u r ia l fu n c tio n s o f th e Bank c o n s is t o f a u th o r ity to e s t a b l is h and p a r t ic ip a t e in in su ra n ce and c o n s tr u c tio n com panies to p a r t ic ip a t e in e x i s t i n g com panies and to b u ild new h o u sin g u n it s and s e l l them to th e p u b lic . | So f a r th e Bank has n o t o rg a n ized In su ran ce or c o n s tr u c tio n com p anies, or b u i l t new d w e llin g u n it s o f i t s own. R egarding th e B ank's p a r t ic ip a t io n in th e e s t a b l i s h ment o f an in su ra n ce company, th e governm ent, in 1 9 5 0 , p a sse d Law No. 56 w hich en a c te d th e e sta b lish m e n t o f th e N a tio n a l In su ran ce Company. The M ortgage Bank p a r t ic ip a t e d by g iv in g 1 2 .5 p er cen t o f I t s one m illio n D inar c a p i t a l . T his company u n d erta k es a l l ty p e s o f in su r a n c e . M oreover, th e Law o f th e Company e n fo r c e d a l l governm ent and se m i- A l-W aqavl'a A l-I r a a ly a No. 2837 o f May; 2 8 , 1950 and 2968 o f A p r il 3 0 , 1951* 1 166 governm ent i n s t i t u t i o n s to d e a l w ith th e Company in a l l t h e i r in su ra n ce t r a n s a c t io n s . C o n seq u en tly , every borrow er from th e M ortgage Bank must In su re h is p r o p e r ty w ith th e N a tio n a l In su ran ce Company. The same co u ld be s a id co n cern - i in g th e tr a n s a c tio n s o f th e A g r ic u ltu r a l and I n d u s t r ia l B an k s. In th e l a s t q u a rter o f 1 950, th e government r e a liz e d th e s c a r c it y o f h o u sin g u n it s and th e in c r e a s in g number o f unemployed w orkers in th e c o n s tr u c tio n in d u s tr y . So I t fo rm u la ted a com m ittee under th e chairm anship o f th e G eneral D ir e c to r o f th e M ortgage Bank t o stu d y th e problem and to i ;fin d s o lu t io n s . The com m ittee su g g e ste d t h a t , to s o lv e th e problem , th e governm ent sh o u ld e it h e r e s t a b l i s h a s p e c ia l governm ent agency to be fin a n c e d by th e governm ent, th e A g r ic u ltu r a l Bank and th e M ortgage Bank, or e s t a b l i s h a m ixed c o r p o r a tio n to be c a p it a liz e d by th e governm ent and th e p u b lic . T h is agency or co r p o r a tio n w ould u ndertake th e c o n s tr u c tio n o f new d w e llin g u n it s t o be s o ld to th e low -and -m id d le income g ro u p s. The M in is tr y o f F in an ce has p r e fe r r e d th e e sta b lish m e n t o f a m ixed c o r p o r a tio n . The c o r p o r a tio n has n ot been e s t a b lis h e d as y e t , but th e Mort gage Bank d ecid e d to p a r t ic ip a t e in i t s c a p i t a l . The c o r p o r a tio n , a cc o rd in g to th e s u g g e s tio n o f th e ^ com m ittee, would be g iv e n a lo n g l i s t o f p r i v i l e g e s . The ! 'sh a reh o ld ers w ould h e gu aran teed a minimum l i m i t o f p r o f i t s , th e c o r p o r a tio n would he g ra n ted some p r o p o r tio n s o f m ir i la n d f r e e o r a t a v ery low c o s t , would he exempt from th e t a r i f f ta x on i t s im p o rta tio n o f raw m a te r ia ls and eq u ip m ent, would he g iv e n d isc o u n t on th e r a ilw a y tr a n s p o r ta tio n o f i t s m a te r ia ls , , and th e ow ners o f i t s homes would he exempt from p r o p e r ty ta x fo r a lo n g p e r io d . These p r i v i le g e s may not seem to put th e c o r p o r a tio n on an eq u a l h a s ls w ith p r iv a te e n t e r p r is e , h u t, as i s m en tion ed b e fo r e , p r iv a t e e n t e r p r is e in Iraq i s s t i l l in i t s f i r s t s ta g e and i t cannot u nd ertak e a l l th e s e r v ic e s needed by th e p u b lic . The governm ent, in Ira q , has t o undertake th e fu n c tio n o f s a t i s f y i n g th e p u b lic n e e d s. R e s p e c tiv e ly , g r a n tin g such p r i v i l e g e s to th e co rp o r a tio n would n ot r e s u lt in p u sh in g jfree e n te r p r is e ou t o f th e m arket— i t w ould encourage such e n t e r p r is e to come in to e x is te n c e and to f lo u r is h . The com m ercial banking f u n c t io n s ♦ — Along w ith i t s m ortgage hanking f u n c t io n s , th e Bank can a cc ep t d e p o s it s w ith I n t e r e s t or w ith o u t, and th e in vestm en t o f 20 p er cen t o f i t s c a p it a l in government o r sem i-governm ent b o n d s .^ Up to March, 1 9 5 2 , th e Bank r e c e iv e d no tim e d e p o s it I lit I A l-W aqayl1 s A l-I r a q ly a No. 2780 o f October 1 9 , £*9^9» By-Law o f th e M ortgage Bank (Baghdad: Government iP ress, 19^91, A r t ic le V III. 168 ex c ep t th a t o f th e Minor A f f a ir s D ir e c to r a te w hich amounted to ID 331*000. The Bank i s p a y in g 4 p er c e n t I n t e r e s t on t h i s d e p o s it . On th e o th e r hand, so f a r th e Bank has no in vestm en t in e it h e r governm ent or sem i-governm ent h on d s. I t was m en tion ed e a r l i e r in t h i s ch a p ter th a t th e o b je c t o f th e Bank i s n o t to r e p la c e th e p r iv a te m ortgage i n s t i t u t i o n s , but to c lo s e th e gap betw een th e g r e a t demand f o r t h i s ty p e o f fin a n c e and i t s in a d eq u a te su p p ly . S o, i t seem s to th e w r it e r th a t th e Bank would p ro v id e g r e a t h elp t o p r iv a t e e n t e r p r is e and p r o s p e c tiv e home owners i f i t w ould a cc ep t th e d is c o u n t o f th e m ortgage p ap ers o f p r iv a t e a g e n c ie s . In o th e r w ords, th e Bank sh o u ld be a secon d m arket f o r home m ortgage fin a n c e . In summary, a lth o u g h th e Bank has b een in o p e r a tio n f o r o n ly a few y e a r s , and a lth o u g h i t d o es not have adequate f in a n c ia l r e s o u r c e s , i t ren d ered a c o n s id e r a b le s e r v ic e to th e p u b lic . The Bank, so f a r , has fin a n c e d th e c o n s tr u c tio n o f about th r e e hundred new h o u sin g u n i t s , r e fin a n c e d 1 ,0 8 5 o ld m ortgages w hich o th e r w ise would have b een f o r e c lo s e d by c r e d it o r s , and g ra n ted 1 ,8 4 4 new lo a n s . IV. LO A N PROCEDURE AND POLICY O F THE M O R T G A G E BANK Loan p ro ced u res o f th e Bank s t a r t w ith f i l i n g o f a 1 69 p r in te d a p p lic a tio n fo r a lo a n "by th e b orrow er. The a p p li c a t io n , to g e th e r w ith a l l th e docum ents, i s se n t to th e D ir e c to r a te o f Tapu f o r ch eck in g th e l e g a l i t y o f th e docu m ents and to f in d any p r e v io u s m ortgages. The th ir d s te p i s th e I n v e s t ig a t io n and a p p r a is a l o f th e p r o p e r ty by a s p e c ia l com m ittee. H aving a l l t h e s e p roced u res f in is h e d , th e G eneral D ir e c to r or th e Board o f D ir e c to r s o f th e Bank th en w i l l d e c id e to g ra n t or r e fu s e th e lo a n . In ca se th e r e i s a p r e v io u s m ortgage on th e p r o p e r ty , th e Bank w i l l send th e t o t a l amount o f t h i s m ortgage to th e D ir e c to r a te o f Tapu to b e k ep t as a d e p o s it f o r p r e v io u s m ortgager and to p u t th e name o f th e Bank a s m ortgagor I n s t e a d .^5 E l i g i b l e A p p lic a n ts The Bank*s lo a n s a re r e s t r i c t e d t o I r a q i in d iv id u a ls , com panies and c o o p e r a t i v e s .^ A c c o r d in g ly , th e Bank does not exten d i t s c r e d it to a company when p a r t or a l l o f i t s c a p it a l i s owned by f o r e ig n e r s . The t i t l e o f th e p ro p erty sh ou ld be in th e name o f th e b orrow er, and i f th e r e i s any o ld m ortgage on th e ^ The F i r s t Annual R eport o f th e M ortgage Bank. jl9**9*"!950 (Baghdad: n . n . , 1 9 5 0 ), p . 5* i ^ Kammel Al-Sammara’ 1 , The R e g u la tio n s o f P le d g in g ! th e Immovable P ro p erty to S ecu re th e Loans (Baghdad: The : Government P r e s s , 1951)* p* 2 9 9 . 1?G ’ p r o p e r ty , I t sh o u ld be r e fin a n c e d b e fo r e g r a n tin g th e lo a n . The r e s t r i c t i o n o f th e lo a n s t o I r a q is o n ly , d o es not go a lo n g w ith th e p o lic y o f th e Ir a q i governm ent to coop er a te w ith th e A rabian c o u n tr ie s in th e econom ic f i e l d . And as i s su g g e ste d , in th e c a se o f th e A g r ic u ltu r a l and I n d u s t r ia l B anks, th e lo a n s o f th e M ortgage Bank sh ou ld be ex ten d ed to any company owned by th e c i t i z e n s o f th e A rabian c o u n t r ie s . T his w ould h elp th e flo w o f f r e s h fun ds in to th e home m ortgage m ark et, w hich , in tu r n , w ould h elp th e b u ild in g in d u s tr y . The Term o f Loans The maximum term o f th e B ank's lo a n s i s fo u r y e a r s , to be p a id back in annual or m onthly p aym ents. For th e f i s c a l year 1951-1952* about kO p er c e n t o f th e number o f lo a n s gran ted were fo r one year and about 33 p er cen t fo r two y e a r s . I t i s q u it e c le a r th a t th e maximum lim it o f fo u r !y ea rs i s not s a t is f a c t o r y f o r a m ortgage bank, e s p e c i a l l y i f th e lo a n i s to be u sed f o r c o n s tr u c tio n . This lim it needs to be exten d ed to ten or f i f t e e n y ea rs in order t o en a b le b orrow ers to pay back t h e ir d eb ts w ith o u t danger o f f o r e c l o s u r e on t h e ir p r o p e r ty , or t h e ir lim it e d f in a n c i a l i ! so u r c e s b e in g d is tu r b e d . j 1 71 Amount o f Loans For each immovable p r o p e r ty , a cc o rd in g to th e o r ig in a l la w , no lo a n sh ould be g ra n ted f o r l e s s than one hundred D in a rs, or over one thousand D in a r s. In 1 9 5 2 , th e maximum l i m i t was r a is e d to two thousand D in a rs. O r ig in a lly , th e G eneral D ir e c to r o f th e Bank co u ld gra n t a lo a n n ot ex ceed in g th r e e hundred D in a rs. B u t, as a r e s u lt o f r a i s in g th e maximum lim it o f lo a n s , th e G eneral D ir e c to r can now advance a lo a n not ex c ee d in g f i v e hundred D in a r s . The Third Annual R eport o f th e Bank shows th a t th e lo a n s betw een one hundred and f i v e hundred D inars outnum b ered o th e r lo a n s . They c o n s t it u t e d 67 p er cen t o f th e t o t a l number o f lo a n s g ra n ted in 1 9 5 1 -1 9 5 2 . No lo a n s f o r two thousand D in ars w ere g iv e n in th e s e y e a r s . Taking In to c o n s id e r a tio n th e v a lu e s o f r e a l e s t a t e in Ir a q , and th e c o s t o f home c o n s tr u c tio n , i t seem s th a t th e maximum l i m i t o f th e amount o f lo a n s i s q u ite enough. In e f f e c t , t h i s l i m i t s e r v e s to r e s t r i c t lo a n s to th e m id d le Income b r a c k e t, as th e c o s t o f a house f o r t h is Income group runs c lo s e to th e maximum l i m i t . C o lla t e r a l and U n d erly in g S e c u r ity The ty p e o f s e c u r it y a cc ep te d by th e M ortgage Bank i s r e a l e s t a t e and th e r ig h t s r e la t e d to i t . The t i t l e o f th e > 172 p ro p erty sh ould b e in th e name o f th e b orrow er, and th e p r o p e r ty should have no p r e v io u s m o rtg a g es. I f i t i s owned by more than one p e rso n , th e sh are o f th e borrow er m ust not be l e s s than o n e -fo u r th . P ro p o rtio n o f lo a n s t o t h e ir s e c u r i t i e s . — I f th e borrow er i s th e o n ly owner of. th e p r o p e r ty , th e p ro p o rtio n o f th e lo a n to th e v a lu e o f th e s e c u r it y sh o u ld n o t exceed 60 p e r c e n t. I f th e p ro p erty i s owned by more than one p e r so n , th e p ro p o rtio n sh o u ld n ot ex ceed 5 0 p er cen t o f th e e s tim a te d v a lu e o f h is sh a r e . In th e ca.se o f p le d g in g th e r i g h t s r e la t e d to r e a l e s t a t e , th e p r o p o r tio n sh ou ld n o t I ex ceed 40 p er c e n t . I At any r a t e , th e Bank in i t s p r a c t ic e d id not gran t lo a n s o v er 30 p er cen t of th e estim a te d v a lu e o f any s e c u r it y . For th e f i s c a l y e a r 1 9 5 1 -1 9 5 2 , th e t o t a l estim a te d v a lu e o f th e s e c u r i t i e s a g a in s t lo a n s was ID 1 ,2 1 8 ,^ 2 9 w h ile th e t o t a l lo a n s gran ted was o n ly 3 1 9 ,3 9 6 .^ 7 P r o te c tio n o f se c u r ity * s p r o p o r tio n s . — When th e term o f a lo a n i s over two y e a r s , th e Bank has th e r ig h t to r e -e s tim a te th e u n d erly in g s e c u r it y . I f th e estim a te d value, 1 i s l e s s than th e rem ainder o f th e lo a n , th e Bank r e q u ir e s th e borrow er to e i t h e r pay th e d iff e r e n c e o r to put up 1 7 The T hird Annual R eport o f th e M ortgage Bank. 1 9 5 1 - 1 9 5 2 , 0£ . c i t . , p . 1 0 . 173 a d d it io n a l s e c u r it y w ith in two w eeks. O th erw ise, a l l th e payment w i l l be c o n sid e r ed due im m ediately.*® In c a se o f d e s tr u c tio n o f th e u n d erly in g s e c u r it y f o r any r e a so n , th e borrow er has to o f f e r a new s e c u r it y w ith in two w eeks or th e rem ainder o f th e lo a n w i l l be' regard ed as d ue. In a d d itio n , th e borrow er i s r e q u ir e d to In su re th e p r o p erty a g a in s t f i r e a t h is ex p en se, fo r th e term o f th e lo a n . I f th e in su ra n ce p o l i c y e x p ir e s b e fo r e th e m a tu rity d a te , th e borrow er must ex ten d th e in su r a n c e , o th e rw ise th e lo a n w i l l be t r e a te d a s due im m ed iately. A ll th e s e p roced u res a re n e c e ssa r y and sh ou ld be e n fo r c e d in a l l circu m sta n ces to p r o te c t th e r ig h t s o f th e Bank. Repayment R egu lat io n s The repaym ent r e g u la tio n s r e q u ir e th a t lo a n s a r e re p a y a b le on a m onthly or annual b a s is . Any payment I s not l e s s than one month and n ot o v er one y ea r 7 The Bank does n ot f o llo w th e s e a s o n a l b a s i s . The w r it e r f e e l s th a t th e Bank must adopt th e se a so n a l i n s t a l l ment p la n , in a d d itio n t o i t s annual and m onthly p la n s . T his would be o f g r e a t h e lp to b orrow ers, as many o f them _______________________ i 18 fit* a n te , p . 1 7 7 . r?4 r e c e iv e t h e ir r e n t a l income on a se a so n a l "basis. The prem ature payment o f th e e n t ir e lo a n and th e prem ature payment o f one in s ta llm e n t i s a c c e p ta b le . But th e borrow er i s not e n t i t l e d to a refund o f th e p a id in t e r e s t u n le s s th e prem ature payment o ccu rs in th e f i r s t h a lf o f th e term o f th e lo a n or th e f i r s t h a lf o f th e term of th e pay m ent. In sueh c a s e , th e Bank has to pay back h a lf o f th e I n t e r e s t r e c e iv e d t o th e b o rro w er.^9 The Bank i s a u th o riz ed to renew a payment or a lo a n but f o r one tim e o n ly and fo r n ot more than th e o r i g in a l term o f th e payment or o f th e lo a n . The annual r e p o r ts o f th e Bank show th a t th e number o f lo a n s p a id b e fo r e t h e ir m a tu r ity were 87 and 3 7 6 , fo r th e y ea r s 1951 and 1952, r e s p e c tiv e ly ^ The number o f th e renew ed lo a n s fo r th e same y e a r s w ere 1 0 3 and 4 2 4 . A gain, th e r e p o r ts o f th e Bank la c k many o f th e im portant c l a s s i f i c a t i o n s or s t a t i s t i c s o f i t s a c t i v i t y . The r e p o r ts do not s t a t e th e amount o f th e renewed or p rem a tu rely p a id lo a n s . A ls o , th e r e p o r ts do not in d ic a t e th e number o f lo a n s and paym ents due fo r th e same p e r io d . T hese d e f e c t s p rev en t th e w r it e r from draw ing h is co n c lu s io n s re g a rd in g th e s i z e o f th e renewed lo a n s to th e t o t a l 1 9 Al-Sam m ara*i, op. c i t . , p . 3 0 0 . 175 lo a n s due or th e s i z e o f p rem a tu rely p a id lo a n s to th e m atured lo a n s . R ate o f I n te r e s t and O ther C oats The Board o f D ir e c to r s o f the Bank i s in ch arge o f f i x i n g and m o d ify in g t h e r e a f t e r , th e r a t e o f I n te r e s t on the lo a n s o f th e Bank. When th e Bank s ta r te d i t s o p e r a tio n , th e Board f ix e d th e r a t e a t 7 p er c e n t. T h is r a te was c o n s id - I e r a b ly h ig h compared to th e B ank's o b j e c t iv e of h e lp in g th e s m a ll- and raiddle-incom e g ro u p s. The Bank j u s t i f i e d ch a rg in g such a h ig h r a t e , by th e f a c t t h a t th e Bank was o p e r a tin g on borrowed funds w ith an a v era g e in t e r e s t o f 3»5 p e r c e n t . In th e f i r s t q u a rter o f 1952, th e M in is te r o f F inance was a u th o rized to advance lo a n s to th e governm ental banking i n s t i t u t i o n s w ith an in t e r e s t r a te o f not more than £,*5 p er c e n t . In tu r n , th e s e banking i n s t i t u t i o n s should ch arge the jborrower not more than 5 p er c e n t, ex cep t th e A g r ic u ltu r a l Bank w hich can ch arge up t o 6 p er c e n t . 20 A cc o rd in g ly , th e M ortgage Bank redu ced i t s r a t e to 5 p er c e n t s t a r t in g from th e f i s c a l year o f 1 9 5 2 . C oncerning o th e r c o s t s o f lo a n s charged by th e Bank, i i ~ T o — — 1 The T hird Annual R eport o f th e M ortgage Bank, op . j c i t . , p . 6 . 176 th e r e la no r u le fo r t h e ir I n v e s t ig a t io n f e e s , th e p rep ara t io n c o s t o f an a b s tr a c t , th e re co r d in g o f p apers and th e in su r a n c e premium. I n te r e s t ch a rg es and o th e r c o s ts have to be p a id in advance f o r each year o f th e term o f th e lo a n ; th e y a re not to be added to th e o r ig in a l amount o f th e lo a n . U ndoubtedly, th e r a te o f in t e r e s t and o th er c o s t s charged by th e Bank a re fa r b elow th e p r e v a ilin g r a t e o f i n t e r e s t charged by p r iv a te le n d e r s . V. COLLECTION A ND FORECLOSURE PROCEDURES B efo re th e due d a te , th e G eneral D ir e c to r o f th e Bank n o t i f i e s th e borrow er about th e m a tu r ity o f th e lo a n or the paym ent. But th e absence o f t h i s a d v ice does not suspend th e payment o f th e lo a n . F o r e c lo su re p roced u res a r is e when th e re i s a d e fa u lt on th e p a rt o f th e m ortgagor. I f no s e ttle m e n t i s reach ed betw een th e Bank and th e m ortgagee, th e Bank ean o f f e r th e u n d e r ly in g s e c u r it y f o r p u b lic s a l e . D e fa u lt o f M ortgagor The d e f a u lt o f th e m ortgagor o ccu rs i f he im p a irs any p r o v is io n o f th e c o n tr a c t. In th e ca se o f th e d e fa u lt th e rem ainder o f th e amount o f th e o r ig in a l lo a n w i l l be con s i d e r e d due Im m ed iately. The By-Laws and Regu la t i o ns o f j 1771 i th e Bank t r e a t th e fo llo w in g a s d e fa u lt o f m ortgagor: 1 . F a ilu r e o f th e borrow er t o pay th e due payment o r o f f e r a c c e p ta b le s e tt le m e n t . 2 . F a ilu r e o f th e borrow er to p la c e a d d itio n a l se cu r i t y o r p a y -in c a s h , th e d if f e r e n c e betw een th e p r e se n t e stim a te d v a lu e o f th e s e c u r it y and th e rem ainder o f th e amount o f th e lo a n . 3 . F a ilu r e to p ro v id e a new s e c u r it y in c a se o f th e d e s tr u c tio n o f th e o ld s e c u r it y . if. When th e f i r e in su ra n ce p o lic y e x p ir e s b e fo r e th e m a tu r ity d a te o f th e lo a n and th e borrow er r e fu s e s to renew i t fo r th e rem ain in g p e r io d . In th e ev en t o f any o f th e s e c a s e s th e Bank c o n sid e r s a l l payments due Im m ediately, and f o r e c lo s u r e w i l l a r i s e . F o r e c lo su r e S a le To a ssu r e th e ex p ed ien cy o f th e B an k 's p ro ced u res in p r o t e c t in g I t s e l f in c a se o f d elin q u en cy o f paym ent, th e Bank can s e l l th e fo r e c lo s e d p ro p erty w ith o u t a c o u rt Judg ment . The fo r e c lo s u r e s a le u s u a lly b e g in s by n o t if y in g th e Tapu D ir e c to r a te to s t a r t s e l l i n g th e p r o p e r ty a t p u b lic s n c t io n . The D ir e c to r a te sen d s a n o t ic e to th e borrow er or i h is r e p r e s e n ta tiv e to pay th e debt w ith in one w eek. When | i th e borrow er f a i l s to reach a s e ttle m e n t a c c e p ta b le to th e | | 178 i Bank, th e p u b lic a u c tio n s t a r t s . The Tapu D ir e c to r a te I jissu ee a n o tic e to be p u b lish e d in th e l o c a l new spaper, or any o th e r m eans, s e v e r a l days in advance o f th e s a l e . Time, p la c e , and n a tu re o f the s a le sh ou ld be c l e a r l y m entioned in th e n o t ic e . I f th e d e b to r , w ith in t h i s tim e , p ays th e d eb t and o th e r c o s t s , o r rea ch es a re a so n a b le s e ttle m e n t w ith th e Bank, th e p u b lic a u c tio n w i l l s to p . The Redempt io n P erio d I f th e u n d er ly in g s e c u r it y co u ld n o t be so ld f o r th e I e q u iv a le n t o f th e rem aining amount o f th e lo a n and o th e r ' ic o s t s , th e t i t l e w i l l be tr a n s fe r r e d to th e Bank. In t h is ! c a s e , th e d eb to r has th e r ig h t to pay th e Bank w ith in one y e a r , a l l he ow es, minus th e amounts o f r e n t c o l le c t e d by th e Bank. R igh t o f R ecourse Sometimes th e p ro p erty m ight be s o ld f o r l e s s than th e amount o f th e d e b t. Then, in t h i s c a s e , th e Bank has th e r ig h t to c o l l e c t th e d e f i c i t through a d e f ic ie n c y judgm ent. On th e o th e r hand, i f th e p ro p erty s e l l s f o r more jthan th e debt and o th er c o s t s , th e su r p lu s w i l l go t o th e [m ortgagee u n le s s th e r e a re c la im s from o th e r c r e d it o r s . 1 79 So f a r , th e Bank has fo r e c lo s e d on one m ortgage o n ly . T h is u n d ou b ted ly, shows th e c o o p er a tio n o f th e borrow ers w ith th e Bank, and th e s u c c e s s o f th e Bank in s e le c t i n g I t s cu sto m ers. V I. SU M M A R Y AN D CONCLUSION Now th a t th e n atu re o f th e m ortgage Bank, th e fu n c t io n s i t p erfo rm s, and th e c r e d it p o lic y i t fo llo w s have been exam ined, th e ta sk now i s to summarize th e h ig h p o in ts o f t h a t p rev io u s ex am in ation . I The home m ortgage m arket a t th e p r e s e n t tim e i s v ery { s ig n if ic a n t as i t p la y s so la r g e a r o le in new h ou sin g in vestm en t and, th u s , in th e p r o v is io n o f e s s e n t i a l l i v i n g accomm odations f o r a l l th e f a m ilie s o f th e n a tio n . In 1 948, th e I r a q i governm ent r e a liz e d th e d ir e need o f th e sm a ll- and m iddle-Incom e groups f o r an i n s t i t u t i o n to fu r n is h them w ith funds to be u sed f o r h ousing p u r p o ses. M oreover, i t r e a liz e d a ls o th a t th e m ortgagors w ere ch arg in g an i n t e r e s t r a t e up to 20 p er cen t in many c a s e s . C o n seq u en tly, th e Law o f th e E sta b lish m en t o f a M ortgage Bank was p a sse d . i The Bank i s e n t ir e ly owned by th e governm ent. I t i s managed by a Board o f D ir e c to r s ap p oin ted by th e C o u n cil o f M in is te r s . 180 The o r i g in a l c a p it a l o f th e Bank was one m illio n Ir a q i Dinara and, In 1952, was In crea sed t o two m illio n Ir a q i D in ars. But the p a id - in c a p it a l up to th a t d a te was o n ly ID 1 0 1 ,2 0 0 . The w r ite r th in k s th e governm ent sh o u ld not o n ly pay th e e n t ir e p re se n t c a p it a l, but a ls o in c r e a s e i t to f i v e m illio n D inars in o rd er th a t th e Bank can meet th e in c r e a s in g demand f o r i t s lo a n s . The Bank h as o th e r so u r c e s o f fu n d s, nam ely, borrow in g and a ccep ta n ce o f tim e d e p o s it s . The Bank a c t u a lly s t a r t e d i t s o p e r a tio n w ith c o m p letely borrowed fu n d s. This was co n sid er ed a v er y bad b e g in n in g , e s p e c ia l l y b eca u se th e i p oor and m iddle c l a s s o f th e m asses had t o b ear th e burden o f th e h ig h r a t e o f in t e r e s t charged by th e Bank. The main fu n c tio n o f th e Bank i s to encourage th e b u ild in g o f new h o u sin g u n it s and to improve th e c o n d itio n s o f th e e x i s t i n g u n it s by e x te n s io n o f c r e d it f a c i l i t i e s . The Bank, in a d d itio n , can e s t a b lis h i t s own c o n s tr u c tio n com panies, p a r t ic ip a t e in e x i s t i n g o n e s, b u ild on i t s own accoun t new d w e llin g u n it s , and undertake some o f th e com m ercial banking f u n c t io n s . The Bank, d uring i t s sh ort l i f e , has ren d ered e s s e n t i a l s e r v ic e s t o th e p u b lic , p a r t ic u la r ly b eca u se i t was e s ta b lis h e d under c o n d itio n s when th e r e was a trem endous n eed f o r m ortgage lo a n s . In th e f i e l d o f o th er f u n c t io n s , th e Bank has n ot shown rem arkable I a ch ievem en ts a s y e t . i Loans o f th e Bank a re r e s t r i c t e d t o Ir a q i in d iv id u a l s , com panies and c o r p o r a tio n s . The Bank must t r e a t th e c i t i z e n s o f th e A rabian c o u n tr ie s in th e same manner a s th e I r a q is to a t t r a c t t h e i r c a p it a l to th e I r a q i m ortgage m ark et. The Bank d oes not ex ten d c r e d it s f o r over fo u r y e a r s. As a m ortgage bank, t h i s l i m i t i s co n sid e r e d q u ite narrow , and i t has t o be extended to a t l e a s t te n y ea rs i f th e lo a n s a re u se d in r e a l e s t a t e c o n s tr u c tio n . The minimum amount o f lo a n s i s one hundred D in a rs, and th e maximum i s two thousand D in a rs. B u t, in any c a s e , th e amount o f lo a n s sh ou ld be in f ix e d p ro p o rtio n to t h e i r s e c u r it y . In i t s o p e r a tio n , th e Bank le n d s on ly 30 p er cent o f th e u n d er ly in g s e c u r it y . The r a te o f I n te r e s t o r ig in a l ly charged by th e Bank was 7 p er c e n t. In 1952, th e r a te was reduced to 5 p er c e n t, w hich i s c o n sid e r ed a f a i r r a t e . I f th e borrow er v i o l a t e s s p e c i f i c p r o v is io n s o f th e lo a n c o n tr a c t, e s p e c ia ll y th o s e r e la t e d to th e paym ent, th en th e e n t ir e amount o f th e lo a n i s co n sid er ed t o be d u e. And, jln c a s e o f d e lin q u e n c y , th e Bank can s e l l th e p ro p erty in th e p u b lic a u c tio n . In c o n c lu s io n , th e Bank law s and r e g u la tio n s need I 182 ■many amendments and r a t i f i c a t i o n s . O n th e o th e r hand, th e i jBank, in i t s b r i e f l i f e , has proved to b e o f g r e a t b e n e f it i t o th e p u b lic and has c lo s e d a b ig gap in th e home m ortgage m arket ♦ I CHAPTER VI SU M M A R Y AND CONCLUSION T his stu d y has made an a n a ly s is o f th e n a tu r e , developm ent and c r e d it p o l i c i e s o f th e th r e e non-com m ercial banks in Iraq , nam ely, th e A g r ic u ltu r a l Bank, th e I n d u s tr ia l Bank, and th e M ortgage B ank.1 A se p a r a te a n a ly s is was made o f each Bank. W ithin each bank th e management, th e so u rc es o f fu n d s, th e fu n c tio n s and c r e d it p o lic y have been exam ined in th e l i g h t o f th e p r e v a ilin g g en e r a l econom ic c o n d itio n s land th e g e n e r a l p o l i c i e s o f th e co u n try . I t has b een found in t h i s stu d y th a t th e g e n e r a l j c h a r a c t e r is t ic s o f a l l th e banks are s e v e r a l. F i r s t , th e y i i a re e n t ir e ly owned and c o n t r o lle d by th e governm ent. Second, th ey a re new ly e s t a b lis h e d and s t a r t e d t h e ir op era t io n a f t e r th e World War I I p e r io d . T h ird , each o f them i s th e main sou rce o f fin a n c in g in i t s f i e l d . I t has been found, a l s o , th a t th e Banks, in s p i t e o f t h e i r r e c e n t e s ta b lis h m e n t, have rend ered a g r e a t s e r v ic e t o jthe p u b lic . M oreover, th e y have proved t o be p r o f it a b le e n te r p r is e s to th e governm ent, as each o f them r e a liz e d a ! c o n s id e r a b le r a t e o f p r o f i t . This e v id e n c e sh ou ld encourage! I i . — .. — ■ j 1 H e r e a fte r th e y w i l l be r e fe r r e d t o a s "the banks." Iprlvate enterprise to enter business and induce the govern ment to expand the operations of the banks. On the other hand, It has been shown in this study that there are many defects in the managerial, financial, functional and credit policy structures of the banks. These defects need to be removed in order to enable the banks to fulfill their objectives to the fullest extent. I. MANAGERIAL DEFECTS The absolute majority of the boards of directors of the banks are chosen from the senior government officials. These members do not have the necessary experience or know ledge in the fields of the banks. Also, the boards of directors approve or disapprove applications for loans without a comprehensive and scientific study of the affairs of the borrowers. They do not consult with specialists in the field for which the loan is to be advanced. The banks should add to their staff, experts as heads of their different departments. This would assist the banks to base their decisions on thorough study and scientific principles. The banks, in general, concentrate their activities in one city, namely, Baghdad. Undoubtedly, this concentra tion creates social differences between the different parts of the country and causes the migration of population to 185 Baghdad. The Banks should not wait until they receive a great number of applications from a certain province before considering this an indication of the need for opening a branch in that province. Branches of each bank should be opened all over the country to help the development of the economic conditions on an equal basis. The banks can cooperate in this manner by occupying one building as their office in each district. The branches, when they are opened, should be given authority to grant loans to a certain limit without waiting for the approval of the main office. Efficient management and widespread branches could be of great service to the public and spread the economic development of the country. II. FINANCIAL DEFECTS The banks are now operating with inadequate financial resources. Their nominal capital is insufficient compared with the great need of their services to the country. The greater part of these nominal capital is not paid-in. Also, the banks have no secondary market to discount the contracts they receive from the public. In time of great demand on their funds, they cannot issue debentures to the public, as the public is still wary and hesitates to invest its 186 hoarding in securities. It has been suggested that the capitals of the banks be increased to five million Iraqi Dinars each. This augmentation in capitals can be secured from oil royalties. It has been suggested also that the commercial banks should be induced to discount some of the' short-term notes of these banks in order to secure additional funds. If necessary, some of the banks (the agricultural and Industrial) can obtain extra funds by borrowing from the International Bank. A strong relation and cooperation should be created between these banks on the one hand, and the Board of Development on the other. Such cooperation might take the form of borrow ing from the Board and coordinating their plans and projects. Sufficient funds for any institution, especially the financial ones, are as vital as sufficient blood for the human being. great responsibilities and manifold functions. They grant loans to the public, establish their own companies, partici pate in existing companies, undertake some commercial bank functions, mediate in the import of needed capital goods and III. FUNCTIONAL DEFECTS It has been found that the banks have been given 1 8? help in the export of the domestic products. Many of these functions need to be taken from the banks and bestowed on other institutions to be established for those purposes. The banks have to devote all their effort to lending activities only. Having them specialized in the lending field, they will gain more experience and they will fulfill their objectives more successfully. More over, their funds would not be frozen in long-term invest ment, and, consequently, will be avs-ilable for the email and middle Income individuals or small enterprises. IV. CREDIT POLICY DEFECTS The loans of the banks are restricted to the Iraqi citizens or companies with the majority of capital owned by Iraqis. The term of their loans does not exceed six years In most cases. The maximum limit of their loans is not large enough. Until recently the rates of interest charged ias ranged from 6 to 7 per cent, which is considered slightly high. The writer has suggested that the banks should treat f the citizens of the Arab countries on an equal basis with Iraqis. This would Induce the flow of idle capital from phese countries seeking investment. It has been said that this would also bring the Arab countries closer to each 1 88 other, and facilitate the ultimate aim of their unification. All of these banks are, by their natures, medium or long-term credit institutions. Consequently, the maximum term must be for at least fifteen years to encourage the long term investment in the agricultural, industrial and housing construction. The maximum limit of the bank loan is very Inade quate. It needs to be raised to, at least, three times its present limit. Iraq is in its first stages of development; it needs considerable amounts of capitals to establish modern enterprises. In order to encourage the organization of such projects, the banks should be able to grant large loans. The Interest rate charged by the banks was over 6 per cent in all cases. Recently, the Council of Ministers forbade the banks to charge over 5 per cent interest, except the loans of the Agricultural Bank, as its maximum rate of interest is 6 per cent. The banks charge a uniform rate of Interest on all types of loans, regardless of their term and underlying security. It seems that it is unjust to charge the same rate on a loan for one year and a loan for six years. The rate, naturally, should be less on short term loans and on loans secured by better securities. By way of summary, the banks, in spite of these 189 defects, and in spite of the short period of their opera tions have yielded noticeable benefits to the advancement of the country. However, the development and perfection of these institutions is dependent, to a great extent, on the development of the general economic, political and social conditions of the country. BIBLIOGRAPHY BIBL10 GRAPHY 191 A. BOOKS B ish o p , Averd L a n g ley , The F in a n cin g o f E a s in e s s E n te r p r is e . New York; Harper and B r o th e r s, P u b lis h e r s , 1929- 616 p p . Conyngton, Hugh R ., F in a n cin g an E n te r p r is e . New York: The Ronald P re ss Company, 1 9 2 3 . 66? p p . Duggan, I . W., and Ralph U. B a t t l e s , F ln an oln g th e Farm B u s in e s s . New York: John W iley and S o n s, I n c ., 1 950. 35^ pp. F is h e r , E rn est M ., Urban R eal E sta te M arket. New York: N a tio n a l Bureau o f Economic R esearch , I n c ., 1951. 186 pp. F u l le r , D ouglas R ., Government F in a n cin g o f P r iv a te E n ter p r i s e . S ta n fo rd : S ta n fo r d U n iv e r s ity P r e s s , 19^ 8, 206 pp. G a r ls, R. L ., P r in c ip le s o f Money, C red it and B anking. New York: The M acm illan Company, 1 9 3 ^ 1100 pp. H oagland, Henry E . , R eal E s ta te P r in c i p l e s . New York: M cGraw-Hill Book Company, I n c ., 19^9* 66? pp. Jad , J a b lr,A b d u l Rahman, P o l i t i c a l E conom ics, V o l. I I . Baghdad; The I r a q i P r e ss and P u b lish in g Company, 1951* 450 pp. K hayyat, J a f e r , I r a q i V i l l a g e . B e ir u t: D a r-u l-K a sh a f, 1950. 98 pp. L ee, V ir g il P . , P r in c ip le s o f A g r ic u ltu r a l C r e d it. New York: M cGraw-Hill Book Company, I n c ., 1950- **© 5 PP* Loekanthan, P. S . , I n d u s tr ia l O rgan ization In I n d ia . London: G eorge A lle n and Unwin, L t d ., 1935” 513 pp. Morman, James B ., and John Lee C o u lte r , The P r in c ip le s o f R ural C r e d it s . The M acm illan Company, 1919. 279 pp. 1 9 2 M urray, W illiam G ., A g r ic u ltu r a l F in a n c e . Ames, Iowa: The Iowa S ta te C o lle g e P r e s s , 194-7. 3 7 2 pp. Prochnow, H. V ., American F in a n c ia l I n s t i t u t i o n s . Mew York: The M acm illan Company, 1951* 799 PP* Q u re sh i, Anwar I q b a l, A g r ic u ltu r a l C r e d it. London: S ir Isa a c Pitman and S on s, L t d ., 193 & * 190 pp. R a t c l i f f , R ichard U ., Urban Land E conom ics. Hew York: M cGraw-Hill Book Company, I n c ., 194-9. 533 PP* S p ark s, E arl S . , H isto r y and Theory o f A g r ic u ltu r a l C red it in th e U n ited S t a t e s . Hew York: Thomas Y. C row ell Company, 1 9 3 2 . 4 -7 6 pp. Sammara*i, K am il, C om p llatlon a o f Laws C oncerning The n a tio n a l Bank o f Ir a q . Baghdad: Al-Hokame$| P r e s s , 1951* 318 pp. ^ W arriner, D oreen, Land and P o v erty in th e M iddle E a s t . London: R oyal I n s t it u t e o f I n te r n a tio n a l A f f a ir s , 1 948. 14-8 pp. Weimer, A rthur M ., and Homer H oyt, P r in c ip le s o f Urban R eal Es t a t e . Hew York: The R onald P r e ss Company, 194-8. 512 pp. W right, Ivan , Farm M ortgage F in a n c in g . Hew York: McGraw- H i l l Book Company, I n c ., 1923* 343 PP* B. PERIODICAL ARTICLES B a er, G a b rie l, “The A grarian Problem in I r a q ,B M iddle E a stern A f f a i r s . I l l (December, 1 9 5 2 ), 3 8 1 -9 1 . J ew d et, Abdul Rahman, "The Developm ent o f th e S tate-ow n ed A g r ic u ltu r a l Land,*1 Al-Zaman, Ho. 4-780 (J u ly 1 1 , 1 9 5 3 ), 2-4-. C. OFFICIAL PUBLICATIONS Annual R eports o f th e I r a q i A g r ic u ltu r a l and in d u s t r ia l Bank 1937-3§T 1 9 ^ 5 -4 6 . Baghdad: The Government P r e s s , 1 9 3 8 , 194-7* Annual R eports o f th e Ir a q i A g r ic u ltu r a l Bank, 1 9 4 6 -4 7 , 1948-49* 1 9 4 9 - 5 0 ♦ Baghdad: The Government P r e s s , 1948, 1 9 5 0 , 1951. ________ , 1950-1951* Baghdad; Commerce and P r in tin g L td . Company, 1 9 5 2 . Annual R eports o f th e I r a q i I n d u s tr ia l Bank, 1 9 4 7 -4 8 , 1 9 4 8 - 4 9 . Baghdad: Baghdad P r e s s , 1949# 1950• - 1 9 4 9 - 5 0 . Baghdad: A l-R a b lteh P r e s s , 1951* Annual R eports o f th e Ir a q i M ortgage Bank, 1 9 4 9 -5 0 , 1950-51* 1 9 5 1 -5 2 . Baghdad: n .n ., 1 9 5 1 , 1 9 5 2 , 1953* Annual R ep orts o f th e N a tio n a l Bank o f I r a q , J u ly 1 9 4 9 - December 1 9 5 0 . Baghdad: The Times P r in tin g and P u b lish in g Company, L t d ., 1950. , January-Decem ber 1951* Baghdad: Thomas P r e s s , 1 9 5 2 . Economic Developm ent o f I r a q , a re p o rt p u b lish e d f o r th e I n te r n a tio n a l Bank f o r R e c o n str u c tio n and D evelopm ent. London: The Johns Hopkins P r e s s , 1 9 5 2 . 463 PP* I r a q 's Government, The Developm ent Board, C om pilation o f Laws C oncerning th e Developm ent Board In Ir a q . Baghdad: The Government P r e s s , 1951* 22 pp. Ir a q , M in istr y o f A g r ic u ltu r e , Law, D ecrees and D ir e c tio n s C oncerning th e Developm ent o f M lrl Lands (S ta te LandsF In Ir a q . Baghdad: The Government P r e s s , 1953* 31 PP* Ir a q , M in istr y o f Econom ics, P r in c ip a l Bureau o f S t a t i s t i c s , S t a t i s t i c a l A b s tr a c ts , 1 9 4 7 . Baghdad: The Government P r e s s , 1 9 4 9 . , S t a t i s t i c a l A b s tr a c ts , 1 9 4 9 . Baghdad; The Government P r e s s , 1951* ________ , S t a t i s t i c a l A b s tr a c ts , 1 950. Baghdad: The Government P r e s s , 1952. Ir a q , M in istr y o f E conom ics, G eneral D ir e c to r a te o f In d u stry , Annual R eports 1950-51* 1 9 5 1 -5 2 . Baghdad: A l-R a b lteh P r e s s , 1 9 5 2 , 1953* 9 2 , 3 6 pp. 194- The Waquayl1 a A l- I r a o iv a . Ho. 972 o f A p r il 24-, 1931. Baghdad: The Government P r e s s , 1932. ________ , No. 1?83 o f March 25, 194-0. Baghdad: The Government P r e s s , 194-1. ________ , No. 1785 o f March 3 1 , 19*10. Baghdad: The Government P r e s s , 194-1. . No. 2518 o f Septem ber 1 , 19**?. Baghdad: The Government P r e s s , 194-8. . No. 2672 o f O ctober 23* 1 948. Baghdad: The Government P r e s s , 1949. , No. 2695 o f January 2k, 1949- Baghdad: The Government P r e s s . 1949* , No. 2780 o f October 19* 1950* Baghdad: The Government P r e s s , 1951* ________ , No. 2968 o f A p r il 3 0 , 1 9 5 0 . Baghdad: The Government P r e s s , 1951. , No. 2837 o f May 2 8 , 195©* Baghdad: The Government P r e s s , 1951* , No. 2840 o f June 5* 1 9 5 0 . Baghdad: The Government P r e s s , 1951. , No. 284-7 o f June 1 5 , 1 9 5 0 . Baghdad: The Government P r e s s , 1951- E. UNPUBLISHED MATERIALS Ira q , Department o f A g r ic u ltu r e , u n p u b lish ed Summary R eport on A g r ic u ltu r a l P ro d u c tio n , Trade, Pood Consumption and M easures to b e Undertaken by th e Government t o Improve th e G eneral Economic C o n d itio n s o f th e Country. P re sen te d by th e Ir a q i D e le g a tio n to th e Food and A g r ic u ltu r e O rg a n iza tio n C onference H eld a t Rome, November 19-Decem ber 7 , 1 9 5 1 . U n iv e r s ity at
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Asset Metadata
Creator
El-Kaissi, Fawzi A. (author)
Core Title
An analysis of Iraqi government institutions for agriculture, industrial, and mortgage banking
Degree
Master of Arts
Degree Program
Economics
Publisher
University of Southern California
(original),
University of Southern California. Libraries
(digital)
Tag
business administration, banking,Economics, Agricultural,economics, general,Middle Eastern Studies,OAI-PMH Harvest,Political Science, public administration
Language
English
Contributor
Digitized by ProQuest
(provenance)
Advisor
Garis, Roy L. (
committee chair
), Anderson, William H. (
committee member
), Phillips, E. Bryant (
committee member
)
Permanent Link (DOI)
https://doi.org/10.25549/usctheses-c20-441853
Unique identifier
UC11264077
Identifier
EP44729.pdf (filename),usctheses-c20-441853 (legacy record id)
Legacy Identifier
EP44729.pdf
Dmrecord
441853
Document Type
Thesis
Rights
El-Kaissi, Fawzi A.
Type
texts
Source
University of Southern California
(contributing entity),
University of Southern California Dissertations and Theses
(collection)
Access Conditions
The author retains rights to his/her dissertation, thesis or other graduate work according to U.S. copyright law. Electronic access is being provided by the USC Libraries in agreement with the au...
Repository Name
University of Southern California Digital Library
Repository Location
USC Digital Library, University of Southern California, University Park Campus, Los Angeles, California 90089, USA
Tags
business administration, banking
Economics, Agricultural
economics, general
Middle Eastern Studies