BEIRUT: Limited access to financing and an underdeveloped regulatory, institutional and policy framework are the main challenges facing small to medium enterprises in the Arab world, industry experts said Thursday at a conference organized in Beirut by the Union of Arab Banks.
SMEs represent between 80 percent and 90 percent of businesses in the MENA region and account for more than 30 percent of all private sector employment, but the average share of MENA bank portfolios made up of SME lending is only 7.6 percent, Arab bankers and economists said.
Limited access to lending puts the total financing gap for SMEs in the MENA region at an estimated $160 billion to $180 billion, said Lebanon’s Central Bank First Deputy Governor Raed Charafeddine, citing a study by the International Finance Corporation, the private arm of the World Bank.
According to the IFC report, nearly 63 percent of SMEs in the MENA region do not have access to finance while a recent survey by the World Bank and the Union of Arab Banks of over 130 MENA banks shows that only 8 percent of lending goes to SMEs across MENA, and 2 percent in GCC countries.
“SMEs contribute up to 33 percent of GDP in Saudi Arabia, 50 percent in Jordan and 80 percent in Egypt,” Charafeddine said at the conference, “Small and Medium Enterprises: The road to Economic Development and Social Justice.”
In Lebanon, where SMEs have better access to financing with a share of 16 percent of banks’ loan portfolios, they create more than 80 percent of jobs, head of the union of Arab banks Joseph Torbey said.
SMEs in Lebanon number around 67,000 businesses, Economy Minister Alain Hakim said, adding that the ministry was working on establishing a comprehensive framework to support existing businesses and encourage the establishment of new ones.
However, beyond the establishment of domestic regulatory frameworks, the creation of a favorable environment for SMEs requires deeper integration between Arab economies, Hakim said.
He added that Arab countries should also cooperate with other nations that have shown interest in supporting SMEs in the region such as members of the EU.
The EU has allocated since 2003 more than $70 million to support SMEs in Lebanon, Marcello Mori, head of the Sustainable Development Section at the delegation of the European Union to Lebanon said.
“The EU is funding business incubators – such as Berytech, BIAT and SouhBic – supporting the improvement of quality [the QUALEB program], innovation and competitiveness of enterprises, creating financing mechanisms for SMEs, and helping to modernize the National Quality Infrastructure and other public institutions,” Mori said.
The development of SMEs in line with a coherent policy framework requires coordination and integration from various players such as the government, central bankers, public institutions and the private sector, Mori added.
A total of 19 million to 23 million MSMES exist in the region, representing around 80 to 90 percent of businesses, including a majority of microenterprises rather than SMEs, Wissam Fattouh, secretary-general of the Union of Arab Banks said.
Fattouh said the road map to develop a favorable environment for the growth of SMEs starts mainly by allowing them better access to financing, which would require banks to enhance their risk-assessment capabilities for the financing of SME projects.
To facilitate the assessment of SMEs’ financing needs by commercial banks, government should establish an SME creditors’ database, he added.
Fattouh said that governments should also offer training to SMEs on how to improve their financial management capabilities and review laws and regulations governing their establishment.