Lending to the SMEs in the GCC countries remains as low as only 2 per cent while it is only 8 per cent in Mena, a World Bank/Union of Arab Banks survey showed. Image Credit: Gulf News Archives

Dubai: Two years after the Arab Spring unemployment remains a ticking bomb. While the Arab Spring has engineered regime changes, experts say, not much has changed in terms of job creation and economic growth - both need drastic measures.

Small and medium enterprises (SMEs), the most neglected segment in the private sector, could be the game-changer in creating employment in the Middle East and North Africa (Mena) region, they say.

“However, we need to change our mindset first, then that of the bankers,” Xavier Reille, Manager for Advisory Services at the International Finance Corporation (IFC) in the Mena region, said at a roundtable last week. IFC is the private sector arm of the World Bank currently advising governments and banks in the region to help develop SME funding to spearhead job creation.

Formal SMEs represent 45 per cent of the market and they contribute 33 per cent to the GDP while employing 70-80 per cent of the workers in the private sector in developed economies, according to studies. In high income countries, SMEs contribute nearly 64 per cent to the GDP and 62 per cent to employment.

Unfortunately, lending to the SMEs in the GCC countries remains as low as only 2 per cent while it is only 8 per cent in the Mena, a World Bank/Union of Arab Banks survey showed.

“This is substantially lower when compared to the middle income countries’ lending average of 18 per cent and high¬income countries’ average of 22 per cent,” said Qamar Saleem, Senior SME Banking Specialist at the IFC.

“About 98 per cent of the GCC banks’ retail portfolio is closed books – credit cards, which is low-risk and easy to recover.”

Access to finance

The majority of enterprises in Mena are micro, small and medium enterprises (MSMEs), estimated at 19-23 million and comprising 80-90 per cent of businesses in most countries. MSMEs typically account for 10-40 per cent of employment in Mena, he said.

“Access to finance is one of the greatest challenges facing the MSMEs across the globle, and particularly for Mena where nearly 63 per cent of the MSMEs do not have access to finance,” Saleem said.

“The total financing gap for the MSMEs in Mena is estimated at $210 billion (Dh770.7 billion) to $240 billion, of which formal MSME finance gap is estimated at $160-$180 billion.”

Senior IFC officials say increased lending to SMEs could help create more jobs across the region and help some of the Arab countries overcome the challenges of unemployment.

“The situation between the pre- and post-Arab Spring has largely remained unchanged, as far as employment is concerned,” Mouayed Makhlouf, IFC Regional Director for Mena, said at a roundtable last week.

The Mena region needs 50 million to 70 million jobs in the next ten years. Historically the governments have been playing the key role in generating employment in the region. “We can’t just depend on the governments to create jobs. Private sector should be the major employer. However, it is the SME segment that should drive job creation and it could happen if the banks start lending to the SMEs,” he said.

Youth unemployment of 25.1 per cent for the Middle East and 23.7 per cent for North Africa — versus a global average of 12.6 per cent — and female¬entrepreneurship levels of 12 to 15 per cent —versus a global average of 31 to 38 per cent — severely affect economic growth. Creating jobs for young entrepreneurs and fostering female¬entrepreneurship remains a key challenge, an IFC study shows.

Maya Margie Younes, Head of Marketing Group at the Beirut-based BLC Bank, said, bankers have begun to change their mindset already in terms of lending SMEs.

“A year ago, we changed our mindset and also changed our focus towards SMEs, especially women entrepreneurs,” she said.

She said, her bank offers up to $10,000 collateral-free loans. About 90 per cent of these companies have below 9 employees.

“Today, a year later, we have witnessed a 34 per cent increase in SME credit and 62 per cent jump in loans to women – many of whom are becoming successful and growing in size.”

The IFC has helped the UAE’s Ministry of Finance to draft a secure lending law that, once enacted, could boost lending to SMEs, they said.