Description:
Among the principal constraints for SME
lending is the lack of SME transparency, poor credit
information from credit registries and bureaus, and weak
creditor rights. If constraints can be addressed, lending
can potentially reach bank targets of 21 percent. State
banks still play an important role in financing SMEs in the
MENA region, but they use less sophisticated risk management
systems than private banks. On another hand, credit
guarantee schemes are a popular form of support to SME
finance in the region, and are associated with higher levels
of SME lending. The paper concludes that MENA policy makers
should prioritize improvements in financial infrastructure,
including greater coverage and depth of credit bureaus,
improvements in the collateral regime (especially for
movable assets), and increased competition between banks and
also non-banks. Weaknesses in insolvency regimes and credit
reporting systems should also be alleviated. Direct policy
interventions through public banks, guarantee schemes, lower
reserve requirements and subsidized lending and other
measures have played a role in compensating for MENA's
weak financial infrastructure, but more sustainable
structural solutions are needed.