Access to finance for small and medium sized enterprises in the MENA region

Author: Mattijs Aartsen, Intern in Global Engagement and Evaluation, Child & Youth Finance International

The Middle East and North Africa (MENA) is an incredibly economically diverse region with a significant income disparity across its member states. The MENA region consists of oil-rich economies in the Gulf as well as resource scarce countries in North Africa. The region’s economic performances over the last decades have been heavily influenced by two factors: the volatile oil price and the economic policies and structures in the separate member states. Almost 40 million people live below the poverty line, earning less than $2 per day. This number represents 11.6% of the total population of the MENA region. In addition, the MENA region suffers from the highest youth unemployment rates in the world. Youth unemployment in the MENA region has increased by 4.1% over the period 2009 – 2012, while non-youth (25+) unemployment rates have increased by 0.8% in the same period . Youth unemployment is expected to increase by another 1.1% in the next two years, exceeding 29% of the total workforce from the age 15 to 24 in 2017, or 26 million youth.

Small- and medium enterprises (SMEs) are crucial in order to reduce youth unemployment in the MENA region, as they contribute more than 30% of the job opportunities available for youth and are a key engine for economic growth. However, the lack of finance to SMEs has negatively influenced the economic diversity of the region, as only 24% of SMEs had access to finance in 2009. Given that SMEs are a significant source of employment for young people, the lack of finance to SMEs impacts not only the economy as a whole, but the participation of youth in the work force as well.

Key constraints to accessing finance for SMEs

The lack of access to finance to SMEs has two main causes: the lack of SME transparency and the weak financial infrastructure.

Banks in the MENA region lack SME transparency. Due to the lack of transparency, banks are able to turn down SME loan applications without providing any explanation. This makes it harder for SME business owners to obtain a loan for two reasons: Firstly, corruption could be involved. Bank employees can be corrupt and turn down SME loan applications to prevent competition in a specific market. Secondly, since no additional information is given regarding the rejection of a loan application, SME business owners do not know which part of the application should be improved in order to obtain a loan the next time they apply for one. In addition, the weak financial infrastructure decreases the access to finance of SMEs; different and out-dated information systems, a lack of credit information and weak creditor rights are just a few examples. This adds to the difficulties small- and medium business owners face when applying for a loan. Even though credit information and reporting systems are developing fast in some MENA countries, other countries are having a hard time keeping up, due to, among others, legal constraints. Finally, Financial institutions often resist lending out money to small and medium enterprises, while 80% of SME assets are illiquid . Illiquid assets are hard to sell off for the bank, and are therefore considered as insufficient collateral for obtaining a loan.

These constraints refrain many SMEs in the MENA region from obtaining loans, and are the main reason why SME lending is only eight per cent of banks’ total loan portfolio, as opposed to the 21 per cent that banks’ say is their goal for SME lending. With 60% less SME loans than planned, banks decrease the opportunity for small- and medium enterprises to grow.

Arab Monetary Fund

The Arab Monetary Fund (AMF) is a stakeholder of Child & Youth Finance International. The AMF is an overarching institution, supported by 22 member states across the Middle East and North Africa (MENA) region. With a main objective of uniting all the member states, both financially and socially, the AMF is also involved in increasing financial access to SMEs.

In 2010, the AMF has joined forces with the Ministry of Finance of the United Arab Emirates (UAE) in collaboration with the International Finance Corporation, in order to provide small businesses with access to credit. By providing direct loans to SMEs, the AMF was able to reduce the key constraints in obtaining loans, such as the lack of transparency, the weak financial infrastructure and the lack of collateral. The result was that in the period of 2010 – 2013, the total amount of outstanding loans from the AMF to SMEs had increased by 27.3% to more than $3.6 billion. With these loans SMEs in the MENA region were able to enhance productivity and competitiveness. This has contributed to an increase in SME growth, total economic growth and youth employment across the region.

United Nations Sustainable Development Goals

By granting SMEs access to finance in the period of 2010 – 2013, the Arab Monetary Fund has actively contributed to increased employment and enterprise growth in the region. CYFI believes that an important element in the development of youth economic citizenship is the securing of sustainable and meaningful livelihoods through both entrepreneurship and/or employment. This is also integral to achieving sustainable development goal number eight of the United Nations’ Post 2015 Development Agenda. The associated targets of this goal cover the promotion of sustained, inclusive and sustainable economic growth, as well as full and productive employment and decent work for youth. Providing greater economic opportunities for young people in the MENA region, particularly through the development of SME sector, will greatly contribute to the reduction of youth unemployment and allow countries to meet the ambitious targets under the sustainable development goals.


This blog is the second in a series of summer blog articles related to the Post-2015 Sustainable Development Goals and are authored by youth interns at Child & Youth Finance International. Join the discussion on social media by following @ChildFinance and using the hashtag #cyfiyouth.

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