Scaling Up SME Financial Inclusion in the Middle East and Central Asia

February 27, 2019

Good morning, ladies and gentlemen.

Thank you for joining us today for this seminar on Scaling Up SME Financial Inclusion in the Middle East and Central Asia.

The work of the IMF across this region has focused for several years on the issues of inclusive growth and job creation—specifically, how to encourage the economic dynamism that can prepare the ground for addressing these problems head-on. Today’s topic lies at the heart of this enormous challenge. Small and medium enterprises are the backbone of most economies. Globally, about half of all employment is created and sustained by SMEs.

We are all deeply aware that the share of the working age population is rising rapidly in the developing world. So, I think it is not going too far to say that the future success of these countries will depend in large part on the ability of SMEs to thrive—and hire.

This is particularly the case across the Middle East and North Africa, and in the Caucasus and Central Asia. These are regions where the burden of youth employment is only growing. To make matters more difficult, too many labor markets in the region are dependent on government jobs, with inefficient state enterprises draining resources and competitive advantage from the private sector. A key element of this imbalance is access to financing—seed capital and loans to grow.

With almost 20 million young people projected to join the workforce by 2025 in the region, the need to deepen SME financial inclusion has never been greater. Provide the opportunity for SMEs to hire more young people, bring labor force participation to the level of emerging market countries in other regions, and there will be a transformative growth dividend across North Africa, the Middle East, and beyond.

However, the barriers to this breakthrough remain huge. The share of lending to SMEs lags far behind other regions. In 2016, only 6 ½ percent of all lending in Central Asia, and just about 7percent in the Middle East, went to SMEs. The comparable number in the Asia-Pacific was 16 ½ percent.

The good news is that more and more countries are promoting a supportive environment for SMEs. Many have expressed keen interest in having the Fund provide support to their efforts to design and implement financial inclusion strategies.

This was the focus of a conference on inclusive growth that we organized a year ago in Marrakesh in cooperation with the government of Morocco. That event identified access to financing by entrepreneurs running small firms as a key obstacle to SME development, diversification, economic growth, and job creation.

The IMF has played supported efforts in this area—and we are ready to expand our involvement—with a combination of analytical work and policy advice on financial inclusion, as well as operational support for economic reforms. The Egyptian authorities’ reform agenda within the Fund supported program is the most recent example.

Our research on inclusive growth and financial inclusion has deepened our institutional understanding of these issues—and has contributed concretely to our work with our membership. We have shown that financial inclusion fosters growth, though financial stability risks increase when access to credit expands without proper regulation and supervision. Another recent study found that greater inclusion of women as users, providers, and leaders of financial services fosters greater bank stability and resilience, enhances economic growth, and contributes to more effective monetary and fiscal policy.

In our country work, financial inclusion has become a major topic in the Financial Sector Assessment Program for developing and emerging market economies, where we assess the stability of financial systems. The Fund has also been delivering technical assistance across a range of issues related to financial inclusion and stability, including the modernization of national payment systems.

Today, we are complementing these efforts with the discussion of a recently published Fund study on SME financial inclusion in the Middle East and Central Asia. This study identifies key reform areas to improve access to finance for SMEs, ranging from the size and role of the public sector in the economy to institutional and regulatory issues related to solvency frameworks and collateral regimes. I trust that the messages will resonate not just with policy makers in the region, but across our membership.

My colleague Jihad Azour, Director of the Middle East and Central Asia Department, will introduce the paper. And then we will have a panel discussion with three of the sharpest thinkers in town on this issue—Ceyla Pazarbasioglu-Dutz of the World Bank, Tim Adams of the Institute of International Finance, and Professor Ayman El Tarabishy of George Washington University.

This is important work with implications for millions of young people. Your perspectives will contribute to our ongoing efforts around the world.

Thank you.

IMF Communications Department

Phone: +1 202 623-7100Email: