## SME Development and Financial Inclusion in the Arab World

_IMF News, February 10, 2019_

## Source details

**Canonical URL:** [SME Development and Financial Inclusion in the Arab World](https://www.imf.org/en/news/articles/2019/02/08/sp0210-md-sme-financial-inclusion)

## Other formats

- [Markdown version](/en/news/articles/2019/02/08/sp0210-md-sme-financial-inclusion/index.md)
- [Structured JSON version](/en/news/articles/2019/02/08/sp0210-md-sme-financial-inclusion/index.json)
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## Bibliographic details
- Published: February 10, 2019

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### Introduction
- Speech by Christine Lagarde, Managing Director, IMF, at World Government Summit, Dubai, February 10, 2019.
- Welcomes participants and frames SME development and financial inclusion as central to making growth more inclusive in the Arab region.
- Notes intent to: (i) explain “why” focus on SME financial inclusion; (ii) explain “how” countries can create an enabling environment for SMEs; and (iii) explain “how” the Fund can support members on these efforts.

### Why Focus on SME Financial Inclusion
- Macro-relevance: SMEs help create jobs, diversify economies, and support growth.
- Key regional facts:
  - SMEs represent 96 percent of registered companies.
  - SMEs employ half of the labor force.
  - Lending to SMEs in the region is only 7 percent of total bank lending.
- Projected benefits of closing the financial inclusion gap (with respect to the average of emerging and developing countries):
  - It could boost annual economic growth by up to one percent.
  - Potentially leading to about 15 million new jobs by 2025 in the Arab region.
  - It could increase the effectiveness of fiscal and monetary policies by improving domestic revenue mobilization and monetary policy transmission.

### How to Create an Enabling Environment for SMEs
- Principle: promoting SME financial inclusion requires a holistic approach; there is no magic bullet and partial approaches are unlikely to suffice.
- Three common determinants to scale up SME bank credit:
  1. Sound economic fundamentals and financial sectors
     - Curb the size of the state where it crowds out financing for SMEs and creates an uneven playing field with SOEs.
     - Ensure a sound and competitive economy and banking sector that facilitate market entry for SMEs.
  2. Institutional factors
     - Good governance and financial supervisory capacity.
     - Availability of credit information.
     - Strong legal frameworks.
     - Example: increasing the coverage of credit bureaus in the Arab region could raise employment, especially by SMEs.
  3. Harnessing alternative channels of SME finance
     - Tap capital markets and support development of SME capital market segments.
     - Fintech as a potential game changer: can increase competition among credit providers and expand credit information.

### How the Fund is Supporting Member Countries on SME Financial Inclusion
- IMF role:
  - Provide more granular and tailored advice reflecting international experience and specific country needs.
  - Coordinate support with other regional and international organizations.
- Observed country action:
  - Several Arab countries, such as Egypt, Jordan, and the U.A.E., have started to implement comprehensive strategies to increase financial inclusion, including for SMEs.
- Ongoing work:
  - A new IMF paper on SME financial inclusion will be launched on Tuesday in Cairo; intended to mark the start of deeper engagement with members in this policy area.

### Key Statistics and Findings (exact figures preserved)
- SMEs represent 96 percent of registered companies.
- SMEs employ half of the labor force.
- Lending to SMEs in the region is only 7 percent of total bank lending.
- Closing the financial inclusion gap could boost annual economic growth by up to one percent.
- Closing the gap could potentially lead to about 15 million new jobs by 2025.

### Policy Recommendations (actionable levers highlighted in the speech)
- For governments and regulators:
  - Reduce state crowding-out where SOEs distort competition for SME finance.
  - Strengthen governance and financial supervisory capacity.
  - Expand coverage and effectiveness of credit information systems and credit bureaus.
  - Strengthen legal frameworks that support lending and creditor rights.
- For financial sector and markets:
  - Promote a competitive banking sector that facilitates SME market entry.
  - Develop SME segments in capital markets to diversify funding sources.
  - Encourage fintech adoption to increase competition among credit providers and expand credit information.
- For the IMF and international partners:
  - Provide tailored, country-specific advice on SME financial inclusion.
  - Coordinate technical and policy support with regional and international organizations.

*Italic: Content based on speech text provided by the IMF.*

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## References

- [Christine Lagarde](https://www.imf.org/en/About/senior-officials/Bios/christine-lagarde)
- [Access to Financing for SMEs](https://www.imf.org/en/News/Seminars/Conferences/2019/01/23/sme-financial-inclusion-paper-launch)
- [Fourth Arab Fiscal Forum](https://www.imf.org/en/News/Seminars/Conferences/2019/01/23/arab-fiscal-forum)
- [Arab Republic of Egypt and the IMF](http://www.imf.org/external/country/EGY/index.htm)
- [Speeches](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2019/02/08/sp0210-md-sme-financial-inclusion_