Access to finance for small and medium enterprises (SMEs) is more constrained in the Middle East and North Africa (Mena) than other emerging markets as bank lending to SMEs accounts for only two per cent of the total loans, according to a World Bank report.
While UAE banks top the list in the GCC by giving four per cent of total loans to the SMEs, Saudi Arabia, Kuwait and Oman lend only two per cent each to small businesses, the report said.
Bahrain and Qatar lend the least to SMEs, with one per cent and 0.5 per cent of total loans respectively, said the paper titled "The Status of Bank Lending to SMEs in the Middle East and North Africa Region".
Moroccan banks have become the top lenders to SMEs in the Mena region with 34 per cent of total loans, said the World Bank after analysing data of 139 banks, which account for about half of Mena banks and almost two thirds of the banking system loans in 16 countries.
"Banks regard the SME segment as potentially profitable, and most banks are already engaged in SME lending to some degree. However SME lending accounts for only eight per cent of total lending in the Mena region," said Roberto Rocha, the World Bank's Senior Advisor in Mena.
"More positively, bank targets for SME lending are significantly higher than current lending, indicating a significant potential supply side response if constraints can be eased," he said.
While Yemen comes second by setting aside 20 per cent for SMEs out of total loans issued across the country, Lebanon and Tunisia rank third and fourth with 16 per cent and 15 per cent respectively in the Mena region, the report said.
As Jordan banks report 13 per cent of total lending to SMEs, neighbouring Palestine give out six per cent to the sector in the country. Egypt and Syria also lend five per cent and four per cent, respectively, to small businesses, according to the report.
SMEs are seen as key to solving the challenge of improving competitiveness, raising incomes and generating employment.
Principal constraints for SME lending include lack of transparency, poor credit information from credit registries and bureaus and weak creditor rights, the report said.
Larger banks have not played a more significant role in SME finance than smaller banks, reflecting the presence of large wholesale banks in the Mena region.
However, banks with a larger branch network do more SME lending, the report added.
State banks, which play a notable role in financing SMEs, were advised to employ more sophisticated risk management systems. Credit guarantee schemes were seen as a popular form of support to SME finance in the region.
"Direct policy interventions through public banks, guarantee schemes, and other measures have played a role in compensating for Mena's weak financial infrastructure but more sustainable structural solutions are needed," Rocha said.
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