Small and medium enterprises represent around 96 per cent of registered firms in the Arab world, but they face severe financing issues and closing this financial inclusion gap will help generate 15 million new jobs in the next six years, the head of the International Monetary Fund said on Sunday.
"In the Arab region, SMEs represent 96 per cent of registered companies. They also employ half of the labour force. Yet their access to finance is the lowest in the world as lending to SMEs in the region is only 7 per cent of total bank lending," IMF managing director Christine Lagarde said.
"We found that closing this financial inclusion gap - with respect to the average of emerging and developing countries - would yield multiple economic benefits. It could boost annual economic growth by up to 1 per cent, potentially leading to about 15 million new jobs by 2025 in the Arab region."
She acknowledged that the UAE, along with Egypt and Jordan, have started to implement comprehensive strategies to increase financial inclusion for SMEs.
"Based on our recent research, we found that promoting SME financial inclusion requires a holistic approach. To achieve meaningful, safe and sustainable SME access to finance, there is no magic bullet. And partial approaches are unlikely to suffice," Lagarde told the World Government Summit in Dubai.
The seventh edition of the summit kicked off on Sunday with more than 4,000 participants from 40 countries. Lagarde on Saturday called on Arab countries to rein in public debt, which has more than doubled in the last five years.
She also noted that the oil exporters in the Mena have not fully recovered from the dramatic oil price shock of 2014. "Modest growth continues, but the outlook is highly uncertain - reflecting in part the need for countries to shift rapidly toward renewable energy over the new few decades, in line with the Paris Agreement."
Lagarde called for creating an uneven playing for SMEs and state-owned enterprises as well as a sound banking sector that facilitate market entry for small and medium firms.
She also sees a need for tapping capital markets and supporting the development of SME capital market segments in the Arab world. "Fintech is also a potential game-changer for SMEs. It can increase competition among credit providers and expand credit information."
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