BEIRUT: Despite the significant contribution of small and medium-sized enterprises to Lebanon’s economy, stimulus funding and other forms of support are often found lacking for SMEs, according to a major government-sponsored financial panel held Tuesday in Beirut.
The SME conference entitled “Your Needs, Our Challenges,” brought together high-profile government officials including the Ministers of Economy, Industry, Telecom, Energy and Governor of Banque Du Liban Riad Salameh but fell short of a large SME audience, according to a number of attendees and observers at the event.
Speakers and panelists included private equity managers, investment bankers, venture capitalists, economists, and financial gurus.
“SMEs are one of the main driving forces of the economy, providing growth and creating jobs; however, 70 percent of these enterprises in Lebanon don’t get bank funding,” Dr. Marwan Barakat, group chief economist and head of research at Bank Audi said.
Insufficient information provided by SMEs to banks, high operational costs and poor management skills are the major reasons behind the lack of funding, Barakat explained.
Private banks are attempting to better adapt to the needs of SMEs by tailoring their offering in terms of loans and consultancy services, since “a better relationship between banks and SMEs would lead to a better economy,” according to Barakat.
Jimmy El Azar, head of Investment Finance at SGBL Bank, believes that SMEs should be seeking private equity investments rather than bank loans, which represents the traditional route for Lebanon's small-to-medium businesses.
“The funding gap in the SME sector is rather on the equity side - bank credit to SMEs is around $23 billion, which is around 30 percent of GDP, whereas equity funding is estimated at less than 3 percent, thus a better-capitalized SME sector builds up further capacity for debt-financing…”, El Azar said.
SMEs essentially seek funds in two ways, but each has its pros and cons. The first, which is the usual financing route for SMEs in Lebanon, is through banking loans since enterprise founders don’t have to worry about sharing equity with entities outside the company.
On the other side of the spectrum, is receiving funding from venture capital funds in return for shares within the company; this aspect allows entrepreneurs to focus solely on the growth of the company without the burden of paying off a bank loan within a certain period. However, equity or VC investments can lead to a divide of management control within the company. This has prompted the majority of small and medium businesses in Lebanon, which are family owned, to shy away from VC investments.
SMEs account for nearly 95 percent of companies operating in Lebanon and employ the largest number of people, according to Economy Ministry Raed Khoury.
"SMEs are the mainstay of the economy, providing jobs, combating unemployment, and stimulating growth by improving the capacity and skills of citizens in their own villages, and in a large number of developed countries they contribute more than 60 percent of the GDP and employ more than 50 percent of the labor force,” Khoury said.
He added that Lebanon is characterized by efficient individual initiatives and success at the entrepreneurial level, which continues to demonstrate the ability of SMEs to leave a positive imprint in the Lebanese economy.
In related business, Governor of Banque Du Liban Riad Salameh underscored monetary stability.
“Banque du Liban has allowed our country to maintain acceptable interest rates between 6 and 7 percent, compared to 12 percent in Turkey and 20 percent in Egypt. This compensates for the relatively high costs resulting from the deterioration of infrastructure and the decline of public services and the complexity of administrative transactions,” Salameh said during his opening speech.
Annahar correspondent Khaled Rajeh contributed to this report.
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