Financial Literacy as new frontier for SMEs in the Arab Region Habib ATTIA Financial Sector Specialist Arab Monetary Fund Financial Education in the Arab World Conference Skhirat, Rabat, Morocco 20-21 October, 2016

SMEs in the Developing World Key Characteristics of Arab SMEs SMEs Enterprises Landscape SMEs in the Developing World Key Characteristics of Arab SMEs MSMEs constitute the vast majority of enterprises in MENA, but 90% of the 19-23 million MSMEs are informal; Contribution to job creation is highest among formal sector enterprises: 67% of the labour force in MENA are informal and produce 27% of GDP. Typically have weak balance sheets and use retained earnings to grow. Lack skills and access to professional services. Inadequate access to finance for SMEs is still the no.1 constraint for its development. Only one in five (1/5) of SMEs in the region has a loan or line of credit. Source: WB 2012, Nasr and Pearce, SME Access to Financial Services N°71551; based on Government databases – World Development Indicators

SME entrepreneur ecosystems Finance Suppliers, Customer, employees Management capacity Market information & access Entrepreneur Infrastructure Law enforcement Regulations, Licenses, Taxes

SMEs in Arab countries are heterogeneous Size Requirements Lower End Large numbers, very small, often informal, little or no collateral, highly vulnerable, access to short term financing through MFIs most pressing need. Middle ‘Life-style’ businesses, family owned, stable without growth, more often formalised, often banked, but little or only short term credit available. Upper End Growth-oriented and sometimes export oriented enterprises, which need working capital and investment financing and more advanced business development services. One-size doesn’t fit all – Risk of over-simplification

MENA SMEs’ Financing needs Source: IFC, 2013, Closing the Credit Gap for Formal and Informal Micro, Small and Medium Enterprises

Key issues affecting SMEs in the region Access to and affordability of finance a main constraint, caused by: collateral & titles, credit information, entrepreneur’s capacity, bank capacity, opportunity costs banks; Enabling environment; and Internal capacity.

Constraints & responses SMEs Finance: Constraints & responses Constraints Responses Information asymmetry Credit Reporting Systems Usable collateral Secured Transactions Frameworks (inc. movable assets registries) Lack of Financing Sources and Products Credit lines, Guarantee Schemes, State Banks, SME Exchanges, SME Funds, Licensing banks/NBFIs for Competition, Reforms to encourage leasing, factoring . Lack of Access Points Branch Expansion, State Banks, Agent Networks SME Financial Capability Financial Education, Training, Awareness Campaigns Focus on services Focus on users

Recent stocktaking study on the Financial Education programmes in the Arab region Most of the 100+ national and regional initiatives have been launched within the past five years. Morocco‘s engagement in financial education activities makes up 20% of all national initatives. This is followed by Lebanon, Egypt and the Palestinian Territories with respectively 15-16%. Egypt reaches the biggest scale in terms of number of beneficiaries with more than 2 million, followed by the Palestinian Territories with more than 1.2 million, followed by Yemen with more than 0.5 million. The largest project carried out was the Extended and Sustained Access to Financial Services Program (ESAF) in the Palestinian Territories. The costs of $36 million for the three-year period were provided by USAID. Source: AMF / GIZ Study October 2016

% of all initiatives focusing on special target groups Source: AMF / GIZ Study October 2016

# of national initiatives with special target groups Source: AMF / GIZ Study October 2016

Development of a national strategy on financial education YES NO IN PROGRESS REMARKS Algeria X Egypt Need for draft of Action Plan Jordan Lebanon* Need for clear leadership and draft of NSFE Morocco* Currently in implementation phase Palestinian Territories* National Strategy on Financial Inclusion is planned Tunisia Need for leadership. National Strategy on Financial Inclusion is planned Yemen NSFE is planned, but no draft existing yet (put on hold due to crisis) Source: AMF / GIZ Study October 2016

% of projects targeting… National initiatives # of initiatives # of beneficiaries % of projects targeting… children youth women M/SME MF clients Refugees Algeria 5+ ~55.000+ 1 3 2 - Egypt 14+ ~2.045.000+ 5 9 8 Jordan 9+ ~4.200+ 4 6 Lebanon 15+ ~179.580+ 7 Morocco 19+ ~203.000+ 10 Palestinian Territories ~1.270.000+ Tunisia ~32.700+ Yemen 8+ ~562.000+ Source: AMF / GIZ Study October 2016

Thank you Q & A