US$30 million to inspire young entrepreneurs denied access to financing
BEIRUT, February 13, 2012 – Banking is the most thriving sector in Lebanon. But risk aversion, combined with stringent collateral requirements, are key stumbling blocks that prevent the wider public from accessing this service and deprives small and medium enterprises of much needed loans. Now there is new opportunity supported by a US$30 million World Bank loan to the Government of Lebanon.
Supporting Innovation in Small and Medium Enterprises (SMEs) in Lebanon through Public/Private Equity Fund is a new pilot program signed today between the Ministry of Finance and the World Bank. It is a 17-year soft loan with a six-year grace period.
This pilot will be implemented by Kafalat, the country’s credit guarantee agency. The main component comprises an innovation in SME funding to be called the iSME Fund. This fund will provide two sources of financing: US$2.5 million for Concept Development Grants; and US$25 million for equity investment in seed and growth stage firms. The remaining amount will go to program management and strategic training activities and to marketing targeted at the business community, venture capital partners, the diaspora and the community at large to promote the program and the beneficiary entrepreneurs.
The Concept Development Grants will be extended to entrepreneurs for development of their ideas. To qualify for the equity investment, the entrepreneur needs a commitment from an investor before approaching the iSME Fund. The matching participant will share the initial investor’s risk and add to the capital available to the new business.
“What is new about this project is that it provides direct financing to the capital of potential and existing SME’s,” said Lebanon’s World Bank Country Director Ferid Belhaj, stressing the importance of this initiative for Lebanon’s youth who, according to recent figures, comprise up to 30 percent of the unemployed population. Belhaj said he was hopeful that the legislature would see “the merit of speeding a process to endorse the loan which will encourage start-up SME’s and create new job opportunities.”
“We expect that the success of the program will eventually encourage commercial banks to lessen the constraints enforced on borrowing,” he noted.
Khater Bou Habib, General Manager of Kafalat, the implementing agency, said the program provides a comprehensive mechanism that will inspire dynamics in this sector. “This program will ensure the emergence of enterprises that are highly transparent and organized, which, if successful, can go to the stock market, creating a new dynamic financial cycle in the country,” he said.
Randa Akeel, Senior Economist at the World Bank is the program’s team leader. At today’s signing she urged young people in Lebanon not to give up hope. “There are ways to achieve their aspirations and this pilot could snowball into greater hope that those aspirations are within reach,” she said.