Past Event

Financial inclusion of SMEs for growth and job creation

How can increased access to finance benefit SMEs? What reforms are needed to encourage SME financial inclusion?

Date: June 21, 2019, 12:30 pm Topic: Global economy and trade

video & audio recordings

summary

At this event we looked at how small and medium-sized enterprises’ (SMEs) financial inclusion is at the core of the economic diversification, growth, and job creation challenges many countries are facing.

This event featured the presentation of Financial inclusion of SMEs in the Middle East and Central Asia, a recent paper by the IMF, which discusses the macroeconomic benefits that could stem from improved access to finance for SMEs in these two regions, which lag behind other regions when it comes to SME access to finance. It also highlights the range of reforms needed to unlock SME financial inclusion—from macro-financial conditions and public sector size, to institutional and regulatory issues related to competition, credit information, property rights and solvency frameworks.

Jihad Azour provided the opening remarks on the inspiration for the project on financial inclusion of SMEs (small and medium-sized enterprises). The project wanted to focus on the following questions: How important is access to finance for SMEs to the economy? Is it macro relevant? How can the level of finance for SMEs be increased? What are the key bottle necks? How can access be mainstreamed at the country level?
They concluded that increasing financial access for SMEs would grow the economy and it will have a positive impact on employment. The project also looked at how, and especially in the Middle East, countries can scale up their support for SMEs. Azour also asserted that the demand for finance from SMEs is weak and they are not well prepared. In the future the project will look at financial support for SMEs from non-banking sources such as Fintech.
Anta Ndoye provided a presentation to discuss the project in more detail. Ndoye provided some stylized facts on SMEs such as SMEs represent over half of the total workforce in the private sector. Despite such presence of SMEs in the MENA (Middle East and North Africa) and CA (Central Asia) region only receive 7% of the bank credit. One main takeaway Ndoye highlighted from the project was that in the MENA and CA region increase finance to SMEs is estimated to lead to growth gains up to 1%. Ndoye then spoke on five key pillars to scale up financing for SMEs: Economic enablers, governance, financial infrastructure, economic competition, and business environment. Ndoye highlighted the role Fintech can play in increasing finance to SMEs by both enhancing tradition sources (credit information, real-time credit scores, competition) and by creating new channels (crowdfunding and peep-to-peer lending). Ndoye concluded that to increase SMEs financial inclusion a holistic policy approach is needed. This means an approach that considers business environment, political and macro stability, and institutions.
Going forward the project will focus on more granular and tailored advice for countries. It will also focus more on the demand side of financial access. The project is developing a SME financial inclusion toolkit, available within the next months, that will asses the state of SME financial inclusion, highlight the main drivers of SME financial inclusion gap, and identify the key policy priorities to scale up SME access to finance.
Barbara Marchitto spoke on work recently done at the EIB (European Investment Bank) that focused on the demand side of finance from SMEs. The key takeaways their research found were that the demand in the MENA region is weak, there are a large share of firms that exclude themselves from the formal financial sector — meaning they do not use banks including having a bank account. They found the lack of engagement with banks by SMEs were competition, collateral regimes, and the cost of formalization. They found that firms are more likely to engage with the banking sector when they are in areas where banks accept movable collateral, that less competition leads to less engagement with banks, and that firms that started as informalized and formalized later are also less likely to engage with banks.
The research also looked at human capital and found that entrepreneurs with university degrees were more likely to engage with the banking system. Therefore, firms that are managed by highly educated entrepreneurs have a better understanding of the costs of being exclude form the financial sector.
Bruno Balvanera spoke next about the ECRB’s (European Bank for Reconstruction and Development) five pillar approach for SMEs. The first pillar is to work through banks. Through the banks they are able to reach hundreds of thousands of SMEs on a yearly basis. The second pillar is risk sharing facility. This means the banks work with their clients but the ECRB will take on 50% of the risk. The third pillar is to work directly with SMEs. This third pillar is not as common as the previous two pillars. The fourth pillar is technical assistance to SMEs. The fifth pillar is about creating a business environment that benefits SMEs more.
Balvanera also highlighted the work the ECRB has done to empower women lead SMEs. The ECRB has also done special work with green SMEs and SMEs lead by young people. Azour spoke more on the topic of a holistic approach and stressed the importance of connectivity, understanding the specificity of needs for each SME because SMEs vary greatly, it is about the journey of going from an idea to reaching capital markets, both lack of supply and demand are there because of reasons such as environment and policies, technology and not only fintech is important, moving from pilot programs to scaling, and that everything is macro and everything is micro at the same time.
Both Azour and Balvanera pointed out that foreign (European) banks in the MENA and CA region have a small presence but intra-regional banks within this region are starting to develop, the Turkish banks in particular bring value added to SMEs.

Notes by Akira Soto

materials

Presentation by Anta Ndoye

Schedule

Jun 21, 2019

12:30-13:00

Check-in and lunch

13:00-13:05

Welcome

Guntram B. Wolff, Director

13:05-13:10

Introduction

Jihad Azour, Director of the Middle East and Central Asia Department, IMF

13:10-13:25

Presentation of report

A Ndoye

13:25-14:15

Panel discussion

Chair: Zsolt Darvas, Senior Fellow

Jihad Azour, Director of the Middle East and Central Asia Department, IMF

Bruno Balvanera, Managing Director Central Asia, European Bank for Reconstruction and Development

Barbara Marchitto, Head of Country and Financial Sector Analysis Division, European Investment Bank (EIB)

14:15-14:30

Q&A

14:30

End

Speakers

Jihad Azour

Director of the Middle East and Central Asia Department, IMF

Bruno Balvanera

Managing Director Central Asia, European Bank for Reconstruction and Development

Zsolt Darvas

Senior Fellow

Barbara Marchitto

Head of Country and Financial Sector Analysis Division, European Investment Bank (EIB)

A Ndoye

Guntram B. Wolff

Director

Location & Contact

Bruegel, Rue de la Charité 33, 1210 Brussels

Matilda Sevon

[email protected]

Read about event More on this topic
 

Past Event

Past Event

Is China’s private sector advancing or retreating?

A look into the Chinese private sector.

Speakers: Reinhard Bütikofer, Nicolas Véron and Alicia García-Herrero Topic: Global economy and trade Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: May 18, 2022
Read about event More on this topic
 

Past Event

Past Event

What is in store for Euro area economies?

ECB Executive Board Member Philip Lane discusses the outlook for Euro area economies.

Speakers: Maria Demertzis and Philip Lane Topic: European governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: May 5, 2022
Read about event More on this topic
 

Past Event

Past Event

COVID-19 and the shift to working from home: differences between the US and the EU

What changes has working from home brought on for workers and societies, and how can policy catch up?

Speakers: Jose Maria Barrero, Mamta Kapur, J. Scott Marcus and Laura Nurski Topic: Inclusive growth Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: April 28, 2022
Read about event More on this topic
 

Past Event

Past Event

From viruses to wars: recent disruptions to global trade and value chains

How have events in recent years impacted global trade and value chains and how can we strengthen these against future disruptions?

Speakers: Dalia Marin, Adil Mohommad and André Sapir Topic: Global economy and trade Date: April 27, 2022
Read about event More on this topic
 

Past Event

Past Event

War in Ukraine: What is the effect on Central and Eastern Europe?

How is the war in Ukraine affecting the countries in the central and eastern parts of Europe, the countries that are closest to the ongoing conflict?

Speakers: Beata Javorcik and Guntram B. Wolff Topic: European governance Date: April 26, 2022
Read about event
 

Past Event

Past Event

War in Ukraine: How to make Europe independent from Russian fossil fuels?

In this episode of the Sound of Economics live we discuss whether REPowerEU can make sure that Europe has affordable and secure energy supplies in both the near and long term.

Speakers: Diederik Samsom, Georg Zachmann and Guntram B. Wolff Topic: European governance, Green economy Date: March 31, 2022
Read about event More on this topic
 

Past Event

Past Event

Tackling future risks to banks

How to address vulnerabilities in banks in the coming years?

Speakers: Maria Demertzis and Elizabeth McCaul Topic: Banking and capital markets Date: March 29, 2022
Read about event More on this topic
 

Past Event

Past Event

Macroeconomic and financial stability in changing times: conversation with Andrew Bailey

Guntram Wolff will be joined in conversation by Andrew Bailey, Governor of the Bank of England.

Speakers: Andrew Bailey and Guntram B. Wolff Topic: Macroeconomic policy Date: March 28, 2022
Read about event More on this topic
 

Past Event

Past Event

Who will enforce the Digital Markets Act?

While the Digital Markets Act entered its first trilogue, what will be the enforcement role of the Commission and the Member States?

Speakers: Christophe Carugati, Cani Fernández, Assimakis Komninos and Georgios Petropoulos Topic: Digital economy and innovation Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: March 22, 2022
Read about event More on this topic
 

Past Event

Past Event

War in Ukraine: reflections on the economic consequences for Russia

Sergei Guriev joins us to discuss how the Russian invasion of Ukraine will affect the economies of Russia and the world?

Speakers: Sergei Guriev, Maria Demertzis and Guntram B. Wolff Topic: Global economy and trade Date: March 10, 2022
Read about event More on this topic
 

Past Event

Past Event

War in Ukraine: A conversation with Oleg Ustenko

Oleg Ustenko, Economic Advisor to Ukrainian President Volodymyr Zelenskyy joins us to discuss the situation in Ukraine.

Speakers: Guntram B. Wolff and Oleg Ustenko Topic: European governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: March 9, 2022
Read about event More on this topic
 

Past Event

Past Event

Developing an EU approach to strategic gas storage

A timely conversation on Europe's strategic gas reserves.

Speakers: Claude Turmes and Georg Zachmann Topic: Green economy Date: March 4, 2022
Load more posts