Finance
Banking in the MENA region is characterized by conservative lending practices. Credit risk is managed by minimizing exposure and imposing high collateral requirements, making credit available mostly to large, highly-capitalized businesses. Lending also tends to be short-term, ignoring the long-term capital requirements of borrowers. These practices hurt SMEs, lenders, and the local communities where they operate.
MEII stimulates SME lending by providing local partner banks with (i) partial loan guarantees and (ii) technical assistance to assess the viability of their SME clients and structure loans to meet borrower working capital and longer-term needs. To date, MEII has designed and managed five loan guarantee facilities (LGFs) totaling over $500 million in Palestine and Tunisia. Our LGFs are not designed to be permanent fixtures in the local economy. Rather, they are temporary interventions (often 10-12 years in duration) intended to address local bottlenecks and stimulate lending to SMEs. MEII’s strategy is to develop the SME underwriting capacity of partner banks, providing opportunities for SMEs to develop a strong track record and credit history. We create the parameters for banks and SMEs to interact on a bilateral basis, eventually without the need for a third-party intermediary like MEII.
In SME loan guarantee facilities
In SME loan applications
In approved loans
That were considered too "risky" by banks
- Transform the SME culture to encourage financial transparency and disclosure.
- Provide SMEs with the tools and knowledge to understand their financial performance.
- Develop organized and "audit-ready" bookkeeping practices.
- Help SMEs lacking collateral to develop cash flow-based business plans that reflect their potential for growth.
Knowledge and Education
Many SMEs in the region lack accurate and adequate financial statements. The reasons for poor financial transparency and inadequate disclosure among SMEs vary, but thorough analysis indicates that the problem is primarily attributed to a lack of capacity and knowledge regarding how to organize and present their financial information. Most SMEs (especially small companies) have never felt the need to maintain accounting records, which in larger businesses are typically required by banks, regulators, and shareholders. Viable SME owners are keenly aware of the financial dynamics of their business; they know who owes payment, how much is owed to vendors, and whether or not the business is profitable. However, most SME owners suffer from a general inability to effectively communicate information in financial statements that are consistent with general accounting standards. As a result, most SMEs are ill-equipped and insufficiently experienced to develop and manage relationships with external financing parties.
MEII has developed Tamweeli Assist to help improve the accounting and financial literacy of SMEs. MEII believes that improved financial literacy leads to enhanced financial transparency and governance, which can facilitate better access to finance for SMEs and allow them to grow and hire more employees. By developing financial literacy and financial disclosure mechanisms, SMEs are better positioned to present their bankability to financial intermediaries, allowing lenders to more confidently assess risk and underwrite loans.
MEII has also developed Tamweeli Academy to offer educational training tailored to the needs of businesses. The training courses take place both remotely and in-person, and cover a variety of themes touching upon fields such as accounting, finance, and business management.
Trained by business advisors
Accounting software programs installed
Interns trained
Of the interns were employed post-internship
Technology and Innovation
Despite limited access to capital, many SMEs in the MENA region have incredible potential for growth. Helping these businesses reach their full potential will generate significant economic benefits through increased productivity, employment, and economic stability. Banks in the region report that the poor quality of loan applications (lack of financial statements, business plans, etc.) is a serious impediment to the necessary due diligence required to provide capital. However, many SMEs lack the capacity and knowledge to organize and present their financial information. This weakness perpetuates a negative perception in the credit market, resulting in prohibitively high collateral requirements and effectively preventing most small businesses from accessing to adequate credit.
In 2015, MEII launched the Tamweeli matchmaking platform in Palestine. Tamweeli is an innovative online platform that harnesses the security, speed, and simplicity of the internet to streamline the financing process for both financial intermediaries and SMEs by connecting businesses with financing requests to financial intermediaries, mainly banks and MFIs.
Financial Intermediaries are registered
Entrepreneurs registered on Tamweeli
SME loans posted on Tamweeli
In SME loans facilitated
MEII is seeking to leverage its accumulated experience and is committed to raising the Sharaka Fund in order to create jobs, reach a greater number of entrepreneurs and businesses, and fundamentally transform SME access to finance in the MENA region. The principal rationale for the Fund is to address a market failure to provide adequate and appropriate financing to feed growth in MENA’s SME sectors and introduce new financial products that better suit the needs of the “Missing Middle” SMEs. Risk capital has two fundamental characteristics: (i) it does not require 100% collateral coverage (and certainly not 200%); and (ii) it is risk sharing, meaning that the investor shares in both the downward and upward performance of the investee. All VC and PE investing is risk capital, but not all risk capital need be VC or PE in the conventional sense of these terms. These SMEs a financial instrument that is a hybrid of bank lending and venture capital, one that takes more risk than a bank but less risk than a venture capital fund.
Addressing a Market Gap
According to the IFC, only 20% of MENA SMEs have a bank loan or line of credit, largely due to excessive collateral requirements. While MEII has successfully expanded SME lending in the countries in which it operates, the organization has also learned that improved bank lending is only part of the answer to address the substantial financing gap of the “Missing Middle” SMEs – those businesses that are too large for microfinance or family investment, but too small to attract traditional financing (banks) and risk capital (private equity). In our experience, however, when these “Missing Middle” businesses – SMEs that require capital ranging from $100,000 to $3 million – are given access to well-structured capital, they tend to grow, hire new employees, and stimulate additional economic activity in their communities
Addressing a Market Gap
According to the IFC, only 20% of MENA SMEs have a bank loan or line of credit, largely due to excessive collateral requirements. While MEII has successfully expanded SME lending in the countries in which it operates, the organization has also learned that improved bank lending is only part of the answer to address the substantial financing gap of the “Missing Middle” SMEs – those businesses that are too large for microfinance or family investment, but too small to attract traditional financing (banks) and risk capital (private equity). In our experience, however, when these “Missing Middle” businesses – SMEs that require capital ranging from $100,000 to $3 million – are given access to well-structured capital, they tend to grow, hire new employees, and stimulate additional economic activity in their communities
MEII is seeking to leverage its accumulated experience and is committed to raising the Sharaka Fund in order to create jobs, reach a greater number of entrepreneurs and businesses, and fundamentally transform SME access to finance in the MENA region. The principal rationale for the Fund is to address a market failure to provide adequate and appropriate financing to feed growth in MENA’s SME sectors and introduce new financial products that better suit the needs of the “Missing Middle” SMEs. Risk capital has two fundamental characteristics: (i) it does not require 100% collateral coverage (and certainly not 200%); and (ii) it is risk sharing, meaning that the investor shares in both the downward and upward performance of the investee. All VC and PE investing is risk capital, but not all risk capital need be VC or PE in the conventional sense of these terms. These SMEs a financial instrument that is a hybrid of bank lending and venture capital, one that takes more risk than a bank but less risk than a venture capital fund.
Addressing a Market Gap
According to the IFC, only 20% of MENA SMEs have a bank loan or line of credit, largely due to excessive collateral requirements. While MEII has successfully expanded SME lending in the countries in which it operates, the organization has also learned that improved bank lending is only part of the answer to address the substantial financing gap of the “Missing Middle” SMEs – those businesses that are too large for microfinance or family investment, but too small to attract traditional financing (banks) and risk capital (private equity). In our experience, however, when these “Missing Middle” businesses – SMEs that require capital ranging from $100,000 to $3 million – are given access to well-structured capital, they tend to grow, hire new employees, and stimulate additional economic activity in their communities
MEII is seeking to leverage its accumulated experience and is committed to raising the Sharaka Fund in order to create jobs, reach a greater number of entrepreneurs and businesses, and fundamentally transform SME access to finance in the MENA region. The principal rationale for the Fund is to address a market failure to provide adequate and appropriate financing to feed growth in MENA’s SME sectors and introduce new financial products that better suit the needs of the “Missing Middle” SMEs. Risk capital has two fundamental characteristics: (i) it does not require 100% collateral coverage (and certainly not 200%); and (ii) it is risk sharing, meaning that the investor shares in both the downward and upward performance of the investee. All VC and PE investing is risk capital, but not all risk capital need be VC or PE in the conventional sense of these terms. These SMEs a financial instrument that is a hybrid of bank lending and venture capital, one that takes more risk than a bank but less risk than a venture capital fund.
They will target entrepreneurs and SMEs: