Banking tradition in Mena hindering economic progression
The financial sectors in the Middle East and North Africa (MENA) regions are largely disconnected from a majority of firms, according to a new report published by the World Bank, European Investment Bank, and European Bank for Reconstruction and Development titled "What's holding back the private sector in MENA?" [1]
The report highlights that credit is largely channeled to a small number of large firms, hindering potential growth for small and medium-sized enterprises (SMEs). To address this issue, several measures can be taken to improve the connection between financial banking sectors and SMEs, with technology-driven platforms playing a key role.
One such solution is leveraging fintech to automate and streamline financial services, reducing the costs and time typically associated with lending. Fintech solutions can automate client onboarding, credit analysis, due diligence, and payment collection, making it easier and cheaper for banks to provide credit to SMEs [1].
Fintech platforms, such as mobile lending, digital wallets, and online banking, help bring financial services to underserved areas, including rural regions where traditional banks have limited presence. This is critical for SMEs that often lack formal credit histories or collateral [1][2].
Another technology-driven platform that could aid growth in the MENA region is supply chain financing and invoice discounting. These platforms offer SMEs more flexible financing options by enabling them to access funds based on their receivables or supply chain transactions rather than traditional creditworthiness. This can significantly ease cash flow issues for SMEs, allowing them to grow and compete more effectively [1].
Effective collaboration among fintech companies, banks, regulators, and policymakers is essential for creating supportive regulatory environments. This fosters innovation while ensuring consumer protection and sustainable financial practices, which benefits SMEs by encouraging responsible and accessible financing options [2][3].
To maximize adoption, initiatives to improve digital literacy among SMEs must be prioritized, along with transparent security mechanisms and strong customer support. These efforts build trust in digital financial services, resulting in higher engagement and usage [3].
The adoption of AI and data-driven credit scoring models can help better assess the creditworthiness of SMEs that lack traditional financial records, enabling more accurate risk evaluation and expanding lending opportunities [4].
In conclusion, strengthening the connection between banks and SMEs in the MENA region requires embracing fintech-driven automation, digital financial inclusion tools, and innovative financing platforms such as supply chain financing and invoice discounting. Combined with supportive regulations, partnerships, and education efforts, these technologies can bridge financing gaps and empower SMEs to scale effectively [1][2][3][4].
References: [1] World Bank, European Investment Bank, European Bank for Reconstruction and Development. (2021). What's holding back the private sector in Mena? [2] Kapadia, S. (2021). Fintech and the Future of Banking in MENA. Gulf Business. [3] Revoltella, D. (2021). The Role of International Financial Institutions in MENA's Growth Opportunities. Middle East Economic Digest. [4] Sonam Kapadia, Head of Corporate Trade Sales and Advisory MENA at National Bank of Abu Dhabi (NBAD). (2021). Personal interview.
Fintech platforms, such as mobile lending, digital wallets, and online banking, could help bridge the gap between the financial sectors and emerging markets in the MENA region, specifically small and medium-sized enterprises (SMEs) that often lack formal credit histories or collateral. Supply chain financing and invoice discounting, another technology-driven platform, could provide SMEs with more flexible financing options based on their receivables or supply chain transactions.
