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The March 2022 issue asked why Lebanese small and medium-sized enterprises had been left without structured access to capital, and what an organised market for them would require. It traced the problem to roughly three decades of crowding out: the state's reconstruction and deficit financing made lending to the government more attractive to banks than lending to the productive sector. SMEs, mostly family-owned and weakly governed, were left with short, expensive, heavily collateralised bank credit.
The issue argued that the Electronic Trading Platform (ETP), a Banque du Liban initiative whose launch had been repeatedly delayed by the banking crisis and was then expected in the third quarter of 2022, was the most promising vehicle for SME financial inclusion. A listing would allow equity raising, the issue of corporate and hybrid debt including sukuk, and an exit channel for investors, while forcing governance, accounting and ESG discipline. A domestic corporate bond market would also loosen the banks' hold over private-sector debt.
Its central contention was that the ETP could not function without an independent, regulated national scoring agency. With the sovereign in Selective Default, a classical rating would cap every company at the sovereign level; a national scale ignores the sovereign ceiling and ranks obligors against domestic peers, giving investors facing severe information asymmetry a usable comparison.
Key findings
- At the time of writing, bank balance sheets in 2019 held some US$190 billion of deposits, of which about US$40 billion went to private-sector loans and US$130 billion to government debt.
- SME bank funding before the crisis was largely limited to loans of no more than three years and overdrafts carrying around 18.5% interest.
- It proposed a cloud-based, monthly-updated scoring platform built on international methodologies and dedicated to SMEs and their securities issuance.
- In the proposed methodology, qualitative factors such as industry, export capacity, import substitution, governance and management account for more than 50% of the score.
Archive: written in Mar 2022; figures and assessments reflect conditions at the time of writing.Summary of the paper; the full analysis is in the PDF.