Expanding Access to Finance is Key to Growth for Smaller Businesses, Says IFC’s Thunell
Lars Thunell, Executive Vice President and CEO of IFC, a member of the World Bank Group, today underpinned the importance of expanding access to finance to smaller businesses. Addressing the banking community in Saudi Arabia during an SME finance conference, he said, “Small and medium enterprises are major contributors to employment, yet their financial needs are underserved, which is hindering their growth.”
Organized by the Institute of Banking and hosted by H.E. Hamad Al-Sayari, Governor of the Saudi Arabian Monetary Agency, the conference discussed ways to encourage SME banking in Saudi Arabia and the region as a whole.
“Banks generate higher profits from their SME lending than from their other portfolios, but many banks remain wary of this sector due to its perceived risk. IFC is helping banks approach SME lending in ways that enable them to manage potential risk,” Thunell said.
IFC primarily finances small businesses indirectly, through financial intermediaries such as investment funds and local financial institutions, including commercial banks, microfinance institutions, and leasing providers.
Over the past five years, IFC’s investments in financial institutions have increased fivefold, to nearly $2 billion in fiscal 2007. In 2006, these institutions disbursed close to 9 million loans, totaling more than $96 billion. IFC’s advisory services also play an essential role in SME financing, from helping clients develop new products to setting up full SME banking operations in commercial banks.
Starting and expanding a small business is one of the most important routes to sustainable economic growth. A vibrant small business sector also provides consumers with options and generates tax revenue to help improve public services.
Thunell is on his first visit to Saudi Arabia since he joined IFC in 2006. The visit highlights IFC’s continuing commitment to its well-established partnership with Saudi Arabia, as well as the recognition of the country’s reforms toward developing the private sector. Saudi Arabia has one of the most active private sectors in the Middle East and North Africa. In FY07, more than 25 percent of IFC’s total commitments in the region were with Saudi businesses that are expanding in the region. IFC has established a presence in Saudi Arabia and will continue to expand. So far, IFC has committed more than 500 million riyals ($130 million) in key sectors, including housing, insurance, and leasing.
Thunell’s agenda includes meetings with government officials and discussions with representatives from the private sector. He will also sign a public-private partnership agreement with the General Authority of Civil Aviation to work closely with the government in developing three “airport cities” under private sector participation schemes in Dammam, Jeddah, and Riyadh.
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