In Lebanon, SMEs represent 97% of the total formal enterprises, employing more than 51% of the working population, and are in the majority family-owned. Supporting Lebanese SMEs is hence an important mechanism for increasing employment opportunities and generating income for employees and their families. Improved access to finance for SMEs is an essential factor allowing them to grow.

Fransabank’s strategy was to scale up its outreach to SMEs as it sought to expand beyond the traditional corporate and commercial markets that dominated the Lebanese banking sector. Fransabank established a dedicated SME department in 2007, which has since grown significantly and its portfolio has increased more than three-fold, (i.e. increased from USD 140 million at end-December 2007 to USD 482 million at end- December 2013). The Bank aims at creating value for SME customers with its extensive and geographically widespread branch network and its skilled team, dedicated to understanding the needs of the SME customers and to offering the best suited facilities and products to meet their needs and ultimately create value to their businesses.

Fransabank’s SME strategy is centered on:

• accessibility – a widespread network including branches in difficult regions;
• product diversification – offering a variety of credit facilities;
• Outreach and awareness – organizing seminars with different sectorial associations, including trade, agribusiness, industry, and tourism.

With the idea of quantifying IFC’s contribution towards job creation in financial markets investments in Lebanon, the IFC, in collaboration with Fransabank, has undertaken an in-depth study on the SME businesses in Lebanon.

The key objectives of the study are:

• to measure the job impact on SMEs from increased access to finance;
• To understand the broader development outcomes facilitated by engagements in the financial sector.

The results are based on a survey implemented in March 2013 which sampled from 73 companies that received loans from Fransabank during 2008 and 2011. The enterprises ranged from very small to medium firms whose activities were in the services, agribusiness, and manufacturing sectors spread across the five regions of Lebanon.

The Outcome

Despite the challenging operating environment and economic conditions, the study found encouraging job creation effects. As well, it provided unique insights on the dynamic nature of the Lebanese economy and its SMEs. Between 2009 and 2012, the 73 surveyed firms reported to have created 473 full-time jobs. Of these, 144 were female positions and 90 were youth positions. There were also 64 part-time positions added. On average, firms added 6.5 new positions per firm for a compound annual growth rate of 13%, well above Lebanon’s employment growth of 1.4% over the same period.

March 2013, the team interviewed 104 SMEs, of which 73 are part of the results Permanent full-time jobs created between 2009 and 2012 CAGR of total full-time jobs created by the surveyed firms in Lebanon

The services sector created the largest number of full-time jobs, while industry sectors mostly contributed to part-time employment. Of the 473 total jobs created in the sample, 65% were in retail, tourism, and wholesale sectors. This is reflective of the Lebanese economy in which services and trade sectors account for almost 60% of total employment.
On the other hand, industry sectors such as manufacturing and construction mostly contributed to part-time jobs which could be attributable to the cyclical nature of the work as well as being indicative of the current economic conditions which have affected these two sectors adversely. Of the 473 jobs created between 2009 and 2012 in the sample, the service sector contributed to creating 309 jobs or 65%. Disaggregating the service sector, 8 firms in tourism-related activities added 155 jobs, followed by 30 retail firms which added another 115 jobs. These results reflect the core drivers of Lebanon’s economy.

Small firms contributed to the bulk of the full-time jobs created; adding 7.6 jobs per firm on average almost double the figure of 4.3 for very small enterprises. Conversely, very small firms grew more than twice as fast as small firms, posting compound annual growth rates of 25% on average, compared with 12% for small firms. Very small firms also show the highest compound annual growth rate for part-time/seasonal jobs of 32%, compared with 5% in small firms.

Women and youth employment driven by small firms. Both women and youth jobs per firm on average were highest for small firms. This finding may be skewed by the fact that the services sector firms, particularly retail firms, dominated the sample population and mostly employed women. Analyzing the job outcomes by female, youth, and part-time employment reinforces the importance of retail and tourism-related business as engines of job growth. These two subsectors within services contributed to the majority of both female and youth positions, growing at compound annual growth rates of roughly 20% for both types of employment. Small firms had the highest per-firm average of 1.4 youth positions with an annual youth employment growth rate of 31%. While both small and very small firms added roughly the same number of female positions per firm, the compound annual growth rate for female employment was highest in very small firms-- almost the triple of that of small firms

Female participation in firm ownership and management positions show greater average sales growth and productivity per firm. 34% of the firms had female participation in ownership, and 29% of firms had women in management positions. Firms with women in management positions had higher productivity and sales growth than those with reported female participation in ownership only

The Challenges

• “Non-Lebanese” workers accounted for a considerable portion of the total jobs created. 11.5% of the 473 full-time jobs created were reported to have been for “non-Lebanese” workers. While the survey did not ask to differentiate between the buckets of employment by nationality, many firms noted facing difficulty filling non-professional” jobs or “low-skilled” work with Lebanese workers due to the cultural mindset and unrealistic expectations.
• Firms reported technical skills as the primary skills gap across most regions. The lack of technical skills (e.g. computer proficiency, operating machinery) was consistent across the country (with the exception of the Bekaa) in both very small and small firms. As a result, many firms engaged in internal training programs to fill this gap. At the sectorial level, firms in the industry sectors noted technical skills as a primary gap; in the services sector both technical skills and soft skills (e.g. communication, interpersonal skills) were also cited as a need.
• Political instability was identified as the primary obstacle to growth/performance. According to the firms that responded, political uncertainty was the number one constraint to business operations, followed by policy issues such as custom/inspection regulations and business licensing. When analyzed by region, SMEs located in the North and the Bekaa areas emphasized on political instability as the key obstacle, whereas firms in Beirut and Mount Lebanon noted policy issues as a challenge. At the sector level, services (retail, tourism) and industry (manufacturing, construction) reported political instability as a major challenge to operations.

Fransabank and the IFC have had a long-standing relationship dating back to the 1990s. In 2007, the IFC supported Fransabank under the Lebanon Rebuild Program with two facilities including a Risk-Sharing Facility to support the Bank’s lending to SMEs. The IFC’s counter-cyclical support not only provided liquidity but also helped restore investor's confidence in Lebanon and its private sector in a post-conflict situation. In this vein, Fransabank continuously renews its partnerships with international institutions to support SME’s in Lebanon. The received credit lines are intended to finance investment projects of SMEs in various sectors such as industry and agroindustry, health, education, high knowledge and services.

We also provide financial solutions, for SMEs, under the umbrella of Kafalat; a Lebanese financial company that assists SMEs to access commercial bank funding. Our Kafalat loans target enterprises operating in industry, agriculture, tourism, traditional crafts, and technology. Kafalat loans guaranteed benefit from interest rate subsidy. Accordingly, they help bridge the gap for SMEs in Lebanon, allowing SMEs to increase the financing of their business activities, which leads to better domestic investment, output, and employment.