9 A large share of state banks is also attracted to the SME business due to the perceived profitability of the sector (Figure 6b), but the share is somewhat lower than the one for private banks. Interestingly, supply chain links and cross selling do not seem to be important drivers for state banks. These responses could reflect the broad policy mandates imposed on state banks to serve the SME sector, or the lower level of development of SME strategies in these banks, possibly also related to the absence of an SME unit in several of these banks.

Regarding the obstacles to SME lending, the responses in the MENA survey were more clear and consistent than those in the two previous surveys conducted in Latin America and worldwide. As shown in Figures 7a and 7b, MENA banks complain primarily about SME opacity and about the weak financial infrastructure (lack of reliable collateral, weak credit information systems, and weak creditor rights). They complain much less about restrictive regulations (e.g. interest rate controls), excessive competition in the SME segment, or weak demand for loans from SMEs. This pattern is consistently observed in both GCC and non-GCC banks, and also between state and private banks. Interestingly, however, a larger share of state banks indicated that their own internal technical weaknesses constitute an obstacle to SME lending.

The contrast with the two previous surveys is striking. In the Latin American survey (de la Torre, Martinez Peria, and Schmukler (2010)), banks indicated many types of obstacles, including macroeconomic factors, regulations, and excessive competition in the SME business, and the patterns were not consistent across countries. For example, the legal and contractual environment was identified as an important obstacle in only two countries. In the survey conducted by Beck, Demirguc-Kunt and Martinez Peria (2008), macroeconomic factors and competition in the SME segment were also identified as the major obstacles, not the legal and contractual environment. The greater concern expressed by MENA banks about the quality of financial infrastructure is not surprising, considering that the region fares very poorly in this area. As shown in Table 6, the region has the lowest legal rights index among all the regions. Moreover, while the credit information index has improved in recent years, but the coverage of credit reporting systems is still very limited.<sup>5</sup> In order to obtain more detailed information on the weaknesses of collateral regimes in MENA – an area where the region fares very poorly – the survey included questions on the problems faced by banks on the different elements of the secured lending chain – especially the registration, enforcement, and final sale of the seized collateral. Moreover, the questions were broken down by fixed and movable collateral. The answers are reported in Figures 8a-8b and 8c-8d, for GCC and non-GCC countries and for state and private banks.

As shown in Figures 8a-8d, there are significant problems in the registration, enforcement, and selling of collateral, especially movable collateral. While a relative low share of banks reports serious problems with the registration of fixed collateral, a high share of banks reports that registries of movables remain very deficient. Enforcement of collateral is an even bigger problem, especially for movables, but also for fixed collateral in the case of non-GCC banks. Finally, an even larger share of banks reports problems in selling the seized collateral. Again,

> 5 Maddedu (2010) provides a detailed analysis of the quality of credit information systems in MENA, while Alvarez de la Campa (2010) and Uttamchandani (2010) examine the effectiveness of collateral and insolvency regimes.