3 Sixth, several MENA countries have introduced special interventions to induce banks to lend more to SMEs. In addition to the use of state banks, special programs have included exemptions on reserve requirements, credit subsidies and partial credit guarantee schemes. Guarantee schemes have proved particularly popular and are in operation in ten MENA countries. The paper provides some evidence that these schemes have contributed to more SME lending, although it is difficult to evaluate the extent to which these schemes are cost-effective.

While state banks and other interventions such as guarantee schemes may have a played an important role in providing finance to SMEs in an environment where financial infrastructure remains weak, the results also allow for the identification of MENA‟s policy agenda in the area of SME finance. Strengthening credit information systems and creditor rights should remain the priority item in the legal/regulatory agenda. Credit guarantee schemes may play an important role, but it is essential to ensure that these schemes are well-designed and cost-effective. Finally, avoiding overly restrictive entry requirements and allowing the entry of international and regional banks showing leadership in SME finance can improve competition and produce positive direct and indirect effects in the market for SME lending.

The rest of the paper is structured as follows. The second section provides an overview of the two previous SME banking surveys and their main results. The third section reviews how the MENA survey was designed and implemented. The fourth section discusses the overall survey results. This includes the actual and target bank lending to SMEs, the main strategic approaches adopted by MENA banks in dealing with SMEs, the main products offered, and the risk management techniques employed. The fifth section presents a preliminary econometric analysis of the dataset built from the survey results and other sources. Finally, the sixth section concludes and identifies the key policy implications.

# **2.  Overview of Previous Surveys**

As mentioned before, two World Bank surveys were conducted in recent years as part of an effort to investigate the status of bank lending to SMEs. These surveys share some important common elements, but also have important differences. Both surveys provide some measurement of SME lending, investigate the main drivers and obstacles to further SME lending, the main business models developed and the main risk management techniques adopted, but with different emphasis on each of these components. The two surveys are also based on very different samples, regarding their size, the types of bank surveyed, and the regional coverage.

The first survey covered 91 large banks in 45 countries and provided the basis for two separate studies – Beck, Demirguc-Kunt and Martinez Peria (2008 and 2009). The first study provides an overall assessment of the survey results while the second provides an econometric analysis of the dataset. This survey included a quantitative component, allowing the authors to obtain measures of the share of SME loans in total loans, the share of investment loans in SME loans, percentages of applications approved, and loan fees and interest rates. Besides comparing SME lending in developed and developing countries, and investigating drivers and obstacles, the two studies also made comparisons between government, private, and foreign banks.