7 methodologies, there is broad consistency between the results of the enterprise surveys and the MENA survey.<sup>3</sup> There seems to be significant scope for further SME lending in MENA, as shown by the large differences between the long-run targets and the actual shares of SME lending reported by the banks (Table 3 and Figure 2a). This is true in both the GCC and the non-GCC regions, although targets are significantly lower in the GCC (about 12% of total lending), revealing that the banks themselves have concluded that there are “natural” limits to profitable SME lending in oil-based economies. In the case of non-GCC countries, the long-run target is much higher and around 27% of total lending. It is interesting to note that this target is very similar to the actual share of SME lending in developed economies. This could be more than a coincidence, and reflect expectations by the banks that the enabling environment and market conditions in MENA will eventually converge to those already prevailing in developed countries, creating the conditions for further and profitable SME lending.

State banks play an important role in SME lending in several MENA countries, as indicated by an average share of SME loans of 9% of total lending. This share is very close to the average share of private banks (Table 5 and Figure 2b). The long-run targets for SME lending for State and private banks are also similar. Moreover, while the differences between the average shares of SME loans in GCC and non-GCC countries are large and statistically significant, the differences between state and private banks are not statistically significant, as shown in Table 5. The important role played by state banks could reflect their mandates to fill a gap in SME lending, especially where the enabling environment remains weak and the private banks are still reluctant to take more risk, despite the potential profitability of the SME business. This result will be further explored below.

In addition to having a larger SME portfolio overall, non-GCC banks also extend a larger share of investment loans than GCC banks. As shown in Table 5, the differences are statistically significant, whether the averages are weighted or unweighted. It is also noticeable that State banks have a larger share of investment loans in their SME loan portfolios, although the difference between the two averages is not statistically significant (this result is revisited in section 5). Finally, there are no significant differences between foreign and private domestic banks in our sample. As mentioned before, this is not surprising, as most banks classified as foreign banks in our sample are in fact part of a regional group that shares the same strategy and lending technologies across the mother bank and the subsidiaries and branches.

The analysis of frequency distributions at the individual bank level sheds further light on the patterns of SME lending in MENA. As shown in Figures 4a-4b, all the distributions are positively and strongly skewed, with a high concentration of institutions with small shares. In the case of the GCC, some banks maintain shares of SME loans above 5% of total loans, but the maximum share is 10%, still a low number by international comparison. In the non-GCC, a large number of banks also operate with low shares, although there is also a sizable group of

> 3 Since the first draft of this paper was released, the authors have made further efforts to confirm and validate the numbers.  This has resulted in some adjustments of country averages, especially for Morocco, whose average of SME lending in total lending declined from 33 percent to 24 percent.