objectives suggest that MENA schemes interpret the additionality objective more liberally than schemes in other countries.

# _4.2 Eligibility Criteria_

_General guiding principles and international experience_

**Eligibility criteria should target financially constrained SMEs while providing for some**

**flexibility.** Targeting is important to ensure additionality, although overly restrictive eligibility criteria should be avoided because there is uncertainty in practice about the firms that are credit constrained and the type of financing that is lacking.  Very low ceilings, excessive restrictions on the types of loans or eligible sectors may exclude firms that are credit constrained and generate threshold effects (excluding many firms just above the threshold, even if credit constrained).  The relevance of eligibility criteria can be strengthened through market surveys that identify SME financing gaps.

**Most guarantee schemes in the benchmark group target SMEs in a broad sense and generally do not restrict sectors or types of loans (Table 3)** .  All the countries in the benchmark group allow start-ups to apply for guarantees (though there is no uniform definition of start-ups across countries other than in the EU). It is also noticeable that these schemes do not impose restrictions on sectors (except for a general restriction on agriculture in the case of Canada), or type of loan (again, except for Canada, which does not guarantee working capital loans).

**The main differences seem to lie in the limits imposed on firm and loan size** .  Korea does not impose any limits on firm size, while France and the Netherlands target SMEs following the EU’s definition (maximum turnover of 50 million euros and 250 employees).  The other countries impose much lower limits on firm size, especially regarding turnover.  However, the limits imposed on loan size are probably the binding ones, and here the ranking changes significantly, especially when the limit is defined in relation to per capita income.  As shown in Table 3, the Asian schemes look more generous in this case, while the Canadian, Dutch and US schemes look restrictive by comparison.

_Reviewing Eligibility Criteria in MENA_

**Eligibility criteria differ significantly across MENA guarantee schemes.** All schemes cover start-ups except for the Palestine, but there are significant differences regarding firm size (Table 4).  Some schemes seem generous regarding firm size – Morocco and Tunisia do not set any ceilings, while Jordan and Syria set their ceilings at the high EU level (250 employees).  By contrast, Egypt, Lebanon and the Palestine restrict the use of guarantees to smaller firms (respectively 50, 40 and 20 employees. The employee limit for the Palestine scheme is especially low by international comparison.

**There are significant differences regarding the maximum size of loans.** The guarantee schemes in Morocco and Tunisia cover loans up to US$ 2 million, or the equivalent of 600 times GDP per capita.  These are high ratios by international standards as shown in Figure 1. The ratios in Egypt, Jordan and Syria are lower (150 times GDP per capita), but still high by international standards.  By contrast, eligible loans in Lebanon, the Palestine, and Saudi Arabia are smaller and more comparable to other PCGs outside MENA (50-60 times GDP per capita).

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