Small enterprises have notably lower rates of usage of credit services than medium and large companies. Generally, less than half the proportion of SMEs as compared to large enterprises uses credit from financial institutions in the Arab region (Figure 19). Many SMEs prefer to finance longer-term, more risky, investments from internal funds, which are the dominant source of financing for MENA SMEs. Greater bank involvement in SME finance in the Moroccan and Lebanese markets is reflected by the much larger percentage of SME borrowing from banks than in the other MENA countries, which suggests that usage does increase with access. When credit is available on sufficiently attractive terms and forms, a higher proportion of SMEs do borrow. Therefore countries with very low percentages (less than 10 percent) for SME borrowing from banks, such as Saudi Arabia, Egypt and Yemen, have SMEs that are credit **Figure (20): Collateral Value as a Proportion of Loan Value by** constrained, and not only SMEs that **Size of Firm** 250 choose not to borrow.

<!-- Start of picture text --> Figure (20): Collateral Value as a Proportion of Loan Value by<br>Size of Firm<br>250<br>SME Large<br>200<br>150<br>100<br>50<br>0<br><!-- End of picture text --> Banks tend to require higher collateral values as a ratio to loan value for SME loans (Figure 20). Around 78 percent of GCC banks and 48 percent of nonGCC banks say they have higher collateral requirements for SMEs as compared to large corporations. Moreover, banking sector competition in the Arab region is weaker than in other regions, with lower market contestability. This dilutes the incentives for banks to expand SME finance and develop products and delivery

**_Source:_** World Bank Enterprise Surveys (2007-2011).

mechanisms for smaller firms and to serve the range of enterprise financial needs. In the Arab region the adoption of efficient transaction lending techniques to lower the cost and risk of SME lending has been relatively slow. This is linked to the deficient financial infrastructure, legal frameworks, court systems, and bank reporting systems and skills. This is more evident as firms move out of the main cities, where there is less physical access to financial services. For example, the percentage of firms with a loan in Upper Egypt is much less compared to main urban cities, such as Cairo, Alexandria, and Post Said (Figure 21). The situation is similar in Yemen, where firms in Sanaa have much better access than Aden and Taiz (Figure 22).

<!-- Start of picture text --> Figure (21): Percent of Firms Having a Loan in Egypt, by<br>Location<br>16<br>14<br>12<br>10<br>8<br>6<br>4<br>2<br>0<br>Lower Egypt Upper Egypt Urban<br><!-- End of picture text --> <!-- Start of picture text --> 16<br><!-- End of picture text --> <!-- Start of picture text --> Lower Egypt<br><!-- End of picture text --> <!-- Start of picture text --> Upper Egypt<br><!-- End of picture text --> <!-- Start of picture text --> Urban<br><!-- End of picture text --> <!-- Start of picture text --> Figure (22): Percent of Firms Having a Loan in Yemen, by<br>Location<br>30<br>25<br>20<br>15<br>10<br>5<br>0<br>Ibb Mukala Aden Taiz Al Sana'a<br>Hudaida<br><!-- End of picture text --> 21