A majority of firms in the Middle East and North Africa (Mena) region have insufficient access to letters of credit (L/Cs) and banking services according to a recent report.

'What's holding back the private sector in Mena?' - a report published jointly by the World Bank, European Investment Bank (EIB) and European Bank for Reconstruction and Development (EBRD) - points out that while banking sectors in the region are relatively large, a high percentage of companies are disconnected from formal financial channels and do not apply for credit.

Impairing growth

Credit is largely being tapped by a small number of large firms while smaller firms are not using credit facilities or banking services such as L/Cs and documentary collections according to the report, which says this lack of use of financial services is hindering potential growth in the region.

The report found that smaller companies in the Mena region are not necessarily excluded from the banking system, rather they are simply choosing not to apply for credit facilities and many firms report that they do not need capital or further funding.

Disconnected

This makes the companies 'disconnected' from the banking sector according to the report, which found that most of the 6,000 companies surveyed were content with their current situation and do not complain about access to finance.

The report argues that encouraging connection could aid growth and assistance is available. "Finding a way to reconnect banks and firms is crucial to enhance growth opportunities in the region and international financial institutions have the expertise and willingness to complement domestic policies," says EIB chief economist, Debora Revoltella.

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