Kafalat financial services in support of SMEs

Small and medium enterprises (SMEs) constitute the largest part of the private sector in Lebanon which is presently facing serious difficulties in accessing commercial financing. In this respect, Kafalat provides financial assistance to SMEs to start up innovative projects in any of the five targeted economic sectors, namely, industry, tourism, agriculture, high technology and traditional crafts. The institution which is a private company of public interest and is owned by the National Institute for Guarantee of Deposits (75%) and 41 Lebanese banks (25%), provides financial guarantees for loans from banks operating in Lebanon. According to CEO and General Director of Kafalat, Khater Abu Habib, loans guaranteed by Kafalat benefit from a Central Bank exemption of the statutory reserve requirement.  This significantly reduces the lending bank's cost of capital, allowing lending at lower interest rates. Interest rate subsidies are financed by the Lebanese Ministry of Finance and administered by the Central Bank. Regarding the procedures for benefiting from Kafalat, Abu Habib clarified that the approval of loans is based on the submission of a feasibility studies/ business plans that determine the viability of the business to be financed. The company then studies the files sent through the banks and decide accordingly. However, the final decision for granting the loan rests in the hands of the banking institutions, he said. Besides the original lending facility launched in 2000 and which offers loans of LBP 300 million to assist start-ups and existing businesses to develop their ideas or activities, there are new programs that were the outcome of the partnership between the European Union and the Ministry of Economy and Trade. Among these new facilities are the following: loans to ensure the continuity of the existing production and workforce and amounting to LBP 600 million; loans to finance innovative works and inventions at the level of LBP 300 million; loans of up to LBP 650 million for investment in fixed assets and working capital needs, and, finally, loans granted for agriculture-related activities and for investment in efficient energy use and renewable energy. (Al Diyar, 7 March 2015)