SUPPORTING SMES IN KUWAIT Nizamuddin Arshad DISCLAIMER VIEWS

SUPPORTING SMES IN KUWAIT Nizamuddin Arshad

DISCLAIMER: VIEWS EXPRESSED HERE ARE STRICTLY PERSONAL 2

OUTLINE o. Why SMEs matter o. SMEs in Kuwait o. Constraints to SME Growth o. Addressing the Funding Constraint §Central bank regulations and the bank lending o. National Fund for SME Development § a holistic approach to facilitate the growth of SMEs o Way forward 3

WHY SMES MATTER Creating job opportunities in the private sector Promoting economic dynamism Covering the otherwise 'missing middle’ Helping diversify the economy 4

WHY SMES MATTER SMEs in OECD • 95% of enterprises • 70% of employment SMEs in Developing Countries • 99% of enterprises • 78% of employment • 37% of the GDP SMEs in MENAP • Between 80%95% of formal sector enterprises • 20 -50% of private sector employment • 30% of the GDP 5

SMES CAN HELP ADDRESS YOUTH UNEMPLOYMENT 6

SMES IN KUWAIT 94% of enterprises 23% of total work force 3% of GDP 7

SMES IN KUWAIT Share of self-employed Share of employment by enterprise (2002 -2010) 100 6% 80 5% 60 4% 3% 40 2% 20 1% 0 2002 2003 2004 2006 2007 2008 2009 2010 0% 1985 Large Enterprises (20+) Mediuam Enterprises (11 -20) Small Enterprises (1 -10) 2005 Kuwaitis 2011 Non-Kuwaitis 8

KUWAIT: CONSTRAINTS TO SMES Excessive Regulation Challenges in recruiting and retaining skilled Kuwaitis Perception and Culture Lack of access to finance Lack of access to latest and relevant info Small domestic market 9

EASE OF DOING BUSINESS: NOT THAT EASY Ease of Doing Business-2017 Rank Distance to frontier 80 120 70 102 100 94 60 83 80 50 40 63 66 60 30 40 20 20 10 0 0 Bahrain Oman Qatar Saudi Arabia Kuwait MENA 10

EASE OF DOING BUSINESS: NOT THAT EASY Ranking on Doing Business resolving insolvency enforcingn contracts starting a business 200 150 Distance to frontier score dealing with construction permits 100 50 getting electricity resolving insolvency enforcingn contracts 0 trading across borders getting credit protecting minority investors 75 dealing with construction permits 50 25 getting electricity 0 registaring property paying taxes starting a business 100 trading across borders registaring property paying taxes getting credit protecting minority investors 11

CBK AND SME FINANCE Lower Risk Weight SME risk weight: 75% Non-rated corporates’ risk weight: 100% Interest Rate Ceiling Loans under 12 months; 2. 5% above discount rate Less Stringent Treatment Less stringent regulatory treatment than personal and installment loans Loans for more than one-year; 4% above discount rate 12

LENDING TO SMES SME loans as % of total loans 30% 25% 20% 15% 10% 5% 0% Kuwait Developed Countries Developing Countries 13

NATIONAL FUND FOR SME DEVELOPMENT Eligible SMEs: employing upto 50 Kuwaiti Will finance upto 80% of capital for feasible SMPs by Kuwaiti nationals Creating jobs for Kuwaitis in the pvt sector Established in 2013 Executive regulations issued in Dec 2014 Capital of KD 2 billion Increasing SME participation in economy With financing requirement that do not exceed KD 0. 5 million 14

NATIONAL FUND: SERVICES Financial & Business Support to Startups Improving business environment for SMEs Facilitation of market linkages Allocation of land office spaces for SMEs SME Financing to Existing SMEs Professional Management and Technical Training Business development services 15

• SME fund and MOCI: One-Stop. Shop to reform the business registration process • Unified Application form • 9 MOUs with Govt. entities to facilitate business registration • 3 year leave plan for clients who are public sector employees Market access Supporting Business NATIONAL FUND: ACHIEVEMENTS SO FAR • Market entry mechanism for SMEs with Central Tenders Committees and MOF for government projects 16

• Entrepreneurship Capacity building and support program • 2 Groups • 60 Graduates Exploring entrepreneurship • Staffing • Launch of Arabic/English website • Launch of media accounts • Q&A list • Call center • Allocation of sites of Hubs Kauufam Fast track Institutional development NATIONAL FUND: ACHIEVEMENTS SO FAR • Exploring entrepreneurship • 5 Groups • 137 Graduates 17

• Start a new business • Create a business plan • Managing financials • Story telling platform • Mix N’ Mentor: Kuwait Edition Financial Services • SME Toolkit: collaboration with IFC Dev. Entrepreneurial culture Toolkit NATIONAL FUND: ACHIEVEMENTS SO FAR • 59 projects approved Agri; 3% Light manuf; 20% Comme rcial ; 41% Service s ; 36% 18

A FINAL THOUGHT HOW TO MAKE THE HORSE DRINK? Encouraging banks to lend Holistically facilitating SMEs through NF What is next? 19

THANK YOU