Akl el-Helou’s farm has grown beyond his wildest expectations. Just outside of Jbeil in Hosrayel, it is a far cry from how it looked in 1989 when it was ravaged by the Civil War. Helou did not have much to his name after he lost over $80,000 in equipment and contracts with Gulf countries but he had an idea: broccoli. He obtained a $34,609 loan from Kafalat, a government subsidized loan program, in 2005, and used it to rent additional land at high altitude, in Laqlouq, for summer production, as well as set up greenhouses. According to Helou, since obtaining the loan his profits have increased by 40 percent. But stories like Helou’s may be fewer this year as Kafalat lending has taken a southerly turn.
Today, Lebanon is mired in an ongoing political crisis; the situation is reflected in the country’s economy as well as in Kafalat. “It’s a wait-and-see attitude of some banks in respect to the political situation,” said Freddie Baz, chief financial officer at Bank Audi.
This certainly seems to be the case, according to recent figures published by Kafalat.
Loans to small and medium-size enterprises (SMEs) under Kafalat’s guarantees fell to $41.9 million in the first quarter of 2011, down 9.5 percent from $46.3 million at the same point a year before. The total loan guarantees totaled 301 year-to-March in comparison with 392 during the same quarter in 2010. The average loan size, however, reached $139,183 compared to $118,173 in the first quarter of 2010.
While Mount Lebanon received 44 percent of the guarantees, the South and Nabatieh follow with 21 percent. The North received 16.3 percent, the Bekaa 12.3 percent and Beirut 6.6 percent.
The industrial sector accounted for 40 percent of total guarantees, agriculture 37.2 percent, tourism 19.3 percent, specialized technologies 2.3 percent and handicrafts 1.3 percent.
Kafalat loan guarantees had increased by 42 percent in 2010, said Khater Abi Habib, Kafalat’s chairman, in an interview with Executive in March 2011. “Economic and political conditions affect the market, and they affect us,” he said, but declined to offer an explanation for this year’s drop. With the current political stalemate and the economy slowing, SMEs’ situations are vulnerable.
“When it comes to investment, people are cautious,” said Walid Raphael, general manager of Banque Libano-Francaise, adding that investors require visibility in terms of economic and political development. According to Saad Azhari, chairman and general manager of BLOM Bank, people are not encouraged to start new businesses in an environment without growth. As many industry voices have noted, Lebanon’s economy is threatened by both internal and regional instability.
For new, innovative companies to emerge, strong and diversified funding must be available; with new public sector initiatives on hold until at least a new government is formed, this will only be done through the commitment of private funds. As May came to an end, the lack of risk appetite in the market likely had much to do with the lull in Kafalat lending, offering perhaps the most simplistic demonstration of how political stagnation can cripple a country’s productivity.
What is Kafalat?
Kafalat is a private financial company owned by the National Institute for the Guarantee of Deposits and by about 40 Lebanese banks. Kafalat loans receive a subsidized interest rate and are financed by the Lebanese Treasury and administered by the central bank. The program aims to support young entrepreneurs, helping SMEs to receive loans from commercial banks, by providing them with loan guarantees. The candidates are required to submit a feasibility study and business plan for their project, which has to fall within the industry, agriculture, tourism, crafts and technology sectors.
