Support to Small and Medium Enterprises for Economic Recovery Project

active

In Tunisia, Small and Medium firms (SMEs) operate in a difficult macroeconomic environment where access to finance is constrained by both shocks and long-term structural factors. Recent major shocks such as the COVID-19 crisis, the war in Ukraine and Tunisia’s macroeconomic imbalances have exacerbated these constraints and weakened the performance and financial health of SMEs. In addition to the crowding out of the private sector by high domestic borrowing by the GoT and SOEs important causes of low access to finance by SMEs in Tunisia include (i) a shortage of long-term liquidity in the banking sector, including because of high deficits in the public sector and pension system; (ii) high credit risk (high level of legacy Non-Performing Loans); and (iii) long-term structural challenges such as weak credit infrastructure and financial policies.The proposed project aims to address some of the critical immediate long-term liquidity issues facing Tunisian firms by providing US$120 million long-term lines of credit (LoC) for participating financial institutions (PFIs) to lend to viable SMEs. The project has three components. 1. Component 1: a line of credit that will be used by PFIs to reschedule existing viable SMEs loans to lengthen their maturity (convert them into LT loans); 2. Component 2: a line of credit that will be used by PFIs to extend new long-term loans to viable SMEs that they have screened, to fund their diverse financing needs - primarily for investment.3. A third component will finance project implementation support and M&E. The first two components will alleviate the loan service payment burden of highly leveraged SMEs and help beneficiary SMEs have access to long-term loans to maintain their activities, preserve jobs, and contribute to the economic recovery by supporting investment.