Tunisia Franchise & SME Development Transforming SME Access to Credit in Tunisia Background Tunisia is at a critical juncture following the Jasmine Revolution as it tries to generate new employment opportunities and rebound from the economic downturn following the revolution. Unemployment is near 18% and has peaked at 30% for the youth. In order to capitalize on the momentum of political change and to support economic development and employment generation, the Middle East Investment Initiative (MEII) is preparing to launch the Tunisian Credit Guarantee Facility (TCGF) and technical assistance program to support the burgeoning Tunisian franchising sector, as well as the greater small and medium enterprises (SMEs) ecosystem. Like SMEs throughout the region, these businesses are the backbone of future economic growth, yet are often neglected by the financial sector as banks battle for the highly competitive corporate and consumer segments. According to World Bank estimates, SMEs make up 97.8% of the market, yet SME financing only amounts to 15% of credit granted to the productive sectors in Tunisia. The TCGF program aims to support the growth of franchises and SMEs by stimulating banks to make the logical move, as other market segments are saturated and competitive, to serve systematically the missing middle. The TCGF Approach The Tunisian SME sector, of which franchises are a segment, face multiple challenges accessing finance. “Heavy reliance on collateral,” “lack of expertise assessing SMEs,” “insufficient SME appropriate products,” and “a lack of SME transparency,” are all
phrases used to describe the current state of SME banking. Tunisian banks, businesses, accountants and donors all echo these sentiments. To improve SME access to credit, both the supply and demand side need to be addressed. The TCGF program will stimulate SME lending by providing its partner banks with guarantees for a percent of the principal amount of loans to bankable franchises and SMEs to offset the prohibitively high collateral requirements, which average 167% of the loan value. More importantly, TCGF will provide its partner banks and targeted SMEs with technical assistance to assess the viability of SME projects and structure loans to effectively meet working capital and longer-term needs of borrowers, maximizing potential for full repayment. Going beyond the typical outreach of other loan guarantee and SME credit programs, TCGF will actively encourage and assist banks to profitably and responsibly manage credit risk to an expanded marketplace by instilling the necessary capacities over the course of the project. Based off a proven model in operation since 2007 in the Palestinian Territories, the TCGF program will be mobilized quickly to maximize impact. The MEII run and managed loan guarantee and technical assistance program in Palestine has approved over $102 million in new SME credit, 20% to start-ups, through a 70% guarantee while providing direct assistance to banks and SMEs. For the supply side, www.MEIInitiative.org
TCGF at a Glance Program Goal – to stimulate sustainable lending to Tunisian Franchises & SMEs utilizing cash flow-based lending techniques Potential Impact Additional $70 million in loans available to bankable Franchises & SMEs Job creation Support to the franchising enabling environment Enhanced lending capacities of banks through technical assistance SME growth and financial literacy capacity building TCGF Proposed Dimensions Guarantee a percent of loan principal in return for a fee Technical assistance to banks and SMEs 10 year program with medium & long-term vs. “quick fix” strategy Participation of select banks Loan size up to $1,000,000 Working capital and/or fixed assets loans All economic sectors & regions eligible Any type of business, including startups.
over 16,000 person hours of technical assistance have targeted all levels of the banks, with an emphasis of building the capacity of loan officers and middle management to
effectively and efficiently assess SMEs, including the development of a new loan product to address SME working capital needs. Further, the growth of local microfinance institutions have been supported through design of the first commercial loans to the sector. Finally, on the senior management level, a regular dialogue on SME banking best practices and other strategic topics is ongoing. On the demand side, the Palestine facility has addressed the lack of SME transparency by working with banks & local accounting firms to provide SME managers with financial literacy education to improve understanding of the loan application process, generate financial statements, and professionalize accounting practices. The TCGF approach is designed to maximize potential for a successful and profitable borrower-lender experience. Franchising in Tunisia Prior to 2009, with the exception of the tourism sector, franchising had been non-existent due to a lack of a supporting legal framework and political environment. In recent years, Tunisia has begun to open the sector as a way to grow the economy and create much needed jobs. First in 2009, a new law was introduced to define franchising. This was followed by ministerial decrees in 2010 that outlined contract provisions and included a sector list for which franchises would need no prior authorization to operate in Tunisia.
Franchise (ATF). Despite these activities, however, the development of actual franchises has been slow, in part due to difficulties faced accessing finance. The Jasmine Revolution has reinvigorated interest in this sector, especially for larger brands which risked interference from the former regime. The TCGF program will place an emphasis on targeted financial product design for franchises and SMEs in the value chain, enabled by tailored guarantee mechanisms and an industry strategy developed with leading Tunisian commercial bank partners. Further, in partnership with DLA Piper, one of the top law firms and a recognized global leader in the franchising area, and the International Franchise Association, TCGF will market and promote franchising in Tunisia. Potential Impact TCGF will stimulate up to $70 million in commercial financing to Tunisian SMEs, resulting in expanding access to finance to more than 250 Tunisian SMEs and franchise partners. TCGF can support thousands of local Tunisian jobs being created or sustained in key strategic industries and sectors including agricultural, services and light manufacturing. More importantly, TCGF is preparing the Tunisian banking system and SMEs to grow on a sustainable basis and without donor financed intervention.
A number of US and European franchises have expressed interest in Tunisia in addition to locals expressing interest in such international franchises as well as creating indigenous brands. The ecosystem to support franchising has begun to emerge with the Chamber of Commerce and Industry of Tunis (CCIT) organizing an annual franchise conference and the creation of the new franchise association, Tunisian Association of www.MEIInitiative.org