Improving access to finance for Arab small and medium-sized businesses could boost regional economic growth by up to 1 per cent per year and generate 15 million new jobs by 2025, according to the International Monetary Fund’s Christine Lagarde. On Sunday at the World Government Summit in Dubai, the Washington-based lender's managing director called on regional governments and financial institutions to help close the funding gap for SMEs, which are largely considered to be the backbone of regional economies. "In the Arab region, SMEs represent 96 per cent of registered companies, said Ms Lagarde. "They also employ half the labour force, yet their access to finance is the lowest in the world: lending to SMEs in the region is only 7 per cent of bank lending." “Closing this financial inclusion gap – with respect to the average of emerging and developing countries – would yield multiple economic benefits,” she added. As well as boosting annual gross domestic product growth across Arab economies, bridging the financing gap could also increase the effectiveness of fiscal and monetary policies, by improving domestic revenue mobilisation and monetary policy transmission. “It is clear then, that supporting and enabling SMEs is a key component of any inclusive growth agenda,” Ms Lagarde said. Increasing the contribution of SMEs to the economy is a key objective of the UAE’s national growth strategy. In Dubai, SMEs account for less than 40 per cent of the emirate’s total GDP, but the Dubai SME 2021 Strategic Plan aims to increase this to 45 per cent by 2021. With the three-year oil slump that began in 2014 but has now reversed, lenders became more averse to lending to small businesses, which curtailed their ability to grow or endure the downturn. In her speech, the IMF managing director listed a range of economic and institutional factors needed to help scale up SME bank credit. They include fostering a sound and competitive economy and banking sector that facilitates market entry for SMEs without the state crowding out financing for them. Equally important is ensuring good governance, strong legal frameworks, financial supervisory capacity and availability of credit information to reduce the risk of lending to SMEs. IMF research shows that increasing the coverage of credit bureaus in the Arab region could raise employment, especially by SMEs, Ms Lagarde. Finally, Arab countries should look at harnessing the potential of alternative channels of SME finance, such as including SME segments on regional capital markets, and developing the fintech (financial technology) sector to expand the range of financing available. “Promoting SME financial inclusion requires a holistic approach – there is no magic bullet,” Ms Lagarde said. On Tuesday this week the IMF will publish a report on SME financial inclusion, she added. The lender seeks to better support Arab countries within this realm, and help countries that are already implementing strategies to increase financing for SMEs – such as, the UAE, Egypt and Jordan – to achieve their goals. “We hope [the report] will mark the start of a deeper engagement with our members in this important policy area,” Ms Lagarde said.