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POLICY AGENDA FOR AN INCLUSIVE, JOB-CREATING FINANCIAL DEVELOPMENT IN THE SOUTHERN AND EASTERN MEDITERRANEAN

Rym Ayadi, Sandra Challita, Willem Pieter de Groen
16/06/2019


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Recent empirical evidence shows that financial development in the Southern and Eastern Mediterranean Countries (SEMCs) is lagging behind. The exclusion of a substantial part of households and micro, small and medium-sized enterprises (MSMEs) from financial services, hampers economic development and job creation in the region. Moreover, financial development suffers from the absence of institutional diversity, high inefficiency and prohibitive lending costs. In view of EMNES research, our findings provide justification for the following policy recommendations:
  • Achieve macro and financial stability by
    • ensuring sustainable government finances;
    • ensuring monetary stability by targeting low inflation;
    • tackling the high level of non-performing bank loans.
  • Increase financial system diversity and enhance lending efficiency via
    • financial market development (private bonds issuance, private placements, equity and IPO markets, etc.);
    • developing legislative regimes for alternative financial structures and facilitating the adoption of new financial technologies (technology neutral approach, sandboxes, etc.).
  • Widen the access to affordable financial services for households and MSMEs by
    • developing credit registries and guarantee schemes for MSMEs;
    • developing and promoting digital financial services and increasing the role of postal offices for provision of basic financial services for households;
    • requiring banks and insurers to provide basic financial services for households;
    • investing in enhanced financial literacy for the low skilled.
The EU can contribute to this policy agenda for inclusive and job-driven financial development through funding, assistance and expertise in SEMCs:
  • It can fund the development of a guarantee fund to cover losses of defaulted loans and promotion of financial inclusion initiatives;
  • It can assist in the development of an action plan for financial market integration;
  • It can provide expertise to develop alternative EU financial instruments within the EU for SEMCs.
The objective of this policy paper is to review the most salient trends in financial development, to identify the main challenges and to provide policy recommendations to achieve financial development that is inclusive and that contributes to economic growth and job creation in SEMCs.