Fintech and the Real Economy: Lessons from the Middle East, North Africa, Afghanistan, and Pakistan (MENAP) Region

Policymakers in the MENAP region have sought to achieve inclusive growth by promoting development of small and medium-sized enterprises (SMEs), using government vehicles and other initiatives. But, while the programs helped increase the number of SMEs, barriers to growth persist, including limited access to finance, unfavorable business environment, talent gaps, and weak internal managerial capacities. These barriers are manifesting in a predominance of microenterprises that have lower employment generation capacity. Partial implementation of reforms explains some of the underperformance, but frictions in the design of the SME development strategy also played an important role. Sustaining current reforms is, therefore, not sufficient to achieve inclusive growth. Digital technologies can boost SMEs’ productivity and growth and economies are becoming more digital. Thus, for SMEs to be effective engines of inclusive growth, a rethinking of the SME development strategy is needed that makes SMEs digital transformation a priority.