Entrepreneurs in Lebanon now have a new reason to seek local support.

Last week, the World Bank signed on a US $30 million loan to the Government of Lebanon to fund a new pilot program via the Ministry of Finance, titled “Supporting Innovation in Small and Medium Enterprises (SMEs) in Lebanon through Public/Private Equity Fund.” 

The 17-year soft loan will be implemented by Kafalat, Lebanon’s credit guarantee agency, through an "iSME fund," which will offer US $25 million for equity investment in seed and growth-stage firms, and US $2.5 million for startup concept development grants of up to $15,000.  

The remaining amount will go to project management and training activities, marketing and outreach to the business community, venture capital partners, and the diaspora and community at large to promote the project and entrepreneurs.

To qualify for the equity investment, entrepreneurs will need to secure commitment from an investor from a preapproved list before approaching the sector-agnostic iSME Fund. This matching model echoes the public-private investment model offered by the Singaporean government, among others, and works to share the initial investor’s risk while adding to the pool of available capital for startups.

A registry list of approved co-investors will be available and updated on an ongoing basis. Registration for investor partners is open throughout the year.

Unemployment in Lebanon

In general, the launch of the iSME fund is a promising step towards helping Lebanese youth fight rising unemployment by building startups. Between 2004 and 2007, only 3,400 net jobs were created each year in Lebanon, according to a study by the World Bank's MILES program. Yet over the next ten years, an average of 19,000 job seekers will enter the labor market yearly, necessitating that economy create more than 5 times the number of jobs it is currently creating.

In 2010, youth unemployment in particular reached 34% in Lebanon (see below). Finding a job takes awhile in this market; the average time period for finding a job is 1.5 years for fresh university graduates and 3.8 years for those without a university degree.

Currently, a majority of the labor force (47.8%) is unskilled and employment is concentrated in low productivity services such as wholesale and retail trade, repair of motor vehicles, transportation and storage, accommodation and food service activities, and real estate. Only 9.4% work in high productivity services such as information and communication, financial and insurance activities, professional, scientific and technical activities. 

The iSME fund will hopefully work to revive the skilled work force, especially if Parliament passes the bill quickly and the fund can become effectively on the ground quickly.

“What is new about this project is that it provides direct financing to the capital of potential and existing SME’s,” Minister of Finance Mohammad Safadi said during the signing ceremony.

Senior Economist Randa Akeel, the program’s team leader, added, “What I would really like is for young people in Lebanon not to give up hope. There are means and ways to achieve their aspiration,” she said. “This could well turn into a snowball effect of hope.”