Finance and Democracy in mena

Given the financial structure of the economies in the mena region, the role credit plays is consistent with a relatively poor democratic environment delivering a weak governance framework due to the deficit in the enabling environment. mena countries’ economies are therefore fuelled by a top-down conversation, in which banks are dominant and debt securities providing credit through capital markets offer a limited contribution and alternative to bank financing. Moreover, family groups and individuals close to ruling families or to members of the states’ regimes dominate the ownership structure of private sector banks with a significant size and market share. This promotes credit access only to a reduced perimeter of participants who enjoy personal relationships with members of the ownership structure itself. Name lending, rather than credit scoring and financial solvency ratios, becomes the basis for credit access.

These examples of exclusion show how the position of credit in mena economies creates links dependent on agreements of trust between people who already know each other, and are linked together in a manner that is not necessarily based on economic ventures. This can lower the publicly disclosed accountability requirements that would impose a governance framework more consistent with a democratic environment.

With credit’s low share of mena economies’ financing, and the banking sector being the main source for its allocation, access to financial and economic opportunity remains a ‘closed’ process. The ownership of banks validates the consensus of power in place and keeps gatekeeping privileges in the hands of those close to the ruling structures in mena. This slows down the entry of new participants into the economy unless those individuals possess substantial amounts of capital and, thus, do not need to access credit.

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