MICRO AND SMALL ENTERPRISES IN LEBANON

Finally, it appears through the relatively high figures of non-registration that this issue represents abarrier to formality for many businesses as most enterprises are informal and don’t seem to mind thestatus quo. If the barriers were lowered it is possible that more enterprises would enter the formalworld of business.III.10 Initial Capital and Access to CreditDue to the family nature of micro and small enterprises in Lebanon, it is observed that the initial startupcapital for the MSE is secured through family - and not business - networks. The survey indicatesthat own savings constitute the major source of initial start-up capital of MSEs in the country. The useof “informal” and “formal” sources of capital for business start up vary based on the size of the MSE,its sector of activity, and gender.As shown in the Figure below, own savings account for the majority of initial capital for MSEs inLebanon (60%), followed by inheritance (18%), own remittances (5.5%), other sources (4.9%),formal loans (4.2%), liquidation of assets (3.8%) and informal loans (2.5%). These figures reinforcethe “family nature” of MSEs that use own savings and inheritance as primary sources of initial capital.The low percentage for using formal loans may be attributed to guarantee requirements and interestrate levels.Notwithstanding the dominance of savings as initial capital sources, the larger the size of theenterprise, the more likely it is to access other funds for business start-up. In this context, own savingsconstitute the primary source of initial capital for 61.4% of enterprises with 2-4 employees, while thisaccounts for 51.3% of those MSEs that employ 10-49 workers. The same is true for using inheritancefunds for this purpose. Similarly, access to formal credit – as the primary source of capital forbusiness start-up – increases from a mere 3.3% for one-person enterprises to 11.3% in the case oflarger enterprises (10-49 workers) (Figure 9).Figure 9: Distribution of MSEs by Source of Initial Capital100.0%80.0%60.0%3.8%0.7%7.1%3.1%3.3%4.1%5.1%1.2%3.7%2.2%4.5%3.7%8.5%0.6%6.7%0.6%6.1%1.2%10.0%1.3%8.8%2.5%11.3%3.8%4.9%1.0%5.5%2.5%4.2%3.8%otherothers remittancesown remittances59.6%61.4%58.2%60.1%informal loanformal loan40.0%51.3%liquidation of assetsown savinginheritance20.0%18.3%18.2%18.2%11.3%18.0%0.0%1 2-4 5-9 10-49 TotalThe type of initial capital is also affected by the sector of activity. Industry is most likely to havebeen initially financed through inheritance. The incident of formal loan is lowest in the hotel andrestaurant and industrial sectors. The figure below reinforces the familial nature of capital that helpedthe launching of most of these enterprises.Gender plays a slight role in the type of start-up capital for MSEs. Females tend to rely less oninheritance and own savings for initial capital, and more on other forms of channels for securing theneeded capital. For instance 18.6% of male-operated MSEs relied on inheritance as the primary source26