Lebanon 2017 | ECONOMY | INTERVIEW

TBY talks to Dr. Khater Abi Habib, Chairman of Kafalat, on creating the right conditions for start-ups to thrive, heavily investing in youth seed projects, and initiating projects with long-term sustainability.

Dr. Khater Abi Habib
Dr. Khater Abi Habib holds a BA in economics, an MA in economics and governmental studies, and a PhD in government and social anthropology, all from the University of Manchester, UK. He occupied the positions of Delegated Member of the Board of Directors then Vice-President of the Lebanese Swiss Bank. He is currently the Chairman and General Manager of both the National Institute for the Guarantee of Deposits and Kafalat.

How would you evaluate Kafalat's operations over the past year?

The country is still in a position of heightened crisis and landlocked from within. The region has become economically strained. Even though the price of oil has recovered a little, the impact of the commodity crisis has been more severe in the Gulf countries, which are some of Lebanon's main partners. That has kept a certain pressure on the economy, but we have coped so far. There is a positive mood, as we have political consensus and a new government was formed. With Kafalat as an indicator, our figures for 2016 were slightly better than in 2015. The start of 2017 and the adjustments in the political situation have not yet shown an increase in our activity. I expect, as we calculate on four to six months' delay, changes in the environment because our target is for entrepreneurs to identify possible opportunities to tackle in the market. In four to six months, we will evaluate the changes and develop a plan for economic anticipation, make decisions, and determine how our business is being affected.

How is Kafalat targeting SMEs or start-ups in creative sectors?

These projects are perceived as high risk for the banking sector from the start, though it is a sector that does not have much knowledge of this part of the process. By giving our initial 75% guarantee, we equalize the start-ups in innovation at nearly the same level as conventional businesses, reducing risks for the bank. Of course, there is still a high risk, but we reduce the gap statically and behaviorally speaking. To help them flourish, we have created a program, Kafalat Innovation, which guarantees up to 90%, leaving little risk to the bank. It started in 2006, and we also allow these companies to be treated differently from others with a system that tries to create an extra push for this sector. We are issuing this kind of loan as a replacement for the concept of seed capital, which was not available in the country at that time. As for seed investments, we are planning to take about 50% of the investment that companies need, which winds up being around USD400,000 per shot. We do this because the seed level is where we can concentrate the feed process. In addition to equity, we have a USD2.5-million program in grant funds. We give a small nonrefundable grant of USD15,000 for young people who have a business plan in the early stages. Over the past 15 months, we have given 87 such grants, 20 of which have been able to access equity afterward. In the past two years alone, the Central Bank of Lebanon issued 331 circulars for permitting banks to participate within strict limits in early stage VC capital investment. This has generated a massive field of operations.

What role has Kafalat played in the socio-economic development of Lebanon?

We act as a booster of different sectors by providing guarantees. When we target the industries and give them guarantees, things start to work. Our maximum loans are of for seven years, but for a tree-growing entrepreneur, for example, we provide a 10-year loan. We adapt to the needs of companies. We create ease for a more dynamic lending market for SMEs of various kinds. We entered with the help of the EU into the green energy market, where we have two programs, one 10- and one 15-year loan program because sustainable energy is a long-term pursuit.

What are your main priorities for the year ahead?

Our priority is to stand by ourselves. We are there to expand and incentivize the direct players. They must be institutional investors—we will not partner with an informal investor. Our investment committee has to approve the venture capital or seed capital fund, thus it has to have a professional dimension.