How Credit Constrained Are Family-Owned SMEs in Arab Countries?

Family-owned firms account for majority of small and medium-sized enterprises (SMEs) in Arab countries, but evidence on the impact of this ownership type on access to credit in the region is scarce. Yet the issue is key for understanding barriers to the emergence of dynamic private sector and growth acceleration. To reduce this knowledge gap, our paper examines links between family ownership and credit constraints faced by SMEs in Egypt, Jordan, Morocco, and Tunisia, utilizing the World Bank Enterprise Surveys. We find that while family-owned firms have a higher need for credit than nonfamily-owned firms, they are more likely to be discouraged from applying for it. Due to this self-selection out of credit markets, they are more credit constrained than nonfamily firms, even though their credit application rejection rates are lower. Stronger firm governance, including presence of formal business strategies and improved managerial practices, can encourage family-owned SMEs to apply for credit more often and ease their access to finance.