Telecoms & IT

Boosting the Knowledge Economy

Circular 331

To boost Lebanon’s knowledge economy sector, encourage the development of a successful startup ecosystem, and support human capital by providing attractive employment opportunities, the ultimate goal of BDL’s recently launched […]

To boost Lebanon’s knowledge economy sector, encourage the development of a successful startup ecosystem, and support human capital by providing attractive employment opportunities, the ultimate goal of BDL’s recently launched Circular 331 is to position Lebanon as the technology hub of the MENA region.

In order to be eligible to benefit from the Circular 331 program, an enterprise must contribute to Lebanon’s knowledge economy in the form of an innovation, which does not necessarily need to be related to technology. In other words, the company must support creative intellectual capital in any sector of the economy. Since the principal goal is to create jobs locally, the business must be based in Lebanon and be a joint stock company with nominal shares (SAL). “These funds are dedicated only to Lebanese companies and Lebanese funds. Our objective is to create a technological digital sector in Lebanon. The risks of a bubble in this sector will be avoided because of the strict controls the banks and the central bank will apply,“ said Marianne Howayek, a BDL representative at ArabNet Beirut’s conference. “The world we live in is driven by technology and Lebanon is a country rich in human resources,“ Howayek said, referring to the aim of the BDL initiative. “Lebanon only needs the means, and the central bank can offer initiatives. Governor [Riad Salameh] found that this sector is the one that could serve these objectives and increase competition in the Lebanese economy to create job opportunities.“

In order to submit the application, enterprises fitting the criteria can approach any commercial bank in Lebanon. The bank will then study the application and submit it to BDL, which decides whether the application is approved or not. Once a participant of the Circular 331 program, the firm’s investments are subject to BDL’s supervision.

The central bank principally contributes 75% of the total value of the investment, leaving the commercial bank to allocate the remaining part. As a general rule, the bank’s total participation in startups cannot exceed 3% of its capital. Since the total equity of private banks operating in Lebanon oscillates around $13.5 billion, 3% amounts to over $400 million. After injecting the capital, banks (including BDL), effectively become partners in the supported startups, getting a cut of the profit. Nevertheless, the Circular 331 states that banks should exit after seven years, or obtain the approval to stay. This, however, is subject to the success of the enterprise—if the business is highly successful, it may distribute profits before the bank exits. In that case, both BDL and the commercial bank will then share the profits.

Some of the Lebanese banks have preferred not to invest directly (as they feel they lack expertise to identify potentially successful startups). Instead, they opted to contribute to venture capital funds (VC), such as Middle East Venture Partners (MEVP), Berytech Fund II, and Leap Ventures. Each of the mentioned VC’s specializes in different levels of investment. As a result, in August 2014, BDL amended Circular 331 with Circular 367, in an effort to increase control over how the funds are spent. A handful of businesses have also pioneered the Circular 331 directly through commercial banks—the first of which was online event reservation app Presella.

The Circular essentially shifts the role of the commercial bank, changing it from being a simple lender to being an investor. By taking the greatest part of the risk, BDL is incentivizing banks to take risks and invest in companies as partners. “The Circular 331 has given the banks the incentive to take more risks and invest in funds like ours,“ Walid Manour, Managing Director of the Middle East Venture Partners told TBY. The success of any given startup means more than just a return on investment (ROI)—it is also an opportunity for the bank to support the entrepreneurship ecosystem, help to create job across the country, and ultimately boost Lebanon’s knowledge economy sector.

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