by Nadim Choucair (MALD 2016) and Thomas Flynn (MALD 2017)
With no warning, Banque du Liban, the Lebanese central bank, issued Circular 331 in August 2013. If you believe some people, the idea for the Circular came directly from the mind of BdL’s governor, who conceived of it while flying from New York City to Beirut. Others say that it was created at the behest of the Lebanese banks to allow them to invest some of their reserve capital. Whatever the case, the Circular — designed to spur economic growth and create more and better paying jobs — seeks to foster a “knowledge-based economy (KBE).” Essentially, the Circular is a guarantee scheme which encourages Lebanese banks — an economic pillar of the country, yet very risk averse — to invest up to 4% of their capital, amounting to at least $400 million, in startups, incubators, accelerators, and venture capital firms.
In summer 2016, we went to Lebanon to answer the question: Given the context of Lebanon, is Circular 331 the most effective way to improve access to finance and therefore to help create a knowledge-based economy?
Lebanon’s economy has struggled since 2010, its political institutions are ineffective, and its infrastructure is weak. The rise of the Islamic State and the war in Syria have scared away foreign investors and tourists, particularly those from the Gulf. Lebanon’s traditionally strong real estate and tourism sectors have subsequently faltered. Instead of focusing on these traditional sectors, the Circular builds on the wave of tech entrepreneurship, and corresponding support organizations, that emerged in Lebanon in the mid-2000s.