Banking on Start-ups: the Changing Role of Lebanon's Central Bank

Although there is a long global tradition of Central Bank support for economic development, the early years of the twenty-first century saw Central Banks increasingly focussed on a single objective – price stability, typically targeted by interest rate policy. However, the global financial crisis saw a rapid shift to policies to promote employment and economic growth, including for a number of European Central Banks, (France, Italy and Belgium; see [1; The Role of Central Banks, Briefing Paper 8/2015, German Development Institution (DIE)]), pursuing innovative policies such as prioritized lending to specific sectors via variable reserve asset requirements. At least one Central Bank has gone further – in incentivizing commercial banks to invest in high-technology start-ups, as well as to incubators and accelerators. This article focuses on the entrepreneurship-support role of Lebanon's Central Bank (Banque du Liban or BdL) for years regarded as deeply conservative in imposing cash reserve requirements well in excess of International norms and prohibiting banks from speculating in risky packages of bundled debts. BdL has been credited with ameliorating the impacts of the global financial crisis on the Lebanese economy and has for some years facilitated loans to specific sectors at low interest rates. However, BdL took a more radical step in August 2013 by issuing Circular 331, providing significant incentives to commercial banks to invest in technology start-ups, either directly or through Venture Capital funds, by facilitating the banks to then access a seven-year interest-free loan invested in Lebanese Treasury Bonds. Investments in approved start-ups were guaranteed up to 75% by BdL and 100% for investments in accelerators or incubators. This article will seek to develop an impact framework for 331 and make some early assessment of its potential economic development consequences