Overcoming Finance Barriers among Libyan SMEs: Developing an Investment-Readiness and Alternative Credit-Assessment Framework

Abstract

Libyan small and medium enterprises face a persistent finance gap. Banks hold large liquidity, yet business lending remains limited. This paper develops an Investment-Readiness and Alternative Credit-Assessment Framework for Libya. The framework addresses weak business records, collateral shortages, uncertain cash flows, and cautious bank practices. The study uses public secondary evidence and transparent pattern matching. Sources include Libyan banking reports, firm studies, and international field evidence. Central Bank data show LYD 193.2 billion in customer deposits during 2025. Total loans and facilities reached only LYD 33.8 billion. Banks also held LYD 89.8 billion in surplus liquidity. Non-performing loans reached 19.3 percent. These figures suggest an allocation problem, not only a funding shortage. The proposed framework separates readiness support from final credit scoring. Readiness covers legality, records, cash flow, market evidence, governance, financing plans, resilience, and data consent. Credit assessment combines traditional information with bank flows, invoices, supplier history, and payment records. A Western Balkans experiment improved investment-readiness scores by 0.3 standard deviations. Average financing effects remained small, but weaker firms gained more. Peruvian evidence shows psychometric tests can support thin-file applicants. Cash-flow studies also show useful predictive value. The paper recommends an explainable scorecard, human review, appeal rights, and fairness testing. A randomized Libyan pilot can test approval, pricing, repayment, investment, jobs, and firm survival.