US$25 million Grant to Build Beirut Businesses Back and Better

The B5 Fund, which was signed today, had been previously endorsed on April 29, 2021 by the Partnership Council of the Lebanon Financing Facility (LFF), a multi-donor trust fund established in December 2020 following the launch of the Reform, Recovery and Reconstruction Framework (3RF) to pool grant resources and strengthen the coherence and coordination of financing in support of the immediate socio-economic recovery of vulnerable people and businesses impacted by the Port of Beirut explosion. 

The Port of Beirut explosion, which came on the heels of an ongoing economic and financial crisis and the COVID-19 pandemic, had a severe impact on the productive sector in Lebanon.

The blast caused substantial physical damage and loss of stock and inventory to approximately 10,000 privately owned businesses located within a 5 km radius of the explosion site. It significantly affected firms’ productivity and revenue generation and lead to substantial layoffs and bankruptcies.

According to a World Bank rapid firm-level survey conducted during November and December 2020, around 17% of firms were confirmed or assumed to be permanently closed; 79% of firms experienced reduced sales (on average, a 69% decline); and 61% of firms had decreased the number of permanent workers by 43% on average.

Furthermore, the survey revealed that almost half of all surveyed firms (46%)—both in Beirut and elsewhere—have been affected by the explosion either directly or indirectly. The affected businesses across a number of sectors, specifically MSMEs, are struggling to finance their reconstruction and recovery needs, and find it extremely difficult to resume service delivery, unless they receive urgent financial assistance. 

The explosion also exposed the fragility of the financial sector (banking, insurance, and microfinance) Access to finance has severely deteriorated. With very limited policy responses by Lebanese authorities to support the recovery of the financial sector, firms affected by the explosion, specifically MSMEs, are struggling to finance their reconstruction and recovery needs.

“The B5 is the urgent first step to extending lifeline support to businesses and ensuring their sustainability considering the multiple crises affecting the country,” said Saroj Kumar Jha, World Bank Mashreq Regional Director. “Thanks to the financial support of Canada, Denmark, the European Union, France and Germany, the B5 today kick-starts the implementation of much needed priority projects planned under the LFF that will provide the Lebanese people with immediate socio-economic relief, help micro, small- and medium-sized enterprises to recover and prepare for reform and reconstruction to put Lebanon on a sustainable recovery path.” 

The B5 Fund will provide grants to approximately 4,300 MSEs to cover expenses related to working capital, technical services, equipment, and repairs. Around 30% of the selected MSEs will be women-owned or led that will benefit from financial and technical assistance to help them build back better. Efforts will also be made to identify and support entrepreneurs and businesses who directly or indirectly suffer from a disability as a result from the blast. 

The B5 Fund will also support the operational expenses of up to 5 MFIs serving micro and small businesses, low-income populations, and the informal sector at large to help them stand by the communities they serve during the time of multiple crises and stabilize their activities until broader growth can resume.

The B5 Fund is designed to disburse in a transparent and timely manner, directly through specialized and tested institutions. The Fund will be implemented by Kafalat SAL, that currently manages the World Bank-funded Supporting Innovation in Small and Medium Enterprises (iSME) Project. Under the B5 Fund, Kafalat will be responsible for the overall implementation, management, selection of intermediaries, monitoring and evaluation, with functions, staffing and responsibilities satisfactory to the World Bank and LFF donors. 

The B5 Fund will adopt a zoning approach whereby eligible beneficiaries will be prioritized based on their proximity to the explosion site. The Fund adopts a simple design that permits the deployment of grants in a timely and cost-efficient manner to businesses, particularly vulnerable ones. Disbursement to grantees will be conditional on the completion of a screening done by MFIs and Kafalat to confirm their damage status based on initial asessments conducted by the Lebanese Armed Forces directly following the blast, ensuring that the same expense is not financed more than once from different sources. 

A Third Party Monitoring Agent (TPMA) will be hired at the LFF level to independently verify and confirm that the criteria, selection process, assessment and use of funds are in compliance with the Project Operations Manual.  Furthermore, the LFF Independent Oversight Body will also monitor fund activities.

The B5 Fund is scalable and agile by design. Based on its successful implementation, additional funds from the LFF could expand its scope to benefit more Lebanese MSEs and MFIs. 

Generous pledges and contributions to date from the governments of Canada, Denmark, France and Germany and from the EU totaling US$62.68 million will allow the Lebanon Financing Facility to channel international support to Lebanon to address its multiple crises. While the international community is working together to address the socio-economic recovery needs of the people of Lebanon, more donors are invited to come forward in support of the 3RF priorities under the umbrella of the LFF.

About the Lebanon Financing Facility (LFF):

Established in December 2020 in the aftermath of the August 4 Port of Beirut explosion disaster and following the launch of the Reform, Recovery and Reconstruction Framework (3RF), the LFF is a 5 year multi-donor trust fund that will pool grant resources and strengthen the coherence and coordination of financing in support of the immediate socio-economic recovery of vulnerable people and businesses impacted by the explosion.

To date, the LFF has received contributions and pledges from the governments of Canada, Denmark, France and Germany and from the EU. Subject to the commitment of all Lebanese stakeholders to critical reforms, the LFF will build the foundation for medium-term recovery and the sustainable reconstruction of the Port of Beirut and affected neighborhoods. The LFF prioritizes three focus areas of interventions: 1) Socioeconomic and business recovery; 2) Preparing for reform and reconstruction; and 3) Strengthening coordination, monitoring, accountability and oversight of the 3RF.

The LFF will benefit from the World Bank’s high fiduciary standards, through the application of its fiduciary framework for financial management, procurement, and environmental and social safeguards. The LLF will also ensure that programs promote gender equality and community engagement that target women, youth and vulnerable populations.