The Middle East economy is being held back by the lack of insolvency laws that prohibits the development of entrepreneurial businesses, according to regional business leaders.

The fear of bankruptcy and the social stigma attached to it prevent new firms from being established and creating the opportunities needed to employ the region’s growing population.

“Insolvency laws in this region are archaic and need to be overhauled. Criminalising bouncing a cheque is not the way to develop a market and foster new businesses being formed,” said Arif Naqvi, founder and chief executive officer (CEO) of Abraaj Capital, speaking at the Global Competitiveness Forum in Riyadh.

Ulf Henriksson, CEO of UK-based Invensys, added: “You need to be able to attract capital, and work through difficult times in a well regulated process for businesses to flourish.”

Without adequate regulation for bankruptcy cases, people are fearful of setting up new businesses and the consequences if they are not successful. This reduces competitiveness of the economy and limits job creation to larger firms and the government, speakers at the forum agreed.