Learning to Leverage; The Middle East's cash cultures now embrace debt.

Byline: Stephen Glain

Not so long ago in the Middle East, even a prince couldn't get a loan. From Turkey to Iran and throughout the Arab states in between, cash was king. Companies had little or no debt on their books and governments with sound credit ratings were reluctant to raise money through bond issues. The basic business notion of leveraging--or stretching investments through debt--was as alien to the Middle East as a vodka martini in Riyadh.

No longer. Thanks to long-awaited financial reforms and a regionwide boom fueled by high oil prices, the rivers of cash that have coursed through the Middle East for centuries are finally being harnessed into a modern reservoir of credit. A flurry of government debt issued over the last half-decade has established benchmark prices for a growing number of corporate bonds, which offer companies funding sources that can be cheaper and more flexible than bank loans. Policymakers are fine-tuning legislation that would permit 30-year home mortgages for the first time, and banks are already finding ways to provide long-term housing credits. "Leverage is picking up," says Saudi Prince Mohammed K.A. Al Faisal, who manages some of the kingdom's largest investment portfolios, with stakes in everything from petrochemical plants to steakhouses. "This is a very significant trend."

Capitalism is built on loans, and Saudi Arabia can't join the global age without them. Nor is the Arab world as backward as it may sound: the fact is that many emerging markets, even in hot, growing regions of Asia, are only now introducing such basic instruments of finance as a corporate bond market. Bankers and investors are eying retail lending as the Middle East's next big credit market. Turkey is moving to create long-term mortgage guarantees this year. Similar proposals are gaining in Egypt and Saudi Arabia. Though solid numbers are hard to come by in the Middle East, credit cards and consumer loans are starting to spread, say bankers.

None too soon. A cash culture has stunted real-estate markets even in ...