The Khalifa Fund is negotiating with a number of banks on a programme to underwrite loans to the small business sector.
Banks' appetite to finance small to medium-sized enterprises (SMEs) has increased in the past six months, the fund says.
It predicts changes to personal lending rules, issued this week by the UAE Central Bank, will encourage further lending to the sector.
In the first phase of negotiations with banks, Abu Dhabi Islamic Bank (ADIB) signed an initial agreement this week to provide financial services to the Khalifa Fund's aspiring Emirati entrepreneurs.
Under the plan, ADIB will provide credit administration services, pro-cess finance applications and designate a specialised centre in Abu Dhabi to service the fund's clients.
The Khalifa Fund is negotiating with a number of banks, including National Bank of Abu Dhabi, Citibank and ADIB, to launch three financing programmes to help SMEs.
"The ADIB deal is part of our strategic partnership with financial institutions, from which more will come in terms of lending," said Ahsan Ali, the director of credit at the Khalifa Fund.
One scheme will see the fund underwrite loans for the first time.
Under the programme, expected to be implemented within three months, the Khalifa Fund will guarantee a proportion of a loan and the bank will take on the rest of the risk.
Shimi Shah, the co-owner of the small business consultancy Carousel that is seeking finance, said the programme would "significantly" open the market for SME loans, but was limited as it only assisted Emirati businesses.
But recent weak credit conditions could be improving after data released yesterday by the Central Bank showed a 1.2 per cent increase in bank lending last month, having decreased in December.
It also announced changes to rules on personal loans this week, which Mr Ali predicts will help secure financing for small business.
Caps on individual loans and more transparent information, such as a proposed credit bureau that details individuals with loans of more than Dh50,000 (US$13,612), will all lead to an aggregate fall in personal lending, he said. To make up for the shortfall, banks will look at lending more to the SME sector, Mr Ali said.
A second financing model, expected to be offered next month, will see the Khalifa Fund give money to banks to finance SMEs. The banks will handle the administration of loans and once a bank is confident about the cash flows of the SME, it will provide its own financing.
For the third programme, the fund hopes banks will later extend loans directly to those businesses with strong cash flows and in return, the fund will offer the those SMEs all of its non-financial services, such as its marketing, innovation and accounting programmes.