x Abu Dhabi, UAEMonday 24 July 2017

SMEs have a big role to play as UAE economy roars ahead

SMEs are pinning their hopes on the flurry of business opportunities that preparations for Expo 2020 are expected to bring.

The UAE has entered a new phase of development and the small and medium enterprise (SME) sector has the potential to be one of the key drivers.

SMEs are pinning their hopes on the flurry of business opportunities that preparations for Expo 2020 are expected to bring. For this growth to be realised, a few key issues should be addressed.

Although we have seen improvements in the SME sector with policymakers working to create a conducive business environment for entrepreneurs and financiers improving access to funding and broadening their range of products, small and medium firms need to become more aware of the requirements they must meet to better obtain financing.

Financiers and policymakers will also need to take into account that developing this sector to the next level will require funds set aside specifically for this purpose.

In developed markets, SMEs are the key drivers of economic growth, employment and prosperity. A thriving SME sector is a healthy sign that the economy and wider society is growing sustainably.

In recent years it has become clearer than ever that the UAE is the regional hub for business with the potential to set an example in fostering sustainable growth via the establishment of a successful and prosperous SME sector.

The encouraging events we have witnessed over recent months, most notably rebounding property prices and the strong performance of the UAE markets during 2013, have indeed had a positive effect on liquidity. This is promising for the country’s SMEs for a number of reasons.

First, the fact that we are seeing increased lending in this space is an encouraging indication that what has generally been the main constraint to SME growth – access to funding – no longer seems to be as big a challenge.

Today a majority of local banks offer loans to SMEs and a number of specialist lending companies, such as Gulf Finance Corporation, have evolved their offering to cater to an increasingly diverse group of SMEs spanning a range of sectors.

Continuing to provide a broad range of tailor-made products and solutions such as medical or equipment leasing designed specifically to meet the needs of SMEs will be crucial for continued development within this field.

Second, the pick-up in lending activities to a sector that is generally perceived to be high-risk is a sign of confidence on the part of banks in the SME sector and, by extension, the growth prospects of the UAE as a whole.

Indeed, many banks have begun to realise the opportunity that lending constitutes. According to an International Finance Corporation and McKinsey report on SME banking opportunity in the Middle East and North Africa, there are an estimated 19 million to 23 million micro small and medium enterprises in the region.

In the UAE we have about 200,000 SMEs accounting for nearly 86 per cent of private-sector employment.

Historically this sector has been vastly underserved. However, an increasing number of financial institutions are now becoming more far-sighted in providing the funding that small and medium enterprises need to thrive and prosper.

Another key constraint to lending has been lack of financial information and accurate historical data on SMEs.

Transparency and disclosure procedures in this sector have traditionally been poor, but the recent launch of the Al Etihad Credit Bureau will help financiers to obtain information on individuals and companies based on an internal risk-weighting system, which, in turn, will give lenders better access to information from potential SME clients.

Small and medium enterprises, for their part, also need to become even more educated and aware of what is required of them to be eligible for funding.

As an increasing number of companies turn to finance providers to obtain growth capital they are forced to prepare detailed business plans and provide accurate, up-to-date data.

There has been a proliferation of private workshops and entrepreneurial clubs, which are assisting SMEs in developing their business plans. This is a positive step in the right direction and one that will help the sector to live up to the size of the opportunity.

David Hunt is the chief executive of Gulf Finance Corporation