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Abu Dhabi, UAEWednesday 23 January 2019

Stricter UAE bank rules against money laundering hurt SME borrowing

SMEs have struggled to get financing in recent years as lenders become more particular about who they give loans to after a spate of defaults left gaping holes in many a bank’s balance sheet.
SMEs make up 90 per cent of registered companies in the UAE and authorities have been banking on small businesses to bolster economic growth. Nicole Hill / The National
SMEs make up 90 per cent of registered companies in the UAE and authorities have been banking on small businesses to bolster economic growth. Nicole Hill / The National

Anti-money laundering regulations that are increasingly being strengthened by UAE banks are making it more difficult for small and medium-sized businesses to tap debt, according to the accountancy firm KPMG.

SMEs have struggled to get financing in recent years as banks become more particular about who they give loans to after a spate of defaults left gaping holes in many a bank’s balance sheet. Now lenders not only ask for assets to back loans but also more information about the businesses they finance, often to the chagrin of business owners and to detriment of the wider economy that is reliant on small enterprises.

“Banks have learnt their lesson and are pushing forensic due diligence of receivables, inventories and cash-flow statements,” said Luke Ellyard, head of KPMG’s financial services audit practice in the UAE.

“Some SME owners have unfortunately translated this leading practice as a lack of faith, resulting in a strained relationship with their bankers.”

Banks were notified in December that anti-money laundering rules had been amended with stricter regulations that prevent customers from opening accounts with assumed names, and the physical checking of forms of identification.

Since the financial crisis of 2008, lenders in the UAE and wider region have bolstered requirements at banks to crack down on financial crimes and ensure greater financial stability. That has raised costs at banks as they make sure they comply with new regulations.

And coupled with the hesitancy to lend to small businesses because of fear of default, this has made the existence of SMEs sometimes tenuous as they seek financing.

KPMG is not the only one to have highlighted the woes facing SMEs of late. On Sunday, Abdul Aziz Al Ghurair, the chairman of the UAE Banks Federation, said SMEs continue to suffer from a lack of financing.

“It is clear that there is a need for the financial sector to facilitate more effective SME-bank relationships through awareness initiatives that will enable companies to successfully secure the external financial support they need,” Mr Al Ghurair, who is also the chief executive of Mashreq, told a meeting of more than 100 business owners and the banking federation.

SMEs make up 90 per cent of registered companies in the country and authorities have been banking on small businesses to bolster economic growth at a time when the hydrocarbon industry is in the doldrums because of low oil prices.

This segment has not been untouched by the resultant economic fallout – many small business owners skipped town at the height of the drop in oil prices in 2015, leaving what was estimated to be Dh5 billion in unpaid debts.

That has made lenders more hesitant to stump up fresh cash, making life increasingly difficult for entrepreneurs.

“Banks are just not really lending to SMEs, especially new ones,” said Nathalie Hall, the founder of the Dubai-based greeting cards business Dinodrops.

“Not only do you need to have at least three years of trading history, but the interest rates are high. It’s almost impossible for a start-up business. Everything out here is mostly equity funded, so you need to get an investor, which is very time-consuming and difficult. It’s very frustrating.”

mkassem@thenational.ae

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Updated: March 13, 2017 04:00 AM

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