Action on SMEs so crucial for growth

Central Bank shows leadership of sector at heart of the economy

The Central Bank has acknowledged that these are tough times for the UAE’s SME community and has taken action. That is welcome. Small businesses are the backbone of the country’s economy, accounting for more than 80 per cent of its businesses. They are considered key to the diversification of the economy away from a reliance on oil.

But lending to SMEs by banks has decreased sharply in recent years, with the downturn in economic growth leading to an increase in bad debt, and a reported number of small business owners fleeing the country unable to meet their financial obligations.

As a result, banks keen to decrease their exposure reduced unsecured loans to small businesses, resulting in higher interest rates.

Unsecured loans to SMEs can charge up to 15 per cent in interest rates, with secured loans available at a still very high 6 to 7 per cent.

The UAE Central Bank is looking at new solutions to help SMEs access affordable financing, while ensuring the country’s banking sector remains on a secure footing. Mubarak Al Mansoori, the bank’s governor, has called

The Arab Monetary Fund says there is a 300 per cent funding gap for SMEs in the region that banks are not filling

on private equity firms to step into the breach with funding solutions.

Also being considered are regulations relating to newer funding mechanisms, such as crowdfunding, to help SMEs keep afloat in challenging times.

The challenge is indeed great; the Arab Monetary Fund says there is a 300 per cent funding gap for SMEs in the region that banks are not filling. The fund, based in Abu Dhabi, said that while SMEs make up 80 per cent of businesses in the region, only one in five has a loan or line of credit.

SMEs are not just an economic concern, but a human one as well. A report by Mena Research Partners released yesterday estimated that the SME sector in the Arabian Gulf has the potential to grow close to US$1 trillion in size by 2022, employing about 22 million people across the region.

The Central Bank’s initiatives to support the SME sector are therefore welcome on both an economic and a social level. The country’s small businesses face many challenges; but properly nurtured, they are also among its brightest hopes.