In spite of the willingness of local banks to increase lending to local SMEs, only four percent of bank loans are granted to small businesses.
Although banks target SMEs with 24 percent of their lending offers, 77 percent of Dubai SMEs have no access to bank lending and 80 percent of Dubai start-ups are self-financed, experts stated at the Arabian Business StartUp Academy in Dubai on Monday.
Hosting a breakfast workshop at The Address Hotel Downtown Dubai, the Arabian Business StartUp Academy, organised in partnership with Mashreq Bank, looked to explore the type of support start-ups and SMEs can get from banks.
Attended by more than 60 SMEs and start-up owners, the Academy looked into the topic from three different angles through presentations from expert speakers from the Dubai Chamber of Commerce and Industry, Grant Thorton UAE, and Mashreq Bank.
Essa Al Zaabi, senior vice president of Dubai Chamber, opened the workshop by stating that the number of SMEs in Dubai had risen from 43 in 2000 to 181 in 2014, constituting over 90 percent of the chamber’s members and providing AED285bn ($77bn) of export value, according to their 2013 trade statistics.
He added that bank financing was the most viable source of financing for Dubai SMEs since other sources of SME finance such as private equity and venture capital still weren’t mature concepts in the UAE.
However, actual SME lending penetration is very low in most of the GCC countries, with the UAE providing only four percent of SME loans, Saudi Arabia, Kuwait and Oman two percent, Bahrain one percent and Qatar only 0.5 percent, the chamber’s study shows.
Al Zaabi said: “Our statistics show that banks target SMEs with 24 percent of their lending offers. However, only four percent of loans are actually granted to SMEs. This is the reality.
“We’ve initiated a dialog between banks and SMEs in order to bridge this gap of 20 percent. If the SME sector grows, the banking sector will grow as well.”
Another speaker at the Academy, Khurram Bhatti, partner at Grant Thornton UAE, shared with the audience valuable advice on how to establish ‘relationship lending’ that could mitigate opacity problems by relying primarily on ‘‘soft” information gathered by the loan officer through continuous, personalised, and direct contacts.
His most important suggestion related to the need to present a clear, compelling case, which should be backed up by hard facts.
The last speaker, Rohit Garg, head of business banking at Mashreq Bank, pointed out the need to break the myth that banks were not interested to support start-ups, saying: “SMEs are created out of start-ups.”
He explained that the lack of infrastructure was the main cause of the local banks’ hesitation to increase their lending offers to SMEs, which was evident through the lack of standardised reporting, absence of information sharing among banks, and non-establishment of the Central Registry for Legal Documents and the federal credit bureau.
“The banks can help start-ups in more ways than just the funding – there are many other services.”
“For example, some of them [small business owners] that I’ve met here have been in business for three years, but they haven’t kept books of accounts. And now they are facing a challenge in terms of how to scale up,” he added.
He advised the small business owners who were in this position to use and benefit from bank advisory services, business accounts and transaction services as well as trade and foreign exchange services.
Following an interactive discussion with the Academy audience, Garg concluded by saying: “The government is taking steps towards creating a more robust ecosystem for SMEs.
“It has been putting the enabling infrastructure in place, which includes the SME Law and the launch of the credit bureau.
“The credit bureau is a huge step, which, I think, is about to happen. The credit bureau will help start-ups the most. I think it will be a fantastic news for start-ups.”
The StartUp Academy will take a break in July, and return in August with a workshop entitled ‘Preparing your Business for Investment – Book Keeping and Accounting’.