The United Arab Emirates is drafting legislation to let small and medium-sized firms use machinery and other assets to back loans, in order to improve financing options for the firms, said a unit of the World Bank which is helping with the law.
The International Finance Corp is assisting the Gulf nation in preparing the law, which will create a registry of movable assets, Mouayed Makhlouf, the IFC's regional director for the Middle East and North Africa, told a media event in Dubai on Monday.
Once there is a formal record of the assets, which could include machinery and inventory, small and medium-sized enterprises (SMEs) will be able to use them as collateral; banks will be able to confirm they exist and take possession in the event of a default.
"You can only mortgage land once and a building once - so for these small businesses, after that, what else can they put up," Makhlouf said.
SMEs often find securing bank finance challenging for a number of reasons, including their size and a lack of financial history on which banks could base lending decisions.
"This will be a game-changer for bank lending for the SME sector," Xavier Reille, a manager in the IFC's advisory services division, said at the same event, adding that the draft bill was currently with the UAE Ministry of Finance.
Seven other nations in the Middle East and North Africa, including Morocco, Tunisia and Jordan, are also working with the IFC to put the necessary legislative steps in place for movable assets, Reille added.For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.