Etihad Credit Insurance (ECI), the UAE’s Federal export credit company, has issued AED420 million ($114 million) worth of trade credit support to small and medium enterprises (SMEs) during the first 11 months of 2020.
The trade finance support translated into AED1 billion non-oil trade insured turnover as smaller businesses struggled to stay competitive both in domestic and overseas markets amid the ongoing coronavirus crisis.
ECI said its guarantees helped protect the liquidity of SMEs during the challenging economic cycle, assisting businesses in reducing their cost of bank funding and allowing them to request their preferred bank to discount the invoices — secured by ECI — at preferential rate.
The support comes as the SME sector has always been regarded as a fragile sector. Only 50 percent of start-up businesses globally make it to the fifth year of operation, and it further drops to 33 percent on the 10th year, according to data released by US Bureau of Labour Statistics.
Despite this low chance of survival, the importance of SMEs in the sustainability of the global economy cannot be stressed enough. Latest data released by World Bank showed that SMEs represent about 90 percent of businesses and more than 50 percent of employment worldwide.
In the UAE, the Federal Competitiveness and Statistics Authority showed that the contribution of the SME sector to the UAE’s GDP is estimated at 53 percent in 2019, up from about 49 percent in 2018.
In addition, SMEs also contribute to 95 percent of the companies in the country and employs 86 percent of the total workforce in the non-oil private sector.
But despite being a key player to the global trade industry, their delicate lifespan is the reason SMEs are considered as high-risk by financial institutions, leading businesses to have difficulty getting access to credit.
To address this, ECI launched SME Protect, a trade credit solution for SMEs to support their growth plans globally and assist them while entering high-growth markets.
Massimo Falcioni, CEO of ECI said: “SME Protect is the actualisation of our mandate to accelerate the SME growth and sustain the non-oil foreign trade growth development in the UAE. We aim to further bolster the capabilities of our nation’s SMEs through our bespoke financial products that will help them achieve their expansion goals and propel them towards greater heights.”
Massimo Falcioni, CEO of Etihad Credit Insurance (ECI)
Speaking to Arabian Business in October, Falcioni said having a good product or service is just half of the story as companies need to have proper insurance and financial support to succeed globally.
The ECI provides guarantees for the banks which means they can fund exporters and ECI guarantees that the banks will be repaid in case something does not go as expected.
In the first nine months of 2020, ECI had issued more than 1,600 revolving credit guarantees to exporters, with 40 percent of the companies supported being SMEs.
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