Limited sources of funding to start small businesses in Dubai is holding back growth in the SME sector and is a "major gap" that needs to be addressed, according to a new report by Dubai SME, the agency of the Department of Economic Development (DED).
The organisation, which is mandated to develop the small and medium enterprise (SME) sector, raised the concern in its State of SME Equity Investment in Dubai report.
The report called for robust insolvency and bankruptcy regime for onshore companies in the UAE and exploring the option of a secondary market, which would allow small and mid-sized companies to list without complex regulatory pre-conditions.
It also noted that the total value of capital investments in SMEs across Dubai amounted to nearly AED110 million in 2014 and is expected to grow by 15 percent in the near term on the back of a 30 percent growth in the number of deals, driven largely by activity from existing incubators and early-stage investment firms.
Dubai SME launched the Equity Investment Initiative in 2014 with the goal of unlocking investment and funding in SMEs and entrepreneurial projects.
The second phase of the initiative will witness the launch of Dubai Ventures Network to raise awareness on the importance of equity investment in SMEs, to create an ecosystem for equity investment in SMEs by involving all key players and to facilitate developing a supportive regulatory framework for SME equity investment.
Sami Al Qamzi, director general of DED, said: "The estimated total investment in small businesses in the region is about three billion dirhams, and with clear strategies these funds can be channelled into sectors of vast growth potential.
"However, limited source of funding to start businesses is a major gap in our SME ecosystem, which is underlined by the finding in the report that 80 percent of the start-ups relied on self-financing as a source of capital.
He said that addressing market gaps and channelling investments into SMEs is "critical to Dubai's knowledge economy initiative".
Al Qamzi added: "We continue to develop these distinguished SMEs and enable them to grow and expand to neighbouring markets. It's a top priority for Dubai to build an integrated support system for SMEs and quality them to meet the diverse challenges of going global."
The report highlights the slow pace of innovation among SMEs in Dubai even when they have the potential to attract investment and remain growing.
It also said the presence of a strong institutional and legal framework to regulate investment activity is essential to improve investor confidence, unlock capital and attract investors.
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.