There are certainly advantages to launching a start-up in the UAE, but cumbersome banking procedures continue to be a sharp thorn in the side of entrepreneurs who told Arabian Business that the requirements for setting up a bank account were among the major hurdles they had to overcome.
Opening a bank account for a start-up could take up to a year, another reason why 65 percent of the country’s entrepreneurs cited banking as the biggest challenge they faced when setting up shop, according to a 2018 study by Dubai Chamber of Commerce and Industry and the UAE Ministry of Economy.
While this has not changed much, Dubai Free Zones (DFZ) Council announced on Monday that it would be exploring ways to facilitate opening business bank accounts for small and medium businesses (SMEs), a move welcomed by the start-ups Arabian Business spoke to.
“This is a positive move from the Dubai Free Zone Council. It shows that the city’s free zones are listening to start-ups and taking positive steps to make Dubai an even better place to do business. We set up our communications and marketing business in Q1 2021 through DMCC – who have been a brilliant partner for us – and when they asked if there were any areas where start-up processes could be enhanced, we mentioned setting up a business bank account,” said Margaret Flanagan, co-founder of Tales and Heads, a Dubai-based communications agency.
“Currently, opening a bank account with financial institutions cannot be started concurrently with other business registration processes – or at least that was our experience. We were fortunate in that the first bank we approached approved us, but this still added several weeks to start-up timelines, and meant we were unable to raise any invoices during this period,” she continued.
“It’s no secret that most start-ups are operating on a tight budget. So, if an entrepreneur is only approved by the second or third bank they approach, this could mean several months of not being able to trade – creating cashflow problems before a business is fully operational. Streamlining account opening and increasing transparency of approval processes – as well as more flexibility on maintaining a significant cash balance, especially in early stages, could make or break a new business. It’s great to see Dubai Free Zone Council making this a priority,” added Flanagan.
The DFZ Council and the UAE Banks Federation are working in tandem to help SMEs in Dubai’s free zones open bank accounts, Monday’s announcement on UAE state news agency reported.
“While the UAE is still a zero-tax jurisdiction, the barriers to entry for setting up companies are remarkably high, with fees and charges greatly surpassing the costs to set up in most other countries in the world. This is supported by the World Ease of Doing Banking rankings, where the UAE ranked 17th in starting a business in 2020,” said Scott Cairns, managing director at Creation Business Consultants.
“Over the years, many frustrated clients have approached us, after trying for up to 12 months to open corporate bank accounts with no success. We all support the stringent checks and compliance that banks in the UAE must apply when evaluating new bank account applications. We do also believe, however, that there is room for improvement in this process that can speed up account opening. It is fantastic to see that the Free Zone Council has acknowledged this area as a major hurdle and is bringing it to the table to explore what solutions can be implemented,” he continued.
“This is a dialogue that needs to be opened. The only outcomes of this are an improved banking sector, a more robust business environment and a massive investor confidence boost to the UAE,” he continued.
Ask almost any UAE-based start-up about their challenges in launching their business and banking would be among the top three listed.
“Unfortunately, opening a bank account in the UAE for a start-up business can be very difficult. I spent countless hours going from bank to bank, with our Trade License and Business Plan in hand trying to convince one of the main banks to open a bank account for us. One of the main requirements from the potential banks was a hefty ‘minimum amount’ required as an opening balance, ranging from AED150,000 to AED250,000 AED. Fair to say, that most start-up businesses simply do not have this kind of money,” said Erika Doyle, founder and managing director of Drink Dry Store, an online platform that sells alcohol-free spirits.
“After more than three months and a large number of applications and rejections, I eventually had to leverage my own personal account as collateral with ENBD to get Drink Dry’s bank account opened with a minimum of AED50,000 opening balance,” she continued.
Given how integral having a bank account is for a company, “streamlining the process would no doubt encourage more aspiring entrepreneurs to make that leap of faith and start their own business,” said Doyle.
“In 2022, it is impossible to run a legitimate and efficient business without a bank account, and the challenges currently present in the market puts some people off. It is emotionally and physically challenging to start a business from scratch and putting procedures in place to ease the process would not only benefit the business owners but would help the economy grow,” she added.
A start-up’s challenges with the banking process in the UAE sometimes does not end with setting up an account, explained Marwan Saab, co-founder of Opaala, a smart-contactless solution for restaurants.
“One of the most stressful parts of setting up a start-up is opening a bank account. The amount of paperwork and time required is dramatically higher than I’ve experienced anywhere else, all that without a guarantee of being able to open a business account at the end. We were lucky our setup went pretty smoothly, but the fees and minimal financial requirements make it somewhat of a burden for most start-ups. Instead of helping businesses and encouraging entrepreneurship, banks end up being a hurdle that one must overcome, and often can delay or deter new business setup,” said Saab.
“Once you do set up your account and you begin life as a start-up you now have to worry about maintaining an absurdly high minimum monthly balance from day one or you will have to pay penalty fees. Banks are a business and need to generate profit, but there should be a better approach to support their business clients, as their growth and success will ultimately benefit the bank’s bottom line for much longer,” he continued.
Ramzi Khleif, general manager for StashAway MENA, highlights another banking issue start-ups struggle with: “Furthermore, to onboard any business banks require original documents with wet-ink signatures and having them arranged can take time, especially for international start-ups who will need to courier them in from abroad. In addition, banks also require the ultimate beneficial ownership of the start-up, which includes all the venture capitals and investors that invested in the company along with the original documents for any entity that has more than 10 percent stake in the start-up.”
“The process of opening a bank account, especially for start-ups, can be between three to nine months, therefore it is paramount to plan and research what the requirements and processes are for the chosen bank to avoid any delays to the company’s operations,” he continued.
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