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Tue 15 Mar 2016 12:33 PM

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UAE banks to beat retreat from SME financing, says Khalifa Fund chairman

Hussain Al Nowais says banks were showing increased willingness to support SMEs last year

UAE banks to beat retreat from SME financing, says Khalifa Fund chairman

Banks are likely to pull back from supporting small-to-medium enterprises (SMEs) this year despite a brief renewal of interest in 2015, according to the chairman of the UAE’s Khalifa Fund for Enterprise Development.

Banks have historically been unwilling to lend money to start-ups and SMEs because of their high risk profile when compared to larger, more established organisations.

Hussain Al Nowais said he saw indications last year that UAE banks were starting to do so, but that tight economic conditions this year were prompting them to row back.

In an interview with Arabian Business on Monday, Al Nowais said: “I saw this trend last year where several banks were starting to become more willing to lend to SMEs, but with the current economic situation this year this is…not happening any more.

“Banks are here to make money – and I understand that. They are reluctant [to fund start-ups and SMEs] because of the risk profile.

“That is why the Khalifa Fund is here to step in and fill the funding vacuum.”

In 2014, the fund launched a new guarantee scheme in partnership with Arab Bank, under which the bank would finance SMEs approved by the fund, up to a maximum of AED5 million ($1.36 million).

The Khalifa Fund has a similar arrangement in place with Abu Dhabi Commercial Bank.

Al Nowais said the fund, which is now in its eighth year, has awarded a total of AED1.4 billion ($380 million) to Emirati-run start-ups across the country since its inception, supporting around 1,100 different projects.

It receives on average 150-200 applications per month and makes awards of between AED100,000 ($27,200) and AED10 million ($2.72 million) – although the typical size of awards is AED1 million ($270,000).

He noted that the failure rate of all UAE-based SMEs is around 30-40 percent, and the failure rate of SMEs supported by the Khalifa Fund is in line with this.

“My concern is that some SMEs take things for granted,” he said.

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Billy 4 years ago

Whilst this initiative was certainly well intentioned it was never going to really address the SME financing issue in the UAE as it was only available for Emiratis. A quick look at the statistics will show that only a very small part of the SME sector is owned by Emiratis, they are too few in number to really have an impact even if they all opened their own business so the bulk of the importance of this sector lies with expats. There are stats to show the amount of the UAE GDP being generated by these largely expat SMEs and it is huge so if the government is really going to stimulate growth in this important sector the the Khalifa Fund needed to be open to all. Conditions could be attached (such as employment of Emiratis) which would also address other important social issues.