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Tue 22 Mar 2011 09:28 AM

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UAE banks failing to back entrepreneurs, Nikai CEO says

High interest rates crippling small business growth in Gulf state, says Paras Shahdadpuri

UAE banks failing to back entrepreneurs, Nikai CEO says
Paras Shahdadpuri, CEO of Dubai retail conglomerate Nikai Group

State help is needed to whittle down the cost of loans to
small businesses and to push local banks to improve lending, the CEO of Dubai
retail conglomerate Nikai Group said.

The UAE government must intervene to slash interest rates on
business loans to fuel growth among small and medium-sized enterprises, said Paras Shahdadpuri.

“We’re
entrepreneurs, business people. Our creation of jobs is through the intellect
of whatever we have. I only wish the banks could really further this. I really
wish there was further support coming from the government of the UAE,” he said.

“The
interest rates which we pay to the banks range from six percent to eight
percent. It’s very high and wipes away all our profits.”

In Dubai, the country’s trade and tourism hub, SMEs
contribute to at least half of the emirate’s economic output and employ around
two-thirds of its estimated 1.4 million workforce.

SMEs in the trading sector typically have up to 75 employees
and a maximum turnover of AED250m ($68m).

Shahdadpuri,
who is president of Dubai’s Indian Business and Professional Council, said UAE
banks had some of the highest lending rates in the Gulf, compared to other
dollar-pegged currencies.

“If you go
all over the world, the interest rates for borrowings by businesses are not more
than 2.5 percent. Even in Saudi Arabia, which is also a dollar-pegged currency,
the interest rate is much lower; it’s 50 percent of what it is here,” he said.

Bank loans to SMEs accounted for only two percent of total
lending in Gulf Arab countries, an October survey by the Union of Arab Banks
and the World Bank showed.

Nikai
Group, an electronics and white goods distributor that has positioned itself as
a low-cost alternative to brands such as LG and Panasonic, sold more than 1.2
million units in 2010.

“The UAE
gave us lesser returns and revenues for 2010, as compared to 2008. But we were
able to make up by going horizontal; we expanded our territory,” Shahdadpuri
said.

“We went
very strong into the Gulf market, into the Commonwealth of Independent States
and the African markets. So that was able to break up some of the shortfall.’

The group
plans to tap the Iraqi market in 2011, its CEO said.

 “Iraq can easily be up to $30m or $40m per
year [for us], easily. [It’s] a big market which we would like to tap this
year,” Shahdadpuri said.

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Savio 9 years ago

The reality for small mid company in Dubai is even worse regarding lending or facilities from banks in Dubai. I run a financial market related business in DIFC. We have a very good track record and 24 employes. 100% of our cleints are banks and guess what? We cannot even have a 100 000aed overdraft or even more unreal we cant discount our invoices to the banks who own us money. We tried with HSBC and Barclays (our clients) and none of them wanted to give us an overdraft or discount their own invoices. We have 1,5m $ capital and still its a cash flow issue every month. So I can immagine what it is for smaller business to survice.