Strong SME sector charges into 2015 Flourishing SME environment sees increased funding even as challenges remain, writes Rohma Sadaqat The UAE’s flourishing small and medium-sized enterprises (SME) sector witnessed a high performance year in 2014, with several banks and lending platforms identifying the segment as a key strategic focus in the coming years. The leading banks in the UAE have ben targeting the growing segment and keep allocating more funds to finance SMEs projects on priority basis. Most of the banks have evolved special policies for SMEs so that this vital sector can contribute its vital role in the economy. Suvo Sarkar, general manager of retail banking and wealth management at Emirates NBD, noted that SMEs are crucial to the diversification of the UAE economy and that SMEs often face lower risks because of their agility. “Business banking has seen robust growth on all fronts of our business, whether it is lending or transaction oriented accounts. Our banking activities cater to about 70,000 SME clients, and we have relationship managers for about 35,000 companies. The remaining companies fall under the micro-SME category, which we manage on a portfolio basis,” Sarkar told Khaleej Times. Nilanjan Ray, managing director and head of global commercial banking at National Bank of Abu Dhabi (NBAD), said that the SME segment is of strategic importance to the bank in the UAE and wider GCC markets. “The support to SMEs, as well as exposure to the segment, has more than doubled during 2014. NBAD will continue to make investments to support the segment by offering easy-to-use products and top of the line customer service,” he said. According to the latest data of UAE’s Ministry of Economy, SMEs contribute an estimated 40 to 46 per cent of nominal GDP in Dubai, and more than 60 per cent of the UAE’s GDP. They also host the majority of employment opportunities in the country and provide 86 per cent of all private sector employment. A recent study by Dun and Bradstreet revealed that SMEs represent over 90 per cent of the total number of companies in the UAE and account for more than 85 per cent of jobs in the private sector. In addition, the latest findings from UAE-based online lending platform, Beehive, has revealed that SMEs require small loan amounts over the short-term, to fund business development and growth. Typically, SMEs in the UAE are often only looking for funding from between Dh100,000 to Dh500,000. However, despite requiring relatively small amounts of capital, SMEs are often frustrated by traditional lenders, reluctant to finance them, given their survival rate. SMEs lending grows faster Rohit Garg, head of business banking at Mashreq, said the bank lending has grown around eight to nine per cent compound annual growth rate as per industry estimates. “In almost all banks, SME lending has grown faster than this rate and we certainly plan to continue our support to this sector,” he said. “As the country’s economy continues to grow steadily in the wake of an optimistic sentiment, which is backed by Dubai’s victory to host the Expo 2020, the emirate has become a magnet for SMEs to start their businesses. The population growth will therefore accelerate consumption, creating a host of opportunities for SMEs to engage and prosper,” Garg said. Suvo Sarkar said that lending to SMEs was identified as a key focus area for 2013, and that the bank was delighted with the progress it has made during the year. “In 2013, we have seen the asset book grow by 23 per cent in terms of working capital finance, term loans and trade finance. 2014 has also been witness to a robust growth pattern in the asset book, with a growth rate of approximately 25 per cent. The horizon for lending and growth on funded and non-funded assets looks positive with a very ambitious projected rate for 2015.” Asked if Emirates NBD had any special plans to promote the SME sector, Sarkar said that specialised teams have been set up within business banking to cater to the various needs of the customers like Assets, Trade, Forex, Bancassurance, and Investment products. “Business banking also launched ‘Rise’ which is a dynamic platform for recognition of the success of SMEs, and for empowering their growth through knowledge and connections to help them persevere, progress and rise further to shape a more successful future for the UAE and for themselves.” Challenges remain “The range of licence options, locations, support infrastructure, simplicity of process, the excellent quality of life, plus obviously the tax free environment make the UAE arguably the most attractive option for SMEs in the world today.” Hajje noted that business set up information/SME licensing processes have become more e-friendly in recent years. “Lots of quality information now exists online. In general the entire business set up process has greatly improved over recent years, but could be further refined to improve company turn around set up times. Government initiatives such as the Dubai Top 100 SMEs that promote and recognise the important contribution that SMEs make to the UAE’s economy are a massive step in the right direction,” Hajje explained. He also said that the expansion of free zone categories and/or reduction on restrictions on foreign ownership outside the free zones could also stimulate SME growth. “Better business banking support, easing of lending restrictions and customer payment options for SMEs would also stimulate growth and improve efficiencies/margins for SMEs.” Solutions, financing needs “Business needs are evolving, new trade corridors are developing and so are new regulations. SMEs quite often have difficulty in keeping pace with the developments in the financial world and new regulations. Banks will need to continuously innovate and meet the product and solution needs of SMEs — such as specialised LCs, bonds and guarantees, short-term working capital products, transaction banking & cash management solutions, medium to long term finance for business expansion — whilst working closely with them to improve their financial discipline and standards of documentation maintenance,” Mukhopadhyay revealed. “At the same time, I believe that a favourable regulatory framework is critical to transform the financing agenda of banks with regard to SMEs; the sooner this agenda is formalised, the easier it will be for SMEs to have accessibility to finance. Noor Trade is currently working with a number of government associations to streamline the SME agenda in the UAE,” he added. Mukhopadhyay also explained that Noor Trade was created as an independent entity that focuses purely on the SME space. Since its launch in 2012, Noor Trade has been one of the fastest growing businesses within the Noor Bank umbrella. In 2013, the bank had announced that it was targeting Dh5 billion of financing to the SME segment for the next five years. “Noor Trade has created a company life-cycle planning and upgrade mechanism that guides SMEs from inception — getting them ready for basic financing, leading them to business-model based working capital finance, and finally, into complex facility structuring. At the same time, Noor Trade also nurtures owners and employees through ensuring that their personal/professional needs, for example, employee banking solutions for the staff and priority banking and wealth management solutions for the owners, are also addressed,” he said. Nilanjan Ray also said that NBAD supports the SME Advisor platform beyond banking services. “This platform offers print, digital and events to educate, advocate and recognise SME segment. NBAD hosted the Stars of Business Awards and Summit in 2014 to recognize SME champions in 23 segments. NBAD also supports UAE national entrepreneurs through Khalifa Fund and Dubai SME,” he said. |