The challenges of developing the UAE’s SME market

Ali Al Hashimi, Executive Vice President - Head of Financial Services Division, Dubai Financial Market (DFM) gives us an overview of the UAE’s SME market.

While a strong SME environment has seen banks in the Middle East region increase the funding allocated to their respective SME segments, many experts concede that several challenges remain that need to be addressed.

The UAE is a highly transparent, corruption-free and user-friendly market for budding and experienced entrepreneurs. The range of license options, locations, support infrastructure, simplicity of process, the excellent quality of life, plus the tax-free environment, make the UAE arguably one of the most attractive options for SMEs.

Processing business set-up information, pertinent to SME licensing, has also become more e-friendly in recent years. Quality information and services now exist online. Indeed, the entire business set-up process has greatly improved over recent years, but could be further refined. Government initiatives such as the Dubai Top 100 SMEs, that promotes and recognises the important contribution that SMEs make to the UAE’s economy, are a great step in the right direction.

The expansion of free zone categories, and/or the reduction of 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.

The broader market is evolving as well, with developments in solutions, financing and business needs, along with new trade corridors and regulations. And SMEs quite often have difficulty in keeping pace with these changes. Banks will need to continuously innovate and meet the product and solution needs of SMEs e.g. LCs, LGs, short-term working capital products, transaction banking, cash management solutions, and medium- to long-term finance for business expansion, while working closely with them to improve their financial discipline and standards of documentation maintenance.

At the same time, 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.

UAE banks today support a good number of SME platforms beyond banking services. For example, an SME Bank Friendliness Index* was launched in 2012 with the aim of identifying UAE banks that had the highest orientation towards supporting and developing SMEs in the UAE. Based on extensive surveys of SMEs at different stages of growth, and in different sectors of the economy, an index was developed based on the SMEs’ experiences with their banks on all levels of interaction. The research findings, and subsequent index which ranked the banks, provided valuable insights on how banks in the UAE can better structure their offerings, and orient their services to meet the financing needs of SMEs. At the same time, the findings revealed the capability gaps that SMEs had when applying for credit and capital.

*Source: DUBAI SME