SMEs hit roadblocks

Sunaina Rana / Emirates Business

Small and medium enterprises (SMEs) are considered the backbone of UAE’s economy. Amid the crude slump, this sector has been contributing much towards the nation’s stability. However, at present, the SMEs are facing a number of challenges ahead to sustain themselves, in the wake of which a bankruptcy policy is being mulled by the government.
According to the statistics issued by the Dubai Chamber of Commerce and Industry, SMEs contribute 86% of jobs in the private sector and 60% to the country’s GDP. This shows that the sector has been making a huge contribution to the country’s growth in respect to the employment and GDP. However, SMEs continue to struggle to maintain their existence in the corporate world in the UAE, for which the government has come up with a bankruptcy policy, which would give a 90-day grace period before taking legal action against any enterprise.
Talking to Emirates Business Jon Richards, compareit4me CEO, said, “The grace period will give those SMEs struggling to manage repayments on their debts additional time to negotiate new repayment terms with existing creditors, or to find new finance options. The 90-day grace period is a key step forward in accepting that having a company owner in jail or leaving the country won’t help them recover their money. If banks have clients who are at risk of default, then an open dialogue is the best way forward. I hope in the long term this approach will be adopted for personal finance in the UAE.”
According to the survey, out of 152 SMEs surveyed, 67 respondents (or 45%) cited financing as one of the biggest challenges, out of which 21 said acquiring financing is proving to be a very difficult undertaking for small business owners in the UAE.
Commenting on the new policy, Mubarak Rashed Al Mansouri, governor of the Central Bank, said, “We need to offer institutional support to SMEs to better deal with market forces and offer them credible credit guarantee scheme in order to decrease risks of default.” He added, “We are pressing ahead with the bankruptcy law for the stability of the SME sector, I hope this will bring about more confidence in the sector.”
“It’s hard to overstate the importance of SMEs to the local and regional economy. SMEs play an important role in the economy of any country and are essential to the UAE’s long-term growth. Today SMEs represent 60% of the UAE’s non-oil economy and employ more than 40% of all workers here. The UAE government has done a great job of creating an environment where SMEs can thrive, and now the banks are starting to look at how they can also play their part,” added Richards.
Conidering the the government support for SMEs through the Khalifa Fund for Enterprise Development in Abu Dhabi, as well as an equity fund and other financial support provided by Dubai SME, MEED survey suggested that many expatriate-owned start-ups, which account for almost 95% of the SME sector, still face huge obstacles in acquiring finances.
It also stated that many SME owners still turn to family and friends as their top source for acquiring finance (49%), followed by banks (41%) and other sources such as private firms, angel investors, and credit cards and savings (10%).
The last few years have seen a huge amount of support for the local SMEs. Media companies, for example, have shown a lot of support and helped generate awareness through both content and awards. The banks are now starting to offer better SME banking facilities and investors are also ready to invest in interesting startups and SMEs.
Richards said, “Back in 2011 when we first started compareit4me, we spoke to many of the banks about opening a commercial bank account and found that there were limited options and that it was incredibly difficult. Lots of them wanted an AED1 million deposit, which is a huge obstacle for any new startup. Many of the banks we spoke to back then also wouldn’t give us online access and lots wouldn’t consider us at all. The options for startups and SMEs have changed a lot and now banks are actively trying to attract SMEs which is creating a wealth of commercial banking products.”