Banking a challenge for 65 per cent of UAE SMEs, study shows

Opening a business account can take new companies up to three months, a Dubai Chamber white paper found

The report found that complex procedures and documentation as well as insufficient transparency and guidance from bankers are concerns for SMEs. Getty Images

Almost two-thirds of entrepreneurs consider banking their first challenge when setting up a business with funding the second biggest obstacle, according to a new UAE government study released on Sunday.

Sixty-five per cent of those polled find setting up their company's bank account a struggle, according to the white paper from the Dubai Chamber of Commerce and Industry in conjunction with the UAE Ministry of Economy, Council of Small and Medium-sized Enterprises and the global consultancy Roland Berger. Securing finance is the second biggest concern for 61 per cent of start-ups, according to the poll of 250 SMEs.

Opening a bank account can take new firms at least a month and up to three months, the white paper said “making the commencement of commercial operations difficult” in contrast to "what the banks state on their websites," the study said.

The report also found that complex procedures and documentation as well as insufficient transparency and guidance from bankers and a complex verification process were also significant obstacles for SMEs.

Representing over 60 per cent of the country's GDP and employing 42 per cent of its workforce, SMEs “form the backbone of the UAE’s economy”, according to the UAE Banks Federation.

UBF said SMEs make up 94 per cent of all companies operating in the country and account for a good share of the customer base of local banks.

However, smaller companies took a hit in recent years when the economy slowed amid falling oil prices. Many have struggled to meet their debts amid payment delays and failed to secure new credit lines as banks reduced their exposure to the SME sector.

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According to the Dubai Chamber white paper, the third biggest concern for SMEs is a lack of affordable office space, with 53 per cent of those polled citing this as a challenge.

The report attributed the banking issues for SMEs to two factors: one, pressure on banks to comply “with increasingly stringent regulatory standards to combat illegal activities” and two the banks’  “sense that emerging companies are not as commercially attractive as other customer segments”.

To get around these challenges, the white paper urged banks to provide basic accounts for new ventures, such as accounts that set a limit on transaction amounts or allow for local transfers only. It also called for simple and transparent guidelines on procedures, well-trained and experienced bankers and for the adoption of technology to reduce costs and improve operations.

The study noted that regulatory pressures are high on banks and that SMEs are not always the most attractive segment for financial institutions as only a few survive and expand. This limits the desire for banks to lend to them, it said, "especially considering cases where banks have suffered losses due to non-performing loans granted to UAE SMEs in the past".

The white paper added that for banks, “some of the challenges faced by entrepreneurs are self-induced. The banking sector highlighted a lack of awareness from the start-ups on the basic requirements as a major cause for delays”.

In June, the UBF issued a new financial literacy handbook for SMEs to raise financial literacy skills of entrepreneurs. The document focused on different aspects of business finance, including governance, financial management, access to finance and borrowing and debt management. The handbook also stressed that SME owners must acquire skills to distinguish between personal and business finances.

“Financial education offers entrepreneurs a deeper understanding of business strategies and objectives, as well as the availability of financing options and support services,” Abdulaziz Al Ghurair, chairman of UBF, said in a statement in June. “It also leads to proper financial planning, which enables small businesses to maximise their chances of business success by taking advantage of business opportunities and weathering business downturns.”