Central Bank sets new standard for lenders' dealings with SMEs

The move is expected to improve smaller companies' access to finance

Banks should refrain from exerting excessive pressures on SME customers in the collection of debt, according to a new regulation from the central bank of the UAE on Sunday. Ryan Carter / The National

The Central Bank of the UAE (CBUAE) issued a new regulation to promote best practice among licensed financial institutions (LFIs) when dealing with small and medium enterprises.

The objective of the new rule is to improve SMEs' access to financial products and services, the regulator said in a statement on Sunday.

“The UAE Government has placed considerable emphasis on developing the SME ecosystem and removing obstacles for a transparent, entrepreneurial, and innovative SME sector in the UAE, which has good access to various financial sources,” Abdulhamid Saeed Alahmadi, governor of the Central Bank of the UAE, said.

“To sustain this momentum, the CBUAE aims to ensure that SMEs enjoy the highest business standard when interacting with licensed financial institutions, in line with our new consumer protection mandate.”

SMEs make up more than 90 per cent of all businesses and employ more than 50 per cent of the workforce but often struggle to access finance. The "finance gap" of available funding in proportion to total demand stands at 88 per cent in the Middle East and North Africa, the highest of any region in the world.

Efforts have been stepped up to improve access to finance to SMEs in the UAE, with Abu Dhabi's government announcing an SME Credit Loan Guarantee Scheme in April last year to ensure companies had access to available funds as the pandemic hit. The central bank said its new rules set standards of market conduct of lenders when dealing with SMEs, strengthened governance over the type of products sold to them and promoted "responsible financing practices and appropriate disclosure of risks”.

Under the new regulation, lenders must complete the opening of a bank account for SMEs within three days, providing the appropriate level of due diligence around money laundering and terrorism financing rules had been carried out.

Banks should refrain from exerting excessive pressures on SME customers when collecting debts and are required to disclose the reasons for any rejection of an application for credit.

Lenders also need to have independent and effective measures in place for dealing with complaints by SMEs fairly and transparently, the new rules state.

CBUAE's introduction of this regulation follows the launch of a new financial consumer protection regulatory framework earlier this year to improve the quality of information provided by financial institutions to customers and settle disputes in a more efficient way, the regulator said.