Emirates Development Bank is set to sign agreements with five partner banks this week as it plans to boost lending to spur the growth of the industrial sector.
The lender, which last week set out a plan to help create 13,500 new companies and generate 25,000 jobs in support of the government's Operation 300bn strategy, will agree a 'core lending scheme' where it will match funding provided by banks to companies within five priority sectors, chief executive Faisal Al Bastaki told The National.
"We’re going to deposit extra amounts, for example let’s say Dh100 million with each bank, and then they will lend to their clients. So for each dirham EDB puts, they will put a dirham. It’s on a profit-sharing basis," Mr Al Bastaki said.
It will also agree a scheme with the five lenders, whom he did not name as the agreements have yet to be signed, where it will guarantee up to 50 per cent of loans made to companies within the five priority sectors of manufacturing, healthcare, technology, food security and infrastructure.
EDB was founded in 2011 after a merger between the Emirates Industrial Bank and the Real Estate bank.
For much of the past decade, it has focused on providing home loans to Emiratis – a role that will continue.
However, as part of its enhanced remit, it has been tasked with growing the size of its lending portfolio to Dh30 billion within five years from about Dh4.2bn currently.
Mr Al Bastaki, who was appointed chief executive of EDB in March 2019 after a long career with Emirates Islamic Bank and Dubai Bank, said he plans to use technology to scale the lender’s reach, as opposed to building a bricks-and-mortar network.
"I have lots of digital levers that will help us to achieve that."
For instance, the bank is already working on a receivables platform that he believes will help it quickly grow lending to a much broader customer base.
"We have a national receivables platform where we do reverse factoring, factoring, post-shipment, pre-shipment. We activated the reverse factoring module of it, and hopefully from that angle only we can lend to more than 2,000-3,000 clients this year," Mr Al Bastaki said.
Under conventional factoring, a lender buys a company’s receivables and pays for most of the outstanding invoices upfront, earning a small margin on the difference.
Reverse factoring involves the lender partnering with a few large businesses and targeting their supply chain – offering companies due to be paid within 90 days to 120 days instant access to capital in return for a small fraction of the amount owed.
EDB will also look to fill gaps left by conventional lenders. One issue that arose in workshops held before the release of its strategy was the need for longer term funding for asset-heavy investments such as new factories or production lines, Mr Al Bastaki said.
"Today, the commercial banks … they are offering up to five to seven years max. EDB is giving up to 12, which is almost double what’s offered in the market."
Similarly, it will look to offer lending rates that will be “fair”, with each loan based on a number of factors including the risks associated with a project and EDB’s own cost of funds.
“We can’t go for long-term finance with a very low rate, so we have to do a proper study ... where it will be a win-win for all the parties,” he said.
“The idea is to support government initiatives in terms of financing this manufacturing."
He said if loans become too expensive, that will defeat the purpose of EDB becoming the financing arm for the industrial strategy. The bank is also set to unveil a Dh1bn equity financing fund next year.