Dubai SME ranking system can speed up payments

Firms scoring highly are likely to benefit from greater access to government contracts and more favourable banking terms.

Abdul Baset Al Janahi, Dubai SME’s chief executive, said that the idea is an extension of its biennial SME100 awards highlighting the emirate’s fastest-growing companies. Reem Mohammed / The National

Small businesses in Dubai could find it easier to tap funding and get paid quicker by government clients following the introduction of a new rating system.

The system is being introduced for small and medium-sized enterprises (SMEs) in Dubai, which will help the top performers gain easier access to bank credit and government contracts.

The Dubai SME Rating Framework will rank companies based on five weighted criteria: business performance, both financial and operational; innovation; international expansion; corporate governance; and corporate social responsibility.

Business performance will be the component with the heaviest weighting, responsible for about half of a company’s score.

There will be five ranking categories: A+, A, A-, B+ and B. There will also be separate classifications for Emirati-owned businesses and other Dubai firms. The framework has been devised by Dubai SME, which is part of the Department of Economic Development.

Abdul Baset Al Janahi, Dubai SME’s chief executive, said that the idea is an extension of its biennial SME100 awards highlighting the emirate’s fastest-growing companies.

The ranking is only open to companies with a turnover of between Dh2 million and Dh200m that typically employ between five and 200 staff; for manufacturers that figure rises, from nine to 250 staff.

It is not compulsory and participants have to pay Dh5,000 for each ranking, which helps to pay for an external verification of claims. They also need to submit at least one year of independently audited accounts. The process is carried out by an external agency and takes three weeks to complete.

Mr Janahi has said that those who participate stand to benefit in a number of ways, including cheaper bank credit. Sami Al Qamzi, the director general of Dubai’s Department of Economic Development, said that the UAE Banks Federation had bought into the initiative and had helped with the formation of the ranking.

“They asked us to improve the criteria to match their credit criteria,” said Mr Al Qamzi. “We are working with them to rely on this rating exercise as an independent opinion additional to their internal credit decisions.”

Small businesses have historically struggled to tap loan finance from many lenders, which has led to efforts to encourage the banking sector to support the companies often described as “the lifeblood of the economy”.

Mr Al Janahi said: “We have created this partnership with the banking federation for the companies that get rated to be given preferential rates [and] access to more capital.”

He said that government departments would also favour ranked companies when it comes to awarding procurement contracts and would seek to ensure that payments to them are prompt.

“When it comes to payments, we know that SMEs cashflows are very important. We have a commitment from government agencies when it comes to payments for the services they provide,” he said, adding that ranked firms are more likely to be eligible for fast-tracked payments.

When asked if only Dubai firms were eligible to take part in the initiative, Mr Al Qamzi said: “I believe it will be open for any company if they want to participate. It’s online, so they can come and register online.”

Dubai Economic Department estimates that SMEs make up 95 per cent of the approximately 200,000 firms registered with it, which produce 40 per cent of its GDP. There are plans to increase this under the Dubai 2021 plan to 45 per cent. SMEs also employ 42 per cent of the total workforce.

Under the Dubai 2021 plan, it is anticipated that 40,000 new start-ups will be created over the next five years, employing up to 370,000 more staff and contributing a further Dh65bn to Dubai’s economy, bringing the total amount generated by SMEs up to Dh220bn.

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