Emirates Development Bank (EDB) has allocated Dh450 million of its Dh1 billion budget for next year to support the country’s small-to-medium-sized enterprises (SME), as soft economic conditions continue to weigh on the segment.
The UAE government lender, which lends only to Emiratis, also said it would set up a long awaited register of SME assets – the Emirates Movable Collateral Registry Corporation – from next month, to help them secure loans.
The UAE wants the contribution of the SME sector to reach 70 per cent by 2021 to help fuel the country’s non-oil GDP growth through a more diversified economy.
But smaller companies have been hit hard by the country's economic slowdown, with cancelled contracts and late invoice payments taking their toll.
The Central Bank of the UAE is working on initiatives to help small business gain extra access to financing at more accessible rates, together with revised rules and operating procedures for banks dealing with SMEs, in conjunction with the UAE Banks Federation.
EDB's Dh450m of enterprise finance includes Dh100m allocated to banks participating in the Mohammed bin Rashid Innovation Fund, which issues bank guarantees help finance entrepreneurs in the creative sector.
The bank said that the establishment of the Emirates Movable Collateral Registry Corporation, targeted by the second half of January, is a further key part of its strategy to support SMEs.
Once established, the registry will provide a nationwide register of small firms’ movable assets – including vehicles, equipment, and accounts receivables – that companies could use to provide a clear picture of their assets if they wished to borrow against them.
“This gives companies a greater finance opportunity at a lower cost, which leads to better evaluations with regards to ease of doing business, global competitiveness, innovation, entrepreneurship and development,” the bank said.
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Read more:
[ Nine in 10 GCC SMEs plan to raise capital in the next two years, study reveals ]
[ Emirates Development Bank reaffirms commitment to SMEs ]
[ Boost for UAE lending with registry of small firms' assets ]
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The establishment of the registry comes after the UAE Cabinet approved the executive regulations of Federal Law Number 20 in December 2016, concerning mortgaging of movable properties as security for debts, and issued a directive to establish an electronic registry to publicise lenders’ rights.
The decision to hand the remit to EDB is a positive step because without the registry the 2016 law is "toothless", said Mazen Boustany, a banking and finance partner at Habib Al Mulla Baker McKenzie, a law firm that was involved in drafting the initial law in 2013.
“It will be a tremendous change from the current funding landscape and unlock hundreds of millions of dirhams for SMEs,” Mr Boustany said. “It gives lenders greater security in the case of default, and allows companies to seek loans freely in the knowledge that their assets cannot be resold or repledged.”
Aside from its support for SMEs, EDB has allocated Dh550m towards providing home finance for UAE Nationals in 2018, under the bank's home finance strategy.
The EDB provides home finance loans of up to Dh5m each for UAE nationals to purchase a house, as well as loans of up to Dh3m for them to build a house and a complementary loan of up to Dh3m.
The bank said it recently issued more than 632 housing approvals, worth Dh614m, for UAE nationals. Accordingly, the Home Finance loan portfolio is expected to reach Dh1bn by the end of 2018.
