Expats in UAE find it hard to get finance to start up companies

Noble Jose was armed with an idea and a business plan to back it, but the banks would not lend the Indian expatriate the money to fund the startup.

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The managing director of Stratal Building Materials Trading Company, based in Abu Dhabi, instead raised the capital himself.

He is one of many entrepreneurs in the UAE who have struggled to secure credit to get their companies off the ground.

"Start-ups normally have to have their own funding," says Akram Khan, the senior vice president and group head of corporate banking for Ajman Bank. "Bank financing will only come in after there is a track record."

Expatriates seeking to start up businesses in the Emirates find funding particularly difficult to secure.

"[If] you have an Emirati [partner] who can provide collateral, then we can look at start-ups. But without collateral for expats, it's a high risk," says Mr Khan. Mr Jose's business was eventually able to get a loan after establishing a track record. He understands why banks are careful, but says they should be more flexible. "Of course there is risk involved, so there has to be a balance."

A number of initiatives have been launched to fund UAE start-ups, such as the Khalifa Fund for Enterprise Development or the Al Tomooh Scheme.

"The advantage of the Al Tomooh Scheme is that the rates are very low and the payment terms are very good," says Dr Ahmad Al Amadi, who received a Dh1 million (US$272,000) loan from the scheme to start up Advance Hearing and Balance Center in Dubai with his two business partners.

"We would have been able to start without it, but we would have taken a loan from the bank with a very hefty interest rate, so we would have been paying it off for a long time. This gives us a chance to stand on our feet."

Banks have paid the small-business sector more attention over the past six years, lured by the promise of higher returns.

"There are lots of products for these companies now," says Satyajeet Roy, the head of Citi's commercial bank for the UAE and Bahrain.

"The banks have identified the SME [small and medium enterprises] segment as a big opportunity, so obviously they are ready to play ball with them," says Mr Roy.

However, statistics on the level of debt held by small businesses in the UAE are hard to come by.

"It's very hard to say, but compared to many economies that are more evolved in SME financing, I would say the proportion would be less here and a lot of people are self-funded," says Vishnu Deuskar, the managing director of Salvus Strategic Advisors in Dubai.

Banks limit the level by restricting the debt-to-equity ratio. "Banks normally would not lend more than a debt-to-equity of one to one. So if the client is bringing Dh1m, the bank will not go beyond Dh1m," says Mr Khan.