The Abu Dhabi-based lender FGB said it would start to offer finance to UAE start-ups, offering a lifeline to bank customers that have traditionally been shunned by many lenders as too risky.
The bank is targeting the segment at a time of shrinking margins amid low interest rates.
That is encouraging lenders to seek better yields on the higher end of the risk spectrum such as small businesses and individuals to boost growth. At the same time, the government is keen to boost the growth of small businesses as the economy starts to slow amid falling oil prices.
“Facilitating access to finance for SMEs is considered essential for fostering economic growth in the UAE and supporting these businesses is currently top priority for the government and the business community,” FGB said in a statement.
The bank said that it would offer start-ups no minimum balance current accounts and business credit cards in the first six months of operation.
There would also be the possibility of getting an overdraft or start-up loan after six months.
A bank spokeswoman did not immediately respond o questions about the interest rates on loans to start-ups but said the bank would consider all nationalities for financing.
Typically SMEs are charged interest of between 12 and 18 per cent a year by banks – or almost twice as much interest applied to standard consumer loans.
UAE government officials have been counting on small businesses to play a key role in the development of the economy. SMEs account for 86 per cent of the workforce in the private sector, according to the Ministry of Economy. And 300,000 companies can be classified as part of the SME sector, according to ministry data.
Yet despite the importance of SMEs to the national economy, they only account for 4 per cent of total lending, and banks in the UAE have attracted criticism for not doing enough to support them.
The UAE’s fledgling credit bureau said earlier this year that it was working on offering credit reports for SMEs, a move that would allow nascent businesses to tap debt more easily. It may also reward companies that have good credit scores with better interest rates.
The push by banks to offer financial lifelines to small businesses in the past couple of years is welcomed by entrepreneurs who say that lack of funding weighed down growth in the past.
“Twenty some years ago, there was very few pockets of capital that were available for new ventures and banks were very reluctant to lend to anyone who didn’t have a track record and wasn’t an ongoing concern and the business had to be asset-backed,” said Dany Farha, the chief executive of Beco Capital, a Dubai-based venture capital firm, with investments in technology companies including propertyfinder.ae and medical insurance start-up Bayzat.
“Trajectory-wise, that has changed significantly and we’re headed in the right direction.”
Meanwhile, FGB, like most of its competitors, is increasingly branching out into higher-yielding businesses because low interest rates are putting pressure on the margins they get from lending.
Jaap Meijer, head of financial services research at Arqaam Capital, a Dubai-based investment bank, said while the move was positive for the bank it would not have a massive impact on FGB’s overall growth.
mkassem@thenational.ae
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