Khalifa Fund means opportunities to empower Emirati entrepreneurs
Having been given a fresh three-year mandate at the helm of the fund last month, Hussain Al Nowais, its chairman, says the first order of business includes cutting down on red tape and bureaucracy, and automating approval procedures and decisions.
"At the moment, I must admit we are taking a bit longer than we should in terms of approving a project," he says.
Expanding to support larger projects focused on the industrial space is also high on the agenda this year, albeit on a larger scale than the fund has previously operated at with loan amounts nearer Dh10 million than Dh1m.
This is an initiative first recommended to help diversify finance options for SMEs in the UAE in an October 2013 white paper that the Khalifa Fund produced detailing the challenges of accessing cash with bank lending to the sector at only 4 per cent.
In the study it recommended making funding of between Dh40m and Dh100m available to entrepreneurs in downstream industries.
Mr Al Nowais said currently the programme is focused on projects that allow for success on a smaller scale rather than an industry where large-scale funding is needed to avoid failure.
"Normally this is somebody with more experience, with more risk appetite and with more equity ability. Don't forget we fund 90 per cent and you need to come up with 10. A lot of people can come up with Dh100,000, but not a lot of people can come up with Dh1m," he says.
While elsewhere in the world there are for the SME sector funding organisations, regulators, incubators and venture capital firms each working independently, says Mr Al Nowais, from the beginning the Khalifa Fund tried to combine all these services under one umbrella, focused on best practice but tailored to fit the needs of the UAE.
"The model has been studied by several Gulf countries," he says. "At the end of the day we are a service organisation. We continue to be together for a long time. We not only fund you we also support you with government orders if we can, taking you to exhibitions. The support comes from training, marketing, finance processes, how to manage cash flow, inventory."
Legislation introduced last year aimed at the SME sector is targeting an increase in its contribution to non-oil GDP to 70 per cent from the current 60 per cent level. Included in the law was a requirement for government and government-related entities to procure a portion of their services from Emirati-owned businesses.
The fund has introduced innovative practices aimed at overcoming specific challenges found in the UAE as well as to enhance the chances of success for its ventures.
One of its more recent initiatives is the Zaarie programme, which empowers Emiratis working in agriculture who face a shortage of water and high rates of salinity. By introducing the benefits of hydroponic techniques, the fund helps these farmers to overcome such difficulties. Around Dh116m has been given to 118 projects, almost all of which are still active. A further 120 are under evaluation. The average loan is Dh1m per farm, according to Mr Al Nowais.
"We encourage people to use this technology to save water to save money for the government. The techniques improve the produce," he says.
Other challenges are associated with logistics and marketing.
An individual farmer will struggle to get products into big grocery chains like Carrefour and Lulu. The fund took care of this problem by dealing on behalf of the farmers with the retailers to get their produce on the shelves. The fund is also looking into the idea of farmers forming small co-operatives to tackle the logistics challenge.
"We brought in specialist hydroponics and aquaponics agro-engineers to train them on the technology, on the need to have better quality products, on the economics, so we train, we provide logistics, we do marketing in order to maximise the factors for success across the UAE," he says.
The project hits several key aims including providing "income for our locals", saving water, creating a better quality of agro product, helping food security and creating commercial opportunities.
This last aim is at the heart of what the fund hopes to bring to the economy; the multiplier effect, with each of the projects it backs comes the chance for other small businesses to win opportunities in packaging, logistics, marketing and other related services.
"That's what we do, we create opportunities for everyone," says Mr Al Nowais.
While there are many organisations in the UAE working to promote the SME sector such as Dubai SME and each emirate's local department of economic development and chambers of commerce, the Khalifa Fund has the unique vantage point of operating across the emirates.
While Abu Dhabi accounts for the vast majority of projects funded since inception at more than 400, there are also more than 200 in Al Ain, 33 in Dubai, 60 in Fujairah, 35 in Sharjah and more in Ras Al Khaimah, Umm Al Quwain, Ajman and the Western Region. Out of the overall number some 200-plus projects financed by the fund are run by female entrepreneurs.
The vast majority of businesses funded and supported by the Khalifa Fund are still active, at levels above global averages for rates of success for start-ups. However, some do not survive; in Abu Dhabi, for example, 75 of the 442 businesses funded are no longer active, according to figures provided by Khalifa Fund.
More than half of the Dh2bn in start-up capital has been deployed and the vast majority of projects funded are still going concerns. Is that enough to prove the model is a success?
"There are failures, obviously. Throughout the world start-up companies have a high risk of failure and the UAE is not far from that. The business support department aims to enhance the chances of success," says Mr Al Nowais.
A monitoring unit at the fund keeps an eye on progress and counsellors with experience in particular sectors are assigned to guide each entrepreneur.
"We try to interfere in time to prevent failure. For example, we see that an entrepreneur is over-stocking, which could mean difficulties with cash flow and working capital. We see you might not be collecting your receivables that might affect your cash flow. [We say] watch this, watch that. If you don't have experience you might make these kind of mistakes so guidance is very important," he says.
Mr Al Nowais says successful entrepreneurs must combine commitment with passion, but more important is the ability to accept criticism.
"Be receptive to it. Communicate with your people, your customer, your supplier. Build those relationships," he says.
However, there are some challenges that the Khalifa Fund cannot help business owners meet on its own, the biggest being the high cost associated with finding premises.
Despite efforts to convince some real estate developers to make special concessions including stretched payment terms, discounts and grace periods, not enough progress has been made to address the problem, he says.
"I am against government spoon-feeding of UAE nationals, I am against subsidies, I am against long-term concessions. What I am saying is do it for a small period, a grace period. The most difficult time for an entrepreneur is the initial period. You don't expect your child to be born walking or running for that matter. It takes time, give entrepreneurs that time."
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Published: January 18, 2015 04:00 AM