A Dh2 billion government-backed fund to support start-ups in the UAE will begin offering direct, Sharia-compliant loans to recipients from this year, as it looks to bridge a gap in bank financing to entrepreneurs.
The Mohammed Bin Rashid Innovation Fund (MBRIF), an initiative of the UAE's Ministry of Finance that is operated by Emirates Development Bank, issues bank guarantees to help finance entrepreneurs in the creative sector, but it does not currently offer start-up loans.
“Things were slow last year [when it came to making awards through the fund],” EDB chief executive Haitham Kamhiyah told reporters in Dubai. “Banks find it risky to lend to SMEs on their own, so we want to move things along.
"We are reviewing our business plan and products for 2018 and are introducing a sharia-compliant loan from this year. We are hopeful that 2018 will be a very successful year."
The fund's committee has yet to agree how much of the fund's total Dh2bn capacity it will contribute to through direct loans. Mr Kamhiyah told The National that EDB will aim to finalise that detail at its next board meeting in March.
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 SMEs have been hit hard by the country’s economic slowdown in the past two years, as banks consider it increasingly risky to lend to less established operations.
The UAE Central Bank is devising initiatives to help SMEs gain extra access to financing at more accessible rates, together with revised rules and operating procedures for banks dealing with SMEs.
Under plans discussed at a committee meeting on Monday, EDB will offer loans of up to seven years to MBRIF participants, at interest rates ranging between 7-9 per cent.
This is almost half the typical 12-14 per cent market rates offered by commercial banks to SMEs at present, according to Mr Kamhiyah.
MBRIF launched in 2016 but began operations at the beginning of last year. It has supported three start-up projects to date, totalling around Dh15 million, through bank guarantees with the UAE’s Rakbank.
Its first disbursement in October was to InternsME.com, an online portal connecting students and recent graduates to employers across the Middle East.
MBRIF is open to companies that are already operational and beyond the “ideation”, or concept stage, both globally and in the UAE – provided they have a base in the country.
They also must operate within industry sectors prioritised in the UAE’s National Innovation Strategy, including renewable and clean energy, transportation, education, technology, healthcare, space and water. The fund will also consider other companies that contribute to the UAE’s social and economic progress.
The fund’s committee has identified around Dh22m of projects that it hopes to finance in the next 2-3 months through the existing bank guarantee scheme, Mr Kamhiyah told reporters.
It is also in talks with “up to 10” financial institutions other than Rakbank with a view to growing its roster of participating banks and furthering support for start-ups.