New 'movable property' law will broaden sources of funding for SMEs

The law will allow companies to borrow against both tangible and intangible assets, such as receivables

A picture taken on January 8, 2018 shows the skyline of Dubai with the Burj al-Arab in the foreground and Burj Khalifa (L) in the background. (Photo by GIUSEPPE CACACE / AFP)
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A new federal law that allows charges to be placed on movable assets will allow banks and financial institutions to diversify lending to businesses, particularly small to medium-sized enterprises, a Ministry of Finance official said.

Federal Law No (4) of 2020 on Securing Interest with Movable Property was issued by UAE President Sheikh Khalifa in May this year.

It allows companies to use tangible assets such as tools and raw materials, as well as intangible assets such as receivables and collateral against loans, making it easier for lenders to offer products that include asset finance and invoice discounting.

“This law will have a significant positive impact on the nation’s economy as it caters to recent developments in the scope of movable properties,” Younis Al Khoori, undersecretary in the Ministry of Finance, said.

“It will also support SMEs to [help them] easily obtain the necessary financing by diversifying the financial assets that can be used, while ensuring the rights of creditors from banks and financing institutions.”

He said the law would also underscore the UAE’s “leading position in global competitiveness and ease of doing business indices, as well as its FDI attractiveness”.

SMEs account for about 98 per cent of companies in Abu Dhabi and 99 per cent of businesses in Dubai .

In Dubai, SMEs provide 51 per cent of the emirate’s jobs and 46 per cent of its gross domestic product, according to a 2019 study by Dubai SME, a government agency.

The country is taking various measures to boost the economy amid the coronavirus pandemic, with the UAE Central Bank providing Dh256bn in stimulus measures, including zero interest funding to banks to boost lending growth.

In Abu Dhabi, the Department of Finance worked with three big lenders – First Abu Dhabi Bank, Abu Dhabi Commercial Bank and Abu Dhabi Islamic Bank –  to expand an SME Credit Guarantee programme  in which the government guarantees 80 per cent of loans made to SMEs.

“This law will improve the ability of financial institutions to expand lending operations and regulate current practices associated with them," Mr Al Khoori said.

"It also addresses the associated risks and regulates the relationship between banks, institutions and companies to ensure the rights of all parties.”