According to the International Finance Corp, SMEs in the UAE represent 90 per cent of total businesses. As a total percentage of GDP, the estimates for rich Mena countries are at approximately 51 per cent contribution from SMEs with employment contribution at 62 per cent. Paradoxically there is an SME credit gap in excess of US$260 billion in Mena, with only 4 per cent of outstanding loans in the UAE awarded to SMEs. This points directly to the main challenge facing SME sector growth.
As the governments across the region and in the UAE in particular seek to bolster the critical SME sector, the question arises what can be done to help this sector flourish. Public sector support, such as the Khalifa Fund and Dubai SME, provides equity funding, incubation, business planning and other services to Emiratis. Private sector initiatives are predominantly private equity and venture capital firms that include Middle East Venture Partners, looking at younger companies, and Cedar Bridge, focused on SMEs in the growth phase, as well as a multitude of other firms. Legislation has recently been enacted to further develop the SME sector. What is missing is addressing the debt financing gap of 4 per cent current outstanding loans to SMEs relative to estimates of greater than 50 per cent contribution by SMEs to the economy, according to a 2012 IFC presentation.
To understand the urgency of the matter, assume a conservative 50 per cent of GDP due to SMEs, with 4 per cent of loans. This means that the rest of the economy, 50 per cent, is leveraged by 96 per cent of loans. This implies an incredible efficiency in terms of use of capital by SMEs which are able to match, or beat, the rest of the economy which is so highly leveraged. Trying to understand the exact effect of improving the debt financing of SMEs to say 40 per cent from the current 4 per cent is futile, but it is blindingly clear that the result will have a significant and sustainable improvement in GDP growth.
What efforts are there to improve debt financing for SMEs? Regulatory changes have been enacted with more on the way. The recently launched Emirates Development Bank has guidelines to provide 10 per cent of its loans to SMEs, a vast improvement over the current 4 per cent market level, but far short of the SME sector’s 50-per-cent-plus contribution to GDP. Furthermore, there is an offsetting development in the withdrawal of at least three global commercial banks from the UAE’s SME loan market.
In the private sector the calls for SME support by banks have been consistent for years. The problem is that there has been no real action as clearly shown by the abysmal 4 per cent statistic of loans to SMEs. So are the banks being dishonest in their announcements? This is unlikely and it is much more likely that the intent exists but that there are challenges to SME lending that the banks are finding difficult to overcome. Although the banks do not announce these issues, it is not difficult to recognise what the issues are.
Starting at the first step, individual SME loans are much smaller than loans to conglomerates, government and government related entities and large family businesses. This means that originating such loans to match the portfolio size of large customers takes much more manpower, a cost that might be difficult to justify unless the bank changes its business model, at least with respect to SMEs.
The next step is due diligence on the application. Again, this will be completely different than a bank’s current large clients who have well staffed finance departments and up to date technology. SMEs do in time evolve to such levels of sophistication but most will not be able to provide the documentation in the form that banks require. This challenge can also be overcome only with a change in the business operating model for lending to SMEs.
The most difficult challenge for a bank is when an SME application reaches the risk department. Banks set up to look only at risk at this point will simply view SMEs as too risky regardless of return. Even with sophisticated risk based pricing models, a risk culture used to only AA credit ratings will choke on a BB credit rating. As one cannot have two cultures residing in the same entity, the above problem can be resolved only by creating a new risk culture in a separate entity.
In the final analysis it seems unlikely given the challenges outlined and the historical evidence that banks will fill the SME credit void, it would simply take too much in business model and risk culture changes especially as banks are currently making outstanding profits. The incentives are all against improved bank lending to SMEs as evidenced by the large and consistent credit gap.
This is not to say that there is no solution. The answer has to do with recognising that fund providers and fund users are sitting at different points on the risk/return curve and that the solution to this asset-liability matching problem lies in credit structuring.
Stay tuned.
Sabah Al Binali was formerly vice chairman of Gulf Finance, a UAE SME lender, and chairman of Gulf Installments, a Saudi SME lender
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COMPANY PROFILE
Name: Almnssa
Started: August 2020
Founder: Areej Selmi
Based: Gaza
Sectors: Internet, e-commerce
Investments: Grants/private funding
The specs
Engine: 3.0-litre six-cylinder turbo
Power: 398hp from 5,250rpm
Torque: 580Nm at 1,900-4,800rpm
Transmission: Eight-speed auto
Fuel economy, combined: 6.5L/100km
On sale: December
Price: From Dh330,000 (estimate)
MATCH INFO
Newcastle 2-2 Manchester City
Burnley 0-2 Crystal Palace
Chelsea 0-1 West Ham
Liverpool 2-1 Brighton
Tottenham 3-2 Bournemouth
Southampton v Watford (late)
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%3Cp%3E%3Cstrong%3ECreators%3A%20%3C%2Fstrong%3EAri%20Katcher%2C%20Ryan%20Welch%2C%20Ramy%20Youssef%0D%3Cbr%3E%3Cstrong%3EStars%3A%20%3C%2Fstrong%3ERamy%20Youssef%2C%20Amr%20Waked%2C%20Mohammed%20Amer%0D%3Cbr%3E%3Cstrong%3ERating%3A%3C%2Fstrong%3E%204%2F5%3C%2Fp%3E%0A
Director: Laxman Utekar
Cast: Vicky Kaushal, Akshaye Khanna, Diana Penty, Vineet Kumar Singh, Rashmika Mandanna
Rating: 1/5
INDIA'S%20TOP%20INFLUENCERS
%3Cp%3E%3Cstrong%3EBhuvan%20Bam%3C%2Fstrong%3E%3Cbr%3E%3Ca%20href%3D%22https%3A%2F%2Fwww.instagram.com%2Fbhuvan.bam22%2F%3Fhl%3Den%22%20target%3D%22_self%22%3EInstagram%3C%2Fa%3E%20followers%3A%2016.1%20million%3Cbr%3EBhuvan%20Bam%20is%20a%2029-year-old%20comedian%20and%20actor%20from%20Delhi%2C%20who%20started%20out%20with%20YouTube%20channel%2C%20%E2%80%9CBB%20Ki%20Vines%E2%80%9D%20in%202015%2C%20which%20propelled%20the%20social%20media%20star%20into%20the%20limelight%20and%20made%20him%20sought-after%20among%20brands.%3Cbr%3E%3Cstrong%3EKusha%20Kapila%3C%2Fstrong%3E%3Cbr%3E%3Ca%20href%3D%22https%3A%2F%2Fwww.instagram.com%2Fkushakapila%2F%3Fhl%3Den%22%20target%3D%22_self%22%3EInstagram%3C%2Fa%3E%20followers%3A%203.1%20million%3Cbr%3EKusha%20Kapila%20is%20a%20fashion%20editor%20and%20actress%2C%20who%20has%20collaborated%20with%20brands%20including%20Google.%20She%20focuses%20on%20sharing%20light-hearted%20content%20and%20insights%20into%20her%20life%20as%20a%20rising%20celebrity.%3Cbr%3E%3Cstrong%3EDiipa%20Khosla%3C%2Fstrong%3E%3Cbr%3E%3Ca%20href%3D%22https%3A%2F%2Fwww.instagram.com%2Fdiipakhosla%2F%3Fhl%3Den%22%20target%3D%22_self%22%3EInstagram%3C%2Fa%3E%20followers%3A%201.8%20million%3Cbr%3EDiipa%20Khosla%20started%20out%20as%20a%20social%20media%20manager%20before%20branching%20out%20to%20become%20one%20of%20India's%20biggest%20fashion%20influencers%2C%20with%20collaborations%20including%20MAC%20Cosmetics.%3Cbr%3E%3Cstrong%3EKomal%20Pandey%3Cbr%3E%3C%2Fstrong%3E%3Ca%20href%3D%22https%3A%2F%2Fwww.instagram.com%2Fkomalpandeyofficial%2F%3Fhl%3Den%22%20target%3D%22_self%22%3EInstagram%3C%2Fa%3E%20followers%3A%201.8%20million%3Cbr%3EKomal%20Pandey%20is%20a%20fashion%20influencer%20who%20has%20partnered%20with%20more%20than%20100%20brands%2C%20including%20Olay%20and%20smartphone%20brand%20Vivo%20India.%3Cbr%3E%3Cstrong%3ENikhil%20Sharma%3C%2Fstrong%3E%3Cbr%3E%3Ca%20href%3D%22https%3A%2F%2Fwww.instagram.com%2Fnikkkhil%2F%3Fhl%3Den%22%20target%3D%22_self%22%3EInstagram%3C%2Fa%3E%20followers%3A%201.4%20million%3Cbr%3ENikhil%20Sharma%20from%20Mumbai%20began%20his%20online%20career%20through%20vlogs%20about%20his%20motorcycle%20trips.%20He%20has%20become%20a%20lifestyle%20influencer%20and%20has%20created%20his%20own%20clothing%20line.%3Cbr%3E%3Cem%3ESource%3A%20Hireinfluence%2C%20various%3C%2Fem%3E%3Cbr%3E%3C%2Fp%3E%0A
Other workplace saving schemes
- The UAE government announced a retirement savings plan for private and free zone sector employees in 2023.
- Dubai’s savings retirement scheme for foreign employees working in the emirate’s government and public sector came into effect in 2022.
- National Bonds unveiled a Golden Pension Scheme in 2022 to help private-sector foreign employees with their financial planning.
- In April 2021, Hayah Insurance unveiled a workplace savings plan to help UAE employees save for their retirement.
- Lunate, an Abu Dhabi-based investment manager, has launched a fund that will allow UAE private companies to offer employees investment returns on end-of-service benefits.
Formula Middle East Calendar (Formula Regional and Formula 4)
Round 1: January 17-19, Yas Marina Circuit – Abu Dhabi
Round 2: January 22-23, Yas Marina Circuit – Abu Dhabi
Round 3: February 7-9, Dubai Autodrome – Dubai
Round 4: February 14-16, Yas Marina Circuit – Abu Dhabi
Round 5: February 25-27, Jeddah Corniche Circuit – Saudi Arabia
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Killing of Qassem Suleimani
Surianah's top five jazz artists
Billie Holliday: for the burn and also the way she told stories.
Thelonius Monk: for his earnestness.
Duke Ellington: for his edge and spirituality.
Louis Armstrong: his legacy is undeniable. He is considered as one of the most revolutionary and influential musicians.
Terence Blanchard: very political - a lot of jazz musicians are making protest music right now.
If you go
Where to stay: Courtyard by Marriott Titusville Kennedy Space Centre has unparalleled views of the Indian River. Alligators can be spotted from hotel room balconies, as can several rocket launch sites. The hotel also boasts cool space-themed decor.
When to go: Florida is best experienced during the winter months, from November to May, before the humidity kicks in.
How to get there: Emirates currently flies from Dubai to Orlando five times a week.
UPI facts
More than 2.2 million Indian tourists arrived in UAE in 2023
More than 3.5 million Indians reside in UAE
Indian tourists can make purchases in UAE using rupee accounts in India through QR-code-based UPI real-time payment systems
Indian residents in UAE can use their non-resident NRO and NRE accounts held in Indian banks linked to a UAE mobile number for UPI transactions
THE%C2%A0SPECS
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THE SPECS
Engine: 3.5-litre V6
Transmission: six-speed manual
Power: 325bhp
Torque: 370Nm
Speed: 0-100km/h 3.9 seconds
Price: Dh230,000
On sale: now
If you go
The flights
There are direct flights from Dubai to Sofia with FlyDubai (www.flydubai.com) and Wizz Air (www.wizzair.com), from Dh1,164 and Dh822 return including taxes, respectively.
The trip
Plovdiv is 150km from Sofia, with an hourly bus service taking around 2 hours and costing $16 (Dh58). The Rhodopes can be reached from Sofia in between 2-4hours.
The trip was organised by Bulguides (www.bulguides.com), which organises guided trips throughout Bulgaria. Guiding, accommodation, food and transfers from Plovdiv to the mountains and back costs around 170 USD for a four-day, three-night trip.