TThe Arab Monetary Fund (AMF) said there is a 300 per cent funding gap for small- and medium-sized enterprises (SMEs) in the region that banks are not filling. The Abu Dhabi-based fund said that while SMEs make up 80 per cent of businesses in the region, only one in five has a loan or line of credit.
“The available financing options for SMEs are almost all in working capital forms as long-term funding for small- and medium-sized enterprises remains small,” the AMF said.
“Therefore there is a great opportunity for banks and other financial institutions in the Arab region to increase lending to SMEs as there is a need of 300 per cent increase of the current credit outstanding portfolio to meet SMEs funding requirements in the Arab region, which consequently will help creating jobs and reducing unemployment.”
The AMF made the comments in a written communique as officials – led by the director-general, Abdulrahman Al Hamidy – met a number of other organisations including the Alliance for Financial Inclusion in the nation’s capital on Thursday to increase access to financial services for start-ups and small businesses in the region.
Funding such businesses is a tough proposition everywhere around the world as it is far riskier to lend to such enterprises and in the wake of the 2008 global financial crash banks were further curtailed in their abilities to take on big risks.
In emerging markets, such as those of the Arab world, where risks to businesses are even more heightened, it’s even tougher for smaller businesses to tap debt. SMEs make up 90 per cent of registered companies in the UAE and authorities have been banking on small businesses to bolster economic growth at a time when the hydrocarbon industry is in the doldrums because of low oil prices.
This segment has not been untouched by the resultant economic fallout – many small business owners skipped town at the height of the drop in oil prices in 2015, leaving what was estimated to be Dh5 billion in unpaid debts.
That has made lenders more hesitant to stump up fresh cash, making life increasingly difficult for entrepreneurs. Abdul Aziz Al Ghurair, the chairman of the UAE Banks Federation and chief executive of Mashreq, said in March that SMEs continue to suffer from lack of financing from banks and urged lenders to extend more money to fledgling businesses.
The UAE, conscious of the problem, has taken measures over the past year to give the sector a shot in the arm. A bankruptcy law was approved last year, giving business owners more of an incentive to stay and solve their financial problems.
Among other things, the bankruptcy law will put a moratorium on sending people to jail for bounced cheques until a restructuring plan for business owners has been agreed with creditors.
“Arab countries have recognised financial inclusion as a key policy objective to reduce poverty, boost economic growth and contribute to financial stability,” the AMF said.
“Indeed, according to Global Findex Data, enabled financial inclusion can help bring 71 per cent of the region’s individuals into the formal economy and offer them finance.”
mkassem@thenational.ae
Follow The National's Business section on Twitter
