Worsening global outlook will not deter lending to SMEs in UAE, says bank chief

FGB chief dismisses fears on lending to the sector.

Andre Sayegh, the CEO of FGB. Delores Johnson / The National
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Widespread sell-offs in global markets in the wake of downgraded forecasts about world economic growth will not deter banks from lending to the UAE’s small and medium enterprise sector, according to the chief executive of FGB.

Banks severely curtailed lending to SMEs after the global financial crisis and Dubai’s real estate crash in late 2008. And there is renewed concern that lending will once again be tightened amid heightened volatility.

Andre Sayegh, the FGB chief, said on Monday that such fears were largely unfounded, noting that the UAE’s economic fundamentals remained strong despite volatile global markets.

“Volatility is always there, you cannot time it. But if you look over a period of time the trend is always upwards,” he said. “It’s very normal to have ups and downs in an economics and we have to live with it.”

“If you have strong fundamentals, and the UAE has very strong fundamentals, things will be passing by.”

While SMEs represent almost 92 per cent of registered companies in the UAE, they account for about 3 per cent of total loans by banks.

A more segmented approach to investing in the SME sector is needed to help it grow.

The category is often a very vague one, with confusion as to which companies it includes and excludes, according to Mr Sayegh.

“From our perspective there are several different kinds of SMEs, and we try to segregate [our approach to differentiate] between small enterprises, the mid-size enterprises, the commercial and the large, and each one has a different set of internal criteria for credit approval,” he said.

“Depending on that differentiation then you can structure credit criteria and credit models for what they’re doing.”

Mr Sayegh was speaking at Monday’s Global Business Leaders Conference in Abu Dhabi, organised by the Insead business school.

One particularly neglected part of the SME sector is that of successful start-up companies looking for sources of funding to scale up their business, according to the Aramex chairman Fadi Ghandour.

“The death valley is when you’re able to start up but you need to find in the region of $1 million to $2m to scale up your business,” he said. “There are some funds popping up for such purposes, but there are very few at this stage.”

“If you want that scale up to happen you need to encourage the private and public sectors to act in partnership.

“Public money [for such investment] needs to disseminated through private institutions, because they’re generally the better disseminators of capital.”

Government entities in the UAE have made the development of the SME sector a national priority, as a means of stimulating job creation and diversifying the economy away from its reliance on oil and gas revenues.

Sheikh Khalifa, President of the UAE, approved a federal law in April that included a requirement for federal authorities and ministries to contract at least 10 per cent of their procurement budget for purchasing, servicing and consulting to Emirati-owned SMEs.

Government bodies – most notably Abu Dhabi’s Khalifa Fund for Enterprise Development – offer financial support for promising start-ups.

“Government’s role as a provider of patient capital is important, as they’re not looking for immediate returns,” said Mr Ghandour.

“But we need to bring in the private sector into this process and educate investors in the sector about patient capital.”


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