UAE to issue new SME law by year-end

Dubai: A new law on small and medium enterprises (SMEs) that is underway in the UAE, is expected to simplify and streamline bank loans and help regulate this important segment of the UAE’s private sector, a senior government official said.

The new law will be issued by the end of this year as part of an ongoing economic reform aimed at attracting investment and ensuring sustainable growth by strengthening the non-oil sector and reduce the country’s dependence from the volatile oil prices, Mohammad Saleh Shelwah, Assistant Undersecretary for Economic Polices Affairs, told Gulf News.

He remarked that the law will strengthen competitiveness of the UAE economy and boost the SME sector.

SME sector is the biggest employer in the UAE.

“SMEs is the backbone the economic development process and growth, and we should have proper legislations,” he added.

Abdul Baset Al Janahi, Chief Executive Officer of Dubai SME, highlighted Dubai’s participation in developing SMEs law which is in the final stage.

He said: “The UAE is already locked in a drive to diversify its economy by attracting investment and encouraging industrial projects, and SMEs has seen as a key factor in diversification given the country limited resources.”

Dubai SME, part of the Department of Economic Development, yesterday launched a SMEs index that said 86 per cent of the SME’s have not sought bank finance - a fact that reflects how it is difficult for this sector to get bank loan.

Al Janahi said: “This shows the big gap between the government directives and the banks’ policies. Bank financing is usually their only option, and is the predominant source of external financing for most SMEs. However, banks consider SMEs to be relatively high risk as most of their businesses are service activities, which on the one hand impedes their ability to obtain funding, and on the other leads to the charging of higher interest rates,” he said

He remarked that most of the commercial banks are keen on funding the working capital needs of businesses, but less on funding SME start-ups. Thus, there is a need for dedicated banks, working on commercial principles but devoted to financing of the of SMEs start-ups. Currently, not only the UAE but the entire GCC lack institutions which specialise in funding SMEs.”

The ‘SME Friendliness Index’ has been created by the DED to give banks access 230,000 SMEs in the UAE and realise the Dh6 billion SME financing revenue opportunity.

The index is a signalling tool that gives constructive feedback to banks about how 230,000 SMEs are actually working in the UAE, the DED said in a statement.

Of every 100 companies that approach banks only 50 get finance as only 14 per cent of the SMEs used bank finance for their growth, according to the study. The study enumerates the different challenges of the banks in serving the SME sector including quality of financial reporting, lack of credit history, inadequacy of collateral, informal management, short term planning horizon, and weak cash flow management.

Given the challenges and opportunities of the SME sector, the index outlined the strategies of the different banks - in terms of the sizes of customers they serve, the quality of financial reports they accept, and the informal/formal nature of the SME management. The findings also indicate that despite the structural challenges, innovation is widespread in the banking community.