The Central Bank of Oman (CBO) has mandated all banks operating in the sultanate to allocate five per cent of their total credit portfolio to small and medium enterprises (SMEs) by the end of December 2014.
In a circular published on Thursday, the CBO said, "Banks should allocate five per cent of their total credit to SMEs. In other words, the lending of the licensed banks to SMEs, shall, at any time, not fall below five per cent of its total credit portfolio. Banks shall achieve this target before the end of December 2014 - planning for systematic progress. Banks that have more than the stipulated share shall not slip back and shall increase their credit further."
The circular said that the percentage stipulated by CBO at the moment was only the minimum target and the banks shall strive to exceed this threshold to participate in the development of SMEs. "Banks should also note that, going forward, the central bank may consider raising the minimum target beyond five per cent," the circular said.
The CBO said, "Apart from the availability of funds, the high cost of funds is hampering the success of SMEs. Accordingly, banks shall extend credit to SMEs at as low interest and other costs as possible."
Additionally, the circular stipulates that the banking sector must encourage the growth of SMEs in the country by formulating a liberal lending policy for the SME segment taking cognizance of the government's vision and the regulatory initiatives of the central bank in this regard.
The circular also advises banks to create separate departments for SMEs to cater to their needs in a better way, ensure better credit flow and extend all sorts of assistance to facilitate entrepreneurship through the SME departments or otherwise in project formulation, finance and business management, leads in business initiatives, technical support, sourcing of raw materials, process management, marketing, etc.
The circular added that banks should submit a return on SME lending as part of reporting requirements on a monthly basis, commencing from June 2013. "Banks shall also submit a quarterly return providing details of the loan appreciations received and processed, commencing from the quarter ending September 2013."