Local banks —at least some of them — are rolling out the red carpet to small business owners. And they are not willing to let even the smallest detail get in the way of trying to win over these businesses. A small business owner can expect to receive multiple phone calls from the banks enquiring whether they need any short- or mid-term loan facilities. If the said business owner were to drop in at any branch of a bank, rest assured he will get nothing less than VIP treatment. He can even get his hands on the latest smartphone — courtesy of the bank, of course — if he signs up. And that’s only one of the many incentives on offer for the small business owner. All of which makes many of the concerned businesses slightly wary.
“Many of these banks have set rather high targets in extending loans to SMEs this year; with the Central Bank weighing in with tight controls on retail lending, small businesses are the next best option for banks,” said an owner of an engineering firm based in Sharjah.
Even though plied with seemingly irresistible offers, he is not about to take the bite any time now. “Construction is yet to pick up and that means there isn’t enough project activity for the firm,” he said. “If it does perk up, I will be more than willing to look at taking a facility. “But not now... getting caught with debts is the last thing a business would want.”
Wariness, in short, is the general sentiment shared by many business owners here. This does not leave the banks any better off in their recent campaigns to win over the SME business. But is that actually the case? “There is no data available in the public domain to verify the recent trends; having said that, we do talk to banks all the time and the indication we get is that there is a distinct upswing in their SME-focused credit exposure,” said Vishnu Deuskar, managing director of Salvus Strategic Advisors, a financial consultancy. But market sources suggest that rather than going in for a saturation campaign in a bid to win over SME clients, local banks can do it in more savy way that would help them in the long run. One thing they certainly don’t lack is the time to get their acts together.
“After what happened in 2009 on the credit default side, business owners will take time to shake off their aversion to carrying more than the needed debt exposures in their books,” said a banker. “But banks need to make their pitches and send out a strong message that we are interested in their business.”
Even then, there aren’t that many banks actively engaged in the SME space. The flood of advertising and marketing campaigns that one saw since the second quarter targeted at SMEs actually came from a handful of financial institutions. The activity shifted into a higher gear post-May when the Central Bank directives on retail lending came into effect and impacted on auto and personal loans. “Another important feature of the SME lenders’ market is the surprisingly small number of banks in the business,” said Deuskar. “The block comes from the traditional credit mindset that is used to a particular borrower profile and security structure. “Lending to SMEs requires a far more proactive engagement with assessment and monitoring of the credit. Very few banks focus on balance-sheet based lending for SMEs — there is a huge opportunity out there for banks wishing to enter this space.”
The last word certainly has not been said on banks and what they intend to do for SMEs. It only remains to be seen how many more local banks will actually start believing there is much to be mined by going after these clients.
Rex Features, Strong message
With the Central Bank weighing in with tight controls on retail lending, small businesses are the next best option for banks. Many banks have set rather high targets in extending loans to SMEs this year.
Funding, Investors want returns
Local banks and what they offer are not the only option open for small businesses to chart their growth trajectory. “There are a number of options available ranging from focused, development-related banks for specific nationalities to a generic private equity or angel investor funding,” said Maninder Bhandari, an ex-banker and currently a partner in a Dubai-based private equity firm. “With the real estate market and the stock markets suffering, investors are not as confident in these markets anymore and are hence looking at some aspects in their portfolio for a longer term — but excellent — returns in SME funding and investing. “The mechanics of such funding can be on equity with a buy-back clause over a fixed term based on the performance of the company or a general equity stake. I am a proponent of both.”