More could be done to enable small and medium-sized businesses to get the finance they need to grow and boost the UAEs’ economy, according to a new report by international law firm Pinsent Masons, Dubai Economic Council, or DEC, and Zawya.
Pinsent Masons Senior Associate Amir Ahmad says the UAE has already made progressive steps, through organisations such as Dubai Small and Medium Enterprise (SME) and the Mohammed Bin Rashid Establishment for SME Development, to support the growth of small business in the emirate but current lending policy and legislation could do with a few tweaks to help Dubai become part of the knowledge economy.
“Dubai has always been a leader in reform; it’s a business minded place and our report is in the spirit of that tradition.”
He says small and medium businesses play a vital role in Dubai’s economy, with 94 per cent of businesses falling under the SME category, and providing 42 per cent of employment in Dubai. “They are the engines of the local economy and they are crucial to growth.”
The report ‘SME Lending: Position on Available Security’ recommends relaxing lending rules and policies for small and medium businesses as well as establishing a central registry and a separate chamber at the courts to deal exclusively with security interest.
These moves will give SMEs the ability to get finance in the UAE, as well as cut down costs and support transparency.
The establishment of a central register would also negate a current legal requirement for businesses to publish their intentions to provide a commercial business mortgage in two Arabic newspapers 14 days before registering. Although it enhances transparency, Ahmad says, it can also put off investors and give the idea that the business is struggling, when it might not be.
Ahmad says more lending to SMEs will help take Dubai’s economy to the next level, one which is focuses on ideas and innovation. He points to Microsoft and Facebook’s humble beginnings as an example of why supporting small business that does not yet have strong assets is important to growth.
“They are the champions of commerce right now, but they certainly didn’t start that way.”
According to the report, 73 per cent of lending to SMEs in the UAE is done against secure assets, meaning if you are not able to provide proper collateral it is very difficult to get finance to grow your small or medium sized business.
The problem with this framework, Amir says, is that many start-ups and new businesses do not have those assets to acquire bank loans. In the early stages of most businesses’ development, the people involved are not going to own land or have access to funds as a basis for secure lending, he says.
“SMEs are the real innovators. We want these companies to grow; growth of these companies means growth for Dubai.”
Banks indicated in the report that improvements, such as mandatory book-keeping for SMEs, the strengthening of laws enforcing payments, eliminating the need to go to court when dealing with loan defaulters and the establishment of a credit bureau, would lead to increased lending to SMEs.
By Jenna Powell
