The issue of lending to SMEs in the UAE was discussed at the Middle East Banking Forum in Abu Dhabi on Wednesday, where a number of solutions were raised to tackle a perceived dearth in funding for the country’s small businesses.
Mubarak Rashed Al Mansoori, the governor of the Central Bank of the UAE, said the Bank was working on a multi-pronged solution to the conundrum, one of which is to encourage private equity (PE) investors to take up some of the slack left by the banks.
Important as it is for PE players to participate in the SME sector, it’s worth remembering that their contribution forms a different part of the capital structure for businesses of all sizes. There’s undoubtedly a place for equity investment in SMEs, but that doesn’t mean they won’t need debt as well.
That’s not to say that the Central Bank is looking for solutions in the wrong place. But it’s worth noting that the bank has already done everything in its power to support the SME segment. The banking sector and the SMEs themselves, however, deserve a little more scrutiny.
Speaking on behalf of the banking sector at the same forum, Abdulaziz Al Ghurair, the chief executive of Mashreq Bank and head of the UAE Banks Federation, noted that SME loss rates for Mashreq stood at around 20 per cent, a pretty stark figure. But it’s worth remembering that such a headline number does not mean that distribution is uniform across the bank’s small business clients.
For example, consider the scenario of every bank experiencing 20 per cent loss rates, versus the scenario of banks representing half of SME lending experiencing 35 per cent loss rates and the other half experiencing 5 per cent loss rates, which gives an average 20 per cent loss rate. The first example might indicate that the issue is with the SMEs, whilst the second scenario definitely indicates an issue with some of the banks.
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In either case there is another important issue to look at, and that is the assumption that the SMEs who take loans represent the whole SME sector. This is not necessarily true. Consider the following hypothetical example.
Imagine two SMEs, one which is doing well and is cash flow positive. It considers expanding by taking on debt but the owner-manager is required by the bank to provide personal security cheques to the bank in order to receive the loan. If you were in his place, i.e. your company is doing well, would you risk going jail on the chance that your company faces financial difficulties? I know that I wouldn’t, and would look at other funding sources.
On the other hand, consider an SME that is in financial difficulty, to the extent that the owner-manager is about to lose everything, and he and his family face living on the streets. In such a case, the business owner might decide to risk taking on a risky loan – and the prospect of a jail term – to ensure the security of his family, let alone his business.
In other words, it’s the SMEs that are acting on a shakier financial footing that are more likely to take out loans from a bank in the first place. This phenomenon is called the self-selection bias, and may be skewing some of the figures put out by the banks.
The 20 per cent loss rate figure cited by Mr Al Ghurair, while accurate, may therefore be missing the bigger picture. Within the wider banking sector, such figures may also mask the fact that some banks might be terrible at lending to SMEs, or that there is a self-selection phenomenon whereby bank demands for security cheques that can lead to jail time is scaring away the stronger SMEs.
So what else can be done to help small businesses? One big step forward has already been taken by Dubai, which this month announced a partial dismantling of the jail-time framework for bounced cheques. Here’s another idea. According to the Central Bank’s monthly statistical bulletin, resident government and government related entities’ deposits with banks stood at Dh384 billion at the end of September, representing 24 per cent of total deposits in the country. That’s a lot of deposits.
If the government wants to spur SME lending, then the Central Bank can easily provide a report on which banks are effectively lending to the SME sector, and these substantial deposits can then be shifted in part to support these banks. Even better, perhaps other conditions could be added to receive those deposits, such as requiring collateral other than personal security cheques.
Or, indeed, enterprising banks that are competent in lending to the SME sector can come up with their own innovative proposals about how to lend to small businesses, taking into account the specific requirements that such businesses have. Banks can complain about SME losses as much as they like, but it’s their responsibility to invest in their competency and really learn how to properly work with the sector.
NO OTHER LAND
Director: Basel Adra, Yuval Abraham, Rachel Szor, Hamdan Ballal
Stars: Basel Adra, Yuval Abraham
Rating: 3.5/5
Frankenstein in Baghdad
Ahmed Saadawi
Penguin Press
At a glance
Global events: Much of the UK’s economic woes were blamed on “increased global uncertainty”, which can be interpreted as the economic impact of the Ukraine war and the uncertainty over Donald Trump’s tariffs.
Growth forecasts: Cut for 2025 from 2 per cent to 1 per cent. The OBR watchdog also estimated inflation will average 3.2 per cent this year
Welfare: Universal credit health element cut by 50 per cent and frozen for new claimants, building on cuts to the disability and incapacity bill set out earlier this month
Spending cuts: Overall day-to day-spending across government cut by £6.1bn in 2029-30
Tax evasion: Steps to crack down on tax evasion to raise “£6.5bn per year” for the public purse
Defence: New high-tech weaponry, upgrading HM Naval Base in Portsmouth
Housing: Housebuilding to reach its highest in 40 years, with planning reforms helping generate an extra £3.4bn for public finances
The specs
AT4 Ultimate, as tested
Engine: 6.2-litre V8
Power: 420hp
Torque: 623Nm
Transmission: 10-speed automatic
Price: From Dh330,800 (Elevation: Dh236,400; AT4: Dh286,800; Denali: Dh345,800)
On sale: Now
SPEC%20SHEET%3A%20NOTHING%20PHONE%20(2A)
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The bio
Studied up to grade 12 in Vatanappally, a village in India’s southern Thrissur district
Was a middle distance state athletics champion in school
Enjoys driving to Fujairah and Ras Al Khaimah with family
His dream is to continue working as a social worker and help people
Has seven diaries in which he has jotted down notes about his work and money he earned
Keeps the diaries in his car to remember his journey in the Emirates
A MINECRAFT MOVIE
Director: Jared Hess
Starring: Jack Black, Jennifer Coolidge, Jason Momoa
Rating: 3/5
Company%20profile
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Scoreline
Bournemouth 2
Wilson 70', Ibe 74'
Arsenal 1
Bellerin 52'
Our family matters legal consultant
Name: Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
UAE currency: the story behind the money in your pockets
Stage 2 results
1 Caleb Ewan (AUS) Lotto Soudal 04:18:18
2 Sam Bennett (IRL) Deceuninck-QuickStep 00:00:02
3 Arnaud Demare (FRA) Groupama-FDJ 00:00:04
4 Diego Ulissi (ITA) UAE Team Emirates
5 Rick Zabel (GER) Israel Start-Up Nation
General Classification
1 Caleb Ewan (AUS) Lotto Soudal 07:47:19
2 Sam Bennett (IRL) Deceuninck-QuickStep 00:00:12
3 Arnaud Demare (FRA) Groupama-FDJ 00:00:16
4 Nikolai Cherkasov (RUS) Gazprom-Rusvelo 00:00:17
5 Alexey Lutsensko (KAZ) Astana Pro Team 00:00:19
Analysis
Members of Syria's Alawite minority community face threat in their heartland after one of the deadliest days in country’s recent history. Read more
The specs
Engine: 1.6-litre 4-cyl turbo
Power: 217hp at 5,750rpm
Torque: 300Nm at 1,900rpm
Transmission: eight-speed auto
Price: from Dh130,000
On sale: now
Ms Yang's top tips for parents new to the UAE
- Join parent networks
- Look beyond school fees
- Keep an open mind
%E2%80%98FSO%20Safer%E2%80%99%20-%20a%20ticking%20bomb
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The%20specs
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The specs
Engine: 4.0-litre flat-six
Torque: 450Nm at 6,100rpm
Transmission: 7-speed PDK auto or 6-speed manual
Fuel economy, combined: 13.8L/100km
On sale: Available to order now
THE SPECS
Engine: Four-cylinder 2.5-litre
Transmission: Seven-speed auto
Power: 165hp
Torque: 241Nm
Price: Dh99,900 to Dh134,000
On sale: now
Know before you go
- Jebel Akhdar is a two-hour drive from Muscat airport or a six-hour drive from Dubai. It’s impossible to visit by car unless you have a 4x4. Phone ahead to the hotel to arrange a transfer.
- If you’re driving, make sure your insurance covers Oman.
- By air: Budget airlines Air Arabia, Flydubai and SalamAir offer direct routes to Muscat from the UAE.
- Tourists from the Emirates (UAE nationals not included) must apply for an Omani visa online before arrival at evisa.rop.gov.om. The process typically takes several days.
- Flash floods are probable due to the terrain and a lack of drainage. Always check the weather before venturing into any canyons or other remote areas and identify a plan of escape that includes high ground, shelter and parking where your car won’t be overtaken by sudden downpours.
In numbers: PKK’s money network in Europe
Germany: PKK collectors typically bring in $18 million in cash a year – amount has trebled since 2010
Revolutionary tax: Investigators say about $2 million a year raised from ‘tax collection’ around Marseille
Extortion: Gunman convicted in 2023 of demanding $10,000 from Kurdish businessman in Stockholm
Drug trade: PKK income claimed by Turkish anti-drugs force in 2024 to be as high as $500 million a year
Denmark: PKK one of two terrorist groups along with Iranian separatists ASMLA to raise “two-digit million amounts”
Contributions: Hundreds of euros expected from typical Kurdish families and thousands from business owners
TV channel: Kurdish Roj TV accounts frozen and went bankrupt after Denmark fined it more than $1 million over PKK links in 2013
Killing of Qassem Suleimani
Company profile
Name: Tharb
Started: December 2016
Founder: Eisa Alsubousi
Based: Abu Dhabi
Sector: Luxury leather goods
Initial investment: Dh150,000 from personal savings
The National in Davos
We are bringing you the inside story from the World Economic Forum's Annual Meeting in Davos, a gathering of hundreds of world leaders, top executives and billionaires.
The specs: 2019 Mini Cooper
Price, base: Dh141,740 (three-door) / Dh165,900 (five-door)
Engine: 1.5-litre four-cylinder (Cooper) / 2.0-litre four-cylinder (Cooper S)
Power: 136hp @ 4,500rpm (Cooper) / 192hp @ 5,000rpm (Cooper S)
Torque: 220Nm @ 1,480rpm (Cooper) / 280Nm @ 1,350rpm (Cooper S)
Transmission: Seven-speed automatic
Fuel consumption, combined: 4.8L to 5.4L / 100km
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