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Startups and SMEs can only grow with access to funding

Startups and SMEs can only grow with access to funding
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Ahmed Mohamed Al Naqbi is the chief executive officer of Emirates Development Bank

The UAE government is steadfast in its commitment to bolster the growth of small-and-medium-enterprises (SMEs) and ‘crystalise efforts’ to back entrepreneurs. As part of this, the government has unveiled a wide array of initiatives within the ambit of the UAE's drive to become a knowledge-based economy. 

And in order to achieve this objective, it is critical that startups and small and medium enterprises (SMEs) be given due consideration and play an important role in the journey. According to the UAE Ministry of Economy, startups and the SME sector represents more than 94 per cent of the total number of companies operating in the country and provides jobs for more than 86 per cent of the private sector's workforce.

In Dubai alone, startups and SMEs make up nearly 95 per cent of all companies, employing 42 per cent of the workforce and contributing around 40 per cent to the emirate’s gross domestic product (GDP).

However, access to finance is a key constraint in the growth of startups and small businesses across economies – not only in the UAE but globally. Data from 119 developing countries shows that  startups and SMEs perceive access to finance as the most significant obstacle, hindering their success. 

The micro and small businesses in particular, face a funding gap, as they generally have a harder time obtaining credit from formal financial institutions. This is largely due to information asymmetry, lack of a previous credit history, and formal documentation etc., leading to unwillingness of lenders to provide financing. 

Even if they get financing, it typically involves lengthy approval processes, requiring hard collateral such as movable property and other onerous documentation. Recognising the importance of SMEs, the World Bank Group’s SME finance portfolio includes almost $4.8 billion in active lending, with 61 lending projects in 47 economies worldwide as of January 2018

According to a recent survey by Mastercard, 60 per cent of SMEs in the UAE mentioned the challenge to maintain and grow their business was their top issue. Looking at concerns over the next 12 months, 61 per cent identified the rising cost of doing business, while 38 per cent cited the need for easier access to capital and funding. Private sector partnerships (57 per cent) and government-led initiatives (53 per cent) were identified as having the biggest potential to positively impact startups and SMEs and the wider UAE market.

To this end, the UAE places significant importance on supporting entrepreneurs and SMEs, as they play a vital role in boosting the national economy and are catalysts in achieving a competitive, innovative, and sustainable knowledge-based economy.

This is where the Emirates Development Bank (EDB) comes in. While the Central Bank of UAE (CBUAE) recently issued regulations to support SMEs and promote best practices for Licensed Financial Institutions (LFIs) while engaging with SMEs, EDB has announced an Dh30 billion financing plan to support startups and SMEs in the country.

As part of UAE’s ‘Projects of the 50’ campaign framework to prepare the UAE for the next 50 years, EDB announced various initiatives aimed at accelerating industrial development, adoption of advanced technology, as well as supporting entrepreneurship and innovation in the country. 

One of the initiatives is to support businesses, which are 51 per cent owned-and-actively-managed by UAE Nationals and operating in key priority industrial sectors. These entities will be eligible for funding as part of its Dh5 billion financing initiative.

Another Dh5 billion initiative aims to facilitate faster adoption of advanced technology, where Emirati and expat entrepreneurs in the priority sectors will be eligible for funding.  EDB will support greenfield projects within technology, healthcare, food security, manufacturing, and infrastructure sectors or fund the expansion of existing operational projects. 

Through its financial support, particularly in the SME and startup segments across some of the industries of the future, EDB will not only foster an ecosystem in the country but also significantly contribute to our leadership’s vision to achieve sustainable development – a strategic priority as part of the ‘Operation 300bn’ campaign launched by the government.

It is well understood that the real value creation in an economy occurs with a robust entrepreneurship and SME ecosystem. Only by matching SMEs with committed investment partners can any economy unleash the latent value that lies in the innovation, skill and ambition of its small companies. We at EDB are aiming to do just that.

 

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