Do UAE banks support entrepreneurs?

Do UAE banks support entrepreneurs?
10 April 2012

SMALL businesses in the UAE have often griped about being overlooked in terms of bank finance, but they’ve become a force hard to ignore: small and medium-sized enterprises (SMEs) comprise around 80% of the overall economy.

Government initiatives to encourage small businesses include the SME 100, a ranking of the 100 top-performing small businesses based on a number of financial and non-financial evaluation criteria, and Abu Dhabi’s Khalifa Fund for Enterprise Development, designed to foster Emirati entrepreneurship through training, development and consultation.

Firms that qualify for such initiatives are likely to find it easier to get funding from banks and investors, but what about other promising and innovative firms? Are they able to get funding, particularly in the wake of the global credit crunch?

Nicholas Levitt, head of commercial banking at HSBC UAE, believes banks should ignore them at their peril: “There are in the region of 175,000 SMEs in the UAE. If a bank only lends to businesses involved in these initiatives [SME 100 and Khalifa] it will have a tiny market share.”

Start-up perspective

HSBC launched its dedicated SME business banking department around eight years ago. In 2010, it signed a memorandum of understanding with the UAE Ministry of Economy, committing $100 million towards SMEs and extended it to a further $100 million this year. Yet, SMEs don’t always agree that banks are taking up the cause.

“I personally don’t think banks were ever a good support to entrepreneurs,” says Mohammed Johmani, founder of the O2 Network, a marketing communications, PR and branding firm.

“It is not about establishing SMEs; it’s about establishing a culture. One returned cheque in your account means the end of your relationship with the bank, while a delayed payment by just days means the end of your record with them. Banks need to start learning the entrepreneur’s language.”

As Mona Syed-Mirza, chief executive of medical spa Biolite Aesthetic Clinic recalls: “It was very important for us to have sufficient start-up capital, as UAE laws for setting up a company as a free zone LLC required an AED 300,000 ($81,674) cash deposit.

“Obtaining finance was next to impossible. I needed three years of trading accounts and had to return to the UK to obtain finance to set up in Dubai.”

Improvements afoot

Banks, however, will tell you lending attitudes are changing. Hameed Noor, head of SME banking at Mashreq Bank, says: “Banks naturally like to diversify their portfolios and SMEs offer a large and diversified base of customers. This helps in overall risk management of the lending portfolio.”

Mashreq Bank offers a free business account with no minimum balance, business credit and debit cards, access to its internet banking service for businesses and a dedicated relationship manager.

Meanwhile, Dubai Business Women Council (DBWC) has recently held a meeting with senior management officials from the National Bank of Abu Dhabi (NBAD) that explored various ways to support female entrepreneurs in the UAE through banking services provided by NBAD to SMEs.

Raja Al Gurg, president of DBWC, says: “The banking sector has always been one of our biggest allies in promoting women empowerment in the UAE. NBAD, in particular, has been greatly supportive of our plans and strategy to harness the potential of women to contribute to the economic growth of the country.”

More work needed

Nevertheless, small businesses account for less than 2% of banks’ lending portfolios here, compared to an average of 12-15% in some more developed countries.

Mashreq concedes that start-ups are often out on a limb. Noor says: “Every bank has its own individual criteria for assessing risk before a loan is given. Banks would like to see the track record of financial and other business performance as part of their credit assessment. Additionally, banks generally support established businesses. They are not into venture capital or angel funding.”

That is of scant consolation to those trying to start and grow their own ventures. Johmani, of O2 Network, says: “SMEs are all about risk and making mistakes. I believe there is so much to be done in this area by the banks: they should be held responsible for the lack of entrepreneurs in this region.”

So, what other measures might allow banks to service SMEs better? Levitt at HSBC would like to see the expansion of credit bureau ratings, creation of adequate insolvency laws and introduction of more private equity and venture capital into the market.

“Crucially, there needs to be education on how SMEs can incorporate good corporate governance,” he says.

Pic credit: Stuart Miles/

Do you think banks do enough to support small businesses? What more could be done?


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