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UAE small businesses face tight lending conditions

Credit tight due to debt maturities, name lending.

February 14, 2011 3:34 by



Small businesses in the United Arab Emirates face ongoing difficulties to access loans as banks prefer lending by name and remain hesitant to provide financing following Dubai debt woes.

Dubai’s debt crisis, triggered by a plunge of the property sector, hit small and medium-sized enterprises, which contribute to at least half of the emirate’s economic output and employ around two-thirds of its estimated 1.4 million workforce.

The UAE government has supported its SME sector in recent months with funding and training for entrepreneurs, yet getting a loan in the world’s third largest oil exporter remains tough.

“Bank lending is falling, no bank lends unless you are well known,” said Khalid al-Jowder, chairman of Dubai-based Al Jowder General Maintenance and Landscaping Services.

“It’s name lending, others do not stand a chance. I lost a project worth a few million dirhams, when the customer was well known and guaranteed payments, yet I did not get financing,” he said.

In Dubai, a regional trade hub that lacks the oil wealth of neighbouring Abu Dhabi, SMEs account for 95 percent of firms. SMEs in the trading sector typically have up to 75 employees and a maximum turnover of 250 million dirhams ($68 million).

Difficulties in obtaining loans from UAE banks drive some SMEs to look for investors to inject the money they need.

“There are policies which make it difficult to be granted a loan, as they see a projection for 2-3 years of cash flow and an audited account before any approval is made,” said Susan Gorman, director of Sarum Trading, a UAE beauty company.

TIGHT CREDIT

Traditionally, local banks have been the main source of small business funding in the seven-member UAE with loans awarded on a name lending basis to limit risk exposures.

“SMEs have always been an under-served segment, with a substantial part of it also unbanked,” said Mohamed Amiri, deputy chief executive officer at Ajman Bank. “As many SMEs do not have adequate financial record-keeping systems such as audits and proper books of account, financing this sector has always been a difficult proposition,” he said.

Bank loans to SMEs accounted for only 2 percent of total lending in Gulf Arab countries, an October survey by the Union of Arab Banks and the World Bank showed.

The UAE economy ministry said in December a new law to improve financing for SMEs would be issued this year.

UAE banks have been flush with cash in recent months as deposits rose, but lending is slow to pick up despite improved business sentiment after state-owned Dubai World reached a deal to restructure $25 billion in September.

“2011 will likely see credit conditions remain tight in the UAE, especially when one takes into consideration the significant amounts of debt maturities in the region,” said Shady Shaher, MENA economist at Standard Chartered in Dubai.

“We estimate debt maturities in the GCC (Gulf Cooperation Council) to be around 70 billion in 2011. With huge refinancing needs in the region, SMEs and smaller businesses will continue to experience tight credit conditions.”

(Writing by Martina Fuchs and Martin Dokoupil; Editing by Ron Askew)



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