Spot the disconnect
Banks in the UAE will soon have assets to the tune of AED 2 trillion, while SMEs are ‘stifled by funding shortage.’ It’s a disconnect that must be addressed, thinks Kipp.
December 29, 2010 3:46 by Samuel Potter
UAE banks are set to enjoy a healthy 12 percent growth in assets over the period 2010 to 2014, reports Emirates 24-7. The growth will see banks’ asset value crossing the AED 2 trillion dollar amount, according to the one-time paper (although it seems to get confused at one point, saying the figure will be $2 trillion).
The figures come from Business Monitor International, who see UAE bank assets growing 6 percent this year (to AED 1.61 trillion), 10 percent next year (to AED 1.77 trillion) and then onwards to AED 1.966 trillion in 2012 and then AED 2.2 trillion in 2013.
Good news, of course, but it has riled Kipp. Why? Because on the very same day, Emirates 24-7 also points out that small and medium enterprises in the UAE “have been stifled by lack of funding,” despite the fact that they account for nearly 94 percent of total projects in the country.
Mohammed Omar Abdullah, undersecretary of the Abu Dhabi Department of Economic Development, said at a seminar on SMEs this week that, “[SME] projects are facing several obstacles that are hindering their growth and expansion and this is depriving the country’s economy from benefiting from these vital projects.
“The main obstacle is the shortage in financing facilities for these projects, the poor link between them and large industrial projects, their low competitiveness and lack of proper rehabilitation and training programmes in this field,” he said.
Apparently, the Ministry of Economy plans a new law that will regulate SME activity in the country that it expects will tackle these problems, as well as stimulate domestic business and attract more foreign capital. Kipp is frowning doubtfully.
The bank asset progress and the SMEs struggling to get finance are of course relevant to each other. Bank financing is usually the only finance option for SMEs, yet banks view SMEs as relatively high risk. Emirates 24-7 points out that Emirates Industrial Bank (a government proposed entity) has identified the problem.
“Bank financing is usually their only option, and is the predominant source of external financing for most SMEs. However, banks consider SMEs to be relatively high risk, which on the one hand impedes their ability to obtain funding, and on the other leads to the charging of higher interest rates,” it said. EIB has gone so far as to propose the creation of banking units which are specialized in providing funding for SMEs.”Commercial banks are keen on business which meets the working capital needs of businesses, but less on business to finance SME start-ups. Thus, there is a need for dedicated banks, working on commercial principles but devoted to financing of the setting up of SMEs. Currently, not only the UAE but the entire GCC region lack institutions which specialize in funding SMEs.”
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