PHOTO
14 March 2017
By Shane McGinley
The United Arab Emirates should offer some form of government guarantee on loans to small and medium-sized enterprises in order to reduce the risk involved for banks and encourage them to boost their lending to the sector, a senior banking official told Zawya.
The UAE Central Bank last month issued draft rules aimed at getting banks to lend more to SMEs, as some lenders began to withdraw from the sector over rising concerns about high levels of bad debt built up over the last 18 months amid a slowdown in economic growth. (Read more here)
In order to encourage lenders to work more with SMEs, the government should offer loan guarantees of up to 90 percent, Abdulaziz Al Ghurair, CEO of Mashreqbank and chairman of the UAE Banks Federation, told Zawya in an interview on Sunday.
“The banks get the guarantee from the government guaranteeing the startup… a 90/85 percent guarantee. The banks take a risk of 10 to 15 percent. That way I will be more encouraged to lend and I am secure if I lose this loan. I will lose only 10/15 percent, but the rest will be supported by the government,” he said on the sidelines of a seminar organised by the Emirati Entrepreneurs Association.
No need for legislation
According to the central bank draft rules all banks must put a unit in place dedicated to SMEs and a strategy for lending to the sector, according to a Reuters report. Banks must set targets for lending to SMEs and will be required to provide an explanation to the central bank if these fall short.
Al Ghurair said he did not believe there was a need to impose legislation to mandate banks to lend to SMEs.
“There should be no legislation. I think there should be an understanding. There should be shared responsibility. Once you make legislation you are stuck,” he said. “The UAE never worked like this. We have more or less a free market, allowing everybody to explore the best way for lending,” he said.
Emilio Pera, head of financial services for the Gulf region at consultancy firm KPMG, agreed with Ghurair’s stance.
“The challenge you have, like in Egypt where they now have a 20 percent limit on SMEs… is it is putting pressure on the market because as your risk profile increases you have to recover that somewhere else, so it increases the cost of banking,” he told delegates at the launch of the firm’s latest banking outlook report on Monday.
The Central Bank of Egypt in January set a target that banks must increase the total value of loans they give to SMEs to 20 percent by 2020.
Government initiatives
SMEs are the backbone of the UAE economy and the government has taken several measures to support the sector, in a bid to expand their contribution to the nation’s gross domestic product to 70 percent by 2021.
However, the lack of funding is the main obstacle to establishing a strong entrepreneurial ecosystem, the chairman of Dubai Chamber of Commerce and Industry said in an interview last month.
(Read more here)
The government has established a number of programmes and initiatives, including Tejar Dubai, the Dubai Smartpreneur Competition and Dubai Startup Hub to support Emirati entrepreneurs. These initiatives provide platforms for startups and entrepreneurs to develop their skill sets, improve their business models, benefit from the advice and guidance from mentors, and gain access to funding and networking opportunities.
Tejar Dubai is a training programme that aims to find and train young Emiratis between 18-45 years old to help turn their business ideas into sustainable businesses.
Al Ghurair said one issue for banks was that they are often not aware if an SME approaching them for financing has already received funding from a government agency and defaulted on the repayments. However, analysts say the introduction of a credit bureau in the UAE in 2012 should help to address this problem.
“What is happening now, people borrow from the government and they think this is their obligation not to pay back. And we have a huge number of outstanding [loans] and not getting paid,” he added.
Umair Hameed, a partner in management consulting at KPMG, said that as the credit bureau becomes more mature and integrated into the financial system some of those issues will be alleviated.
The central bank draft regarding lenders and SMEs “is still under discussion” but Al Ghurair said it was almost complete. “I can guarantee you that, more or less, we are there 90 percent. We need to put another 10 percent tweaking,” he said, without giving a timeline for its implementation and distribution.
© Zawya 2017
By Shane McGinley
The United Arab Emirates should offer some form of government guarantee on loans to small and medium-sized enterprises in order to reduce the risk involved for banks and encourage them to boost their lending to the sector, a senior banking official told Zawya.
The UAE Central Bank last month issued draft rules aimed at getting banks to lend more to SMEs, as some lenders began to withdraw from the sector over rising concerns about high levels of bad debt built up over the last 18 months amid a slowdown in economic growth. (Read more here)
In order to encourage lenders to work more with SMEs, the government should offer loan guarantees of up to 90 percent, Abdulaziz Al Ghurair, CEO of Mashreqbank and chairman of the UAE Banks Federation, told Zawya in an interview on Sunday.
“The banks get the guarantee from the government guaranteeing the startup… a 90/85 percent guarantee. The banks take a risk of 10 to 15 percent. That way I will be more encouraged to lend and I am secure if I lose this loan. I will lose only 10/15 percent, but the rest will be supported by the government,” he said on the sidelines of a seminar organised by the Emirati Entrepreneurs Association.
No need for legislation
According to the central bank draft rules all banks must put a unit in place dedicated to SMEs and a strategy for lending to the sector, according to a Reuters report. Banks must set targets for lending to SMEs and will be required to provide an explanation to the central bank if these fall short.
Al Ghurair said he did not believe there was a need to impose legislation to mandate banks to lend to SMEs.
“There should be no legislation. I think there should be an understanding. There should be shared responsibility. Once you make legislation you are stuck,” he said. “The UAE never worked like this. We have more or less a free market, allowing everybody to explore the best way for lending,” he said.
Emilio Pera, head of financial services for the Gulf region at consultancy firm KPMG, agreed with Ghurair’s stance.
“The challenge you have, like in Egypt where they now have a 20 percent limit on SMEs… is it is putting pressure on the market because as your risk profile increases you have to recover that somewhere else, so it increases the cost of banking,” he told delegates at the launch of the firm’s latest banking outlook report on Monday.
The Central Bank of Egypt in January set a target that banks must increase the total value of loans they give to SMEs to 20 percent by 2020.
Government initiatives
SMEs are the backbone of the UAE economy and the government has taken several measures to support the sector, in a bid to expand their contribution to the nation’s gross domestic product to 70 percent by 2021.
However, the lack of funding is the main obstacle to establishing a strong entrepreneurial ecosystem, the chairman of Dubai Chamber of Commerce and Industry said in an interview last month.
(Read more here)
The government has established a number of programmes and initiatives, including Tejar Dubai, the Dubai Smartpreneur Competition and Dubai Startup Hub to support Emirati entrepreneurs. These initiatives provide platforms for startups and entrepreneurs to develop their skill sets, improve their business models, benefit from the advice and guidance from mentors, and gain access to funding and networking opportunities.
Tejar Dubai is a training programme that aims to find and train young Emiratis between 18-45 years old to help turn their business ideas into sustainable businesses.
Al Ghurair said one issue for banks was that they are often not aware if an SME approaching them for financing has already received funding from a government agency and defaulted on the repayments. However, analysts say the introduction of a credit bureau in the UAE in 2012 should help to address this problem.
“What is happening now, people borrow from the government and they think this is their obligation not to pay back. And we have a huge number of outstanding [loans] and not getting paid,” he added.
Umair Hameed, a partner in management consulting at KPMG, said that as the credit bureau becomes more mature and integrated into the financial system some of those issues will be alleviated.
The central bank draft regarding lenders and SMEs “is still under discussion” but Al Ghurair said it was almost complete. “I can guarantee you that, more or less, we are there 90 percent. We need to put another 10 percent tweaking,” he said, without giving a timeline for its implementation and distribution.
© Zawya 2017
