Arab policymakers more supportive of SMEs to aid jobs growth, says founder of new SME ratings agency

Nashwa Saleh says new Cairo-based business will initially target medium-sized businesses across the EMEA region

Image used for illustrative purpose. Calculator and paper sheets with data.

Image used for illustrative purpose. Calculator and paper sheets with data.

Getty Images/Photography taken by Mario Gutiérrez.

Rising unemployment rates in Arab countries have made policymakers more interested in supporting Small and Medium-Sized Enterprises (SMEs) over the past few years, the head of a new SME ratings agency has said.

Nashwa Saleh, an Egyptian entrepreneur and a former director at ratings agency S&P Global, founded BAST Ratings - a rating agency for the SMEs currently based in Cairo - last September.  The agency plans to cover the entire EMEA region, which includes Europe, the Middle East and Africa, and is targeting the United Arab Emirates and Saudi Arabia in the short term.

The company is an independent rating agency for the SMEs in the region. Although there are some rating schemes already in place for SMEs in certain countries – such as the ranking scheme formed last year by government body Dubai SME, or the credit scoring service provided by the UAE government‘s Al Etihad Credit Bureau – there is not one dominant player in the regional market.

In an interview with Zawya late last week, Saleh said: “The idea came from a number of things, including seeing a huge gap in the market for transparency with regards to SMEs - what they do and how do they get access to financing. How to help the SME becomes visible, be bankable,” she said.

“And the other part is how to have the investors invest with trust,” Saleh added.

There have been several public initiatives to support the SMEs sector in Arab states over the past few years but the lending rate to the sector remains low.  Saudi Arabia issued a new bankruptcy law this year, while the UAE introduced its bankruptcy law in 2016 with a view to removing some of the risks associated with running an SME.

Late last year, the UAE’s state-run Emirates Development Bank announced plans to allocate around 450 million dirhams ($122.5 million) to the funding of SMEs in 2018, according to the bank’s website.

As part of a shake-up of its laws announced this year, the UAE has also said it will offer 10-year visas to entrepreneurs, and it recently passed a foreign direct investment law offering 100 percent ownership of onshore companies.

Two years ago, Egyptian President Abdel Fattah al-Sisi announced plans by several Egyptian banks to inject 200 billion Egyptian pounds ($11 billion) to support the SMEs sector over a period of four years, according to several Egyptian media reports. This May, the president promised a five-year tax exemption for the SMEs that join the mainstream economy, according to the state-run Ahram Online website.

Saleh said that studies by the World Bank and the International Finance Cooperation (IFC) show that THE size of bank lending to SMEs compared to the total bank lending remains low, standing at 13 percent in Egypt and 3 percent in both the UAE and Saudi Arabia, compared to around 30 percent in developed countries.

“All the policymakers now are talking about that there is a high unemployment in the region. There is a lot of emphasis on financial inclusion because it will help bring tax revenues into the economy,” added Saleh, who is also an ex-official in the central bank of Egypt and who also holds a doctorate in finance from Cass Business School in London.

In the second quarter of this year, the unemployment rate stood at 9.9 percent in Egypt, the Arab world most populous nation of over 97 million people. It also stood at 6 percent overall and 12.9 percent for Saudi nationals in Saudi Arabia, which is the biggest nation in the Gulf Cooperation Council (GCC) with 32.5 million people. The unemployment figures are according to Reuters citing official data.

The SME space

The number of formal and informal MSMEs- a classification that includes the micro-businesses and SMEs - is estimated at 19-23 million entities, constituting 80 to 90 percent of businesses in Arab states across the MENA region, according to a report issued by the International Finance Cooperation in 2017.

The region has different definitions for the sector.  

In Egypt, BAST’s first market, established micro businesses are those with annual earnings of less than 1 million pounds ($55,800) and fewer than 10 employees. New entrants need to have a paid-up capital of less than 50,000 pounds and also no more than 10 employees, according to a statement issued by the Central Bank of Egypt in March 2017.

Small companies are those defined as having annual earnings between 1 million to 50 million pounds, while new entrants should have a paid-up capital between 50,000 and 5 million pounds. Both are defined as having fewer than 200 employees.

As for medium-sized entities, established firms should have annual earnings of between 50-200 million pounds, while start-ups should have a capital between 3 to 15 million pounds. Both should also have fewer than 200 employees.

BAST is in the process of rating its first medium-sized company, according to Saleh. Her firms is initially focusing on medium-sized companies and is looking to rate between 30 to 50 companies by the end of its first year.

BAST gets paid by SMEs to carry out ratings and Saleh said that companies will not be discouraged by a negative rating as the rating provided is private, unless the company decides to disclose it. Ratings should help companies to raise funds as they provide information on particular areas of weakness and how to rectify them.

She said a lot has changed in the SMEs space over the past few years.

“It is such an interesting space with a lot of activities going on. They are all young people who are setting up amazing businesses and they deserve to be able to fund themselves,” Saleh said.

“It has become trendy to be an entrepreneur. Five, ten years ago, this was a no-no. You would have never thought of setting up your own thing. People would say, ‘what is this? You are setting up your own business? You are not working with a company, you don’t have a fixed salary?’

“This mentality is changing and I think this is positive because obviously you have the unemployment problem, which is huge, and also the structure of the population,” Saleh added.

 “There are so many young people and you cannot just put all these people in desk jobs or office jobs to do something which might not be that interesting for them,” she said.

Saleh said each new SME creates between 5-10 jobs, on average.

(Reporting by Yasmine Saleh; Editing by Michael Fahy)


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