Fuel SME Growth with UAE Financing Options
SME Financing in the UAE: Growth Opportunities for Businesses
Establishing a business is a tough thing in this competitive market environment. The UAE’s promising SME sector is a key driver for sustainable development. SME’s are helping to enhance the growth of the potential of the economy with diversity, flexibility, and innovation. Small and Medium Enterprises play an important role in the economic growth of any region. In the UAE, SME’s are the backbone of the economy, which creates many job opportunities. These represent 90% of businesses and 50% of employment in the whole world. For the UAE, this data is more prominent, contributing to 94% of businesses, including 40% of the region GDP with a substantial amount of employment. The UAE is aiming to nurture over 1 million SME’s by the year 2030.
SME Financing Options
Bank Loans and Credit
Abu Dhabi Government announced the expansion of the SME Credit Guarantee scheme to prioritize and increase SME’s access to financing in the Emirate. First Abu Dhabi Bank is supporting collaboration with the Abu Dhabi Government to provide easy financing options to SMEs, improving their ability to withstand market fluctuations. Other banks in the UAE introduced short term financing to cover functional expenses. Banks' flexible credit limits are linked to business accounts. Also, the term loan amounts are there with a repayment schedule.
Government Finance
The Emirates Development Bank offers several direct and indirect options for financing the SME’s. They specially encourage the sector like manufacturing and technology. Furthermore, Khalifa Fund for Enterprise Develpment offers funding and assistance for Emirati Business owners.
Islamic Finance
The Islamic Banks offer SME financing based on Shariah Compliance Manner. The mudaraba and musharaka system is based on profit sharing and partnership models. The investment comes from the first partner, and the rest of the management comes from the other partner. Another system is a leasing system called ijara. In this system, the business leases an asset with an option to purchase. One other system is Murabaha, which is a cost-plus financing system. In this system, the bank purchases goods on behalf of a customer and resells them at a higher price, including a pre-agreed profit margin, instead of charging interest.
Venture Capital and Angel Investors
The Investment firms are encouraging the business plans among them venture capital firms are investing in exchange for equity. Also, angel investors are securing funds for new high potent businesses. Popular platforms like Hub 71 and Dubai Future District Fund are connecting startups and investors.
Croudfunding
The Dubai Financial Services Authority (DFSA) has introduced new regulations that will help SMEs raise funds through crowdfunding. This includes licensing, organizing, and protecting the rights and obligations of all parties involved in specific crowdfunding activities that provide finance solutions for small and medium-sized enterprises (SMEs) in the UAE.
Steps taken by the UAE to boost SMEs
The UAE issued Federal Law No. 2 of 2014 on Small and Medium Enterprises. This law is basically to protect, promote, and regulate SMEs in the UAE.
The Ministry of Economy established the UAE SME Council, which aims to enhance SME competitiveness and sustainability through policy advocacy and strategic collaboration. This council has facilitated over AED 15 billion in financing for SMEs across the UAE.
Mohammed Bin Rashid Fund established by the Dubai government provides financial support totaling AED 2.6 billion to more than 6,000 SMEs. This fund gives various financing options such as loans, guarantees, and equity investments.
The Khalifa Fund has disbursed over AED 1.32 billion in financing to facilitate the establishment and growth of more than 2,500 SMEs. They provide funding, training, and advisory services to entrepreneurs, promoting a culture of innovation.
They launched the National SME Programme to improve the general frameworks and guidelines. That will provide expertise, training, and technical and administrative support to promote and develop SMEs throughout the UAE.
The UAE introduced Operation 300bn, the UAE’s industrial strategy. Under this program, Emirates Development Bank will contribute to financing 13,500 SMEs.
The Ministry of Possibilities Department of Government Procurement aims to make government procurement faster and more accessible for SME’s.
The National Cybersecurity Strategy 2019 aims to implement a comprehensive legal and regulatory framework that will cover all types of cybercrimes, secure existing and emerging technologies, and protect SMEs against cyber threats.
Programmes supporting SMEs in the UAE
The Ministry of Finance launched digital solutions and options to facilitate the SME’s in the UAE.SME’s can register their business in the Federal Supplier Register and apply for government tenders.
Mohamed Bin Rashid Innovation Fund offers funding solutions and guarantee schemes for Innovative SME Projects.
In the UAE, some Customized support and accelerator services are introduced to get necessary assistance for businesses. These are mainly non-financial supports to help innovators.
The UAE Government allocates 10 percent of total federal purchases to SMEs owned by UAE citizens to ensure that they obtain a share of government business opportunities.
The UAE government introduces many incentives programs like a 50 per cent discount on first-time registration in the Federal Supplier Register, 10 per cent price preference to SMEs, a free tender booklet, and exemption from paying registration fees for the first two years from the establishment date.
SMEs can benefit from new digital solutions such as the Government Procurement Platform to increase their business prospects.
Challenges in SME Financing
Despite many financing options, SME’s are facing many challenges. The traditional loans are very expensive and financial institutions require large financial stability. For SME’s the financial and legal rules are sometimes troublesome and time consuming. Additionally, some SMEs struggle with financial management and transparency, affecting their creditworthiness.
Tips for SME Financing in the UAE
Prepare a clearly outlined business plan
Maintaining a good credit history, ensuring timely payments and financial records
Explore crowdfunding, venture capital, and fintech solutions
Embrace government support programs
Gather necessary and legal documentations
Explore the existing business loans
Conclusion
SMEs play a crucial role in economic development by fostering innovation, creating jobs, and contributing to the local economy. They are vital to the UAE’s economy, driving diversification, innovation, and employment. So, the UAE government and financial institutions continue to take steps to improve SME financing options and create a supportive environment for small businesses to thrive. With the mission to become the global business hub and a promising destination for small- and medium-sized businesses, the Ministry of Finance has launched advanced digital solutions to create a business-friendly and encouraging environment for business owners and entrepreneurs. The Ministry also offers different sponsorships that support all kinds of businesses and promising projects.
This is for all business owners, financial consultants, brokers, entrepreneurs, legal consultants, or individuals seeking to finance their business or start a new company. Seek professional help, by reaching out to the contact below, you can get in touch with the author of this blog: WASIQ SUHAIL.
Contact: +971505053319
Email: abz.wasiq@gmail.com
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