Dubai SMEs

Issues & Challenges

Essa Al Zaabi, Senior Vice President

Dubai Chamber

21 May 2014

• Business friendly environment for business startup and growth

• UAE top ranks on global indices: Ease of Doing Business

Global Competitiveness Index

Trade Facilitation Index

Logistics Performance Index

• Dubai SMEs is a strategic segment of Dubai’s economy

• Access to finance is a key constraint to SMEs globally

Dubai SME Environment

• No official definition of SMEs in UAE

• Dubai SME defined SMEs across 3 main economic sectors by employment size and turnover

Micro

Small

Medium

Employees Turnover

< =9 & < = AED 9 mln

<=35 & <= AED 50 mln

<=75 & <= AED 250 mln

Employees Turnover

< =20 & < = AED 10 mln

<=100 & <= AED 100 mln

<=250 & <= AED 250 mln

Employees Turnover

< =20 & < = AED 10 mln

<=100 & <= AED 100 mln

<=250 & <= AED 250 mln

Source: Dubai Chamber based on Dubai SME

Definition of Dubai SMEs

Trading Manufacturing Services

Over 90% are SMEs

Source: Dubai Chamber database

Dubai Chamber Members

Dubai Chamber Members: Trade Statistics 2013

SME Contribution to Dubai EconomySMEs contributed on average 40% of Dubai total GDP

Source: Dubai Chamber database

Significance of SME’s to Dubai Economy

Dubai’s SMEs are significantly contributing to Dubai total employment

Source: Dubai Chamber based on Dubai SME

Significance of SME’s to Dubai Economy

Dubai’s SMEs dominate number of establishments

Source: Dubai Chamber based on Dubai SME

Actual SMEs lending penetration is very low in most of GCC. however, target rates are promising

Source: Dubai Chamber based on “Bank lending to SMEs in MENA Survey Report, World Bank and Union of Arab Banks, 2010”

UAE SMEs Access to Finance

• Access to finance remains a key constraint

• Private equity and venture capital are not mature options for SME finance

• 77% of Dubai SME’s have no access to bank lending

• 80% of Dubai start-ups are self-financed

• SMEs mainly demand bank finance for:

• 59% working capital

• 37% capital expansion/investment

• 4% short term financing

UAE SMEs Access to Finance

Source: Dubai Chamber based on Dubai SME

Supply Side•Banks remain cautious about lending to SMEs sector due to:

o Lack of credit information on SMEs

o Risky and costly lending to SMEs

o SMEs lack of business and financial skills

o Lack of guarantees or collateral availability

Primary Constraints to SMEs Financing

Demand Side•Dubai SMEs access to bank finance is constrained due to:

o High transaction and setup costs.

o Unclear borrowing requirements.

o Lack of awareness on being ‘bankable’

o SMEs are offered the most expensive mode of financing such as the overdraft and the credit line

Primary Constraints to SMEs Financing

• Financing is still a major constraint for SMEs in Dubai and UAE

• Larger share of SMEs in a bank’s lending portfolio is expected to enhance banks‘ returns and is necessary to diversify risk

• Dubai Chamber has always supported SMEs with financial and non-financial issues

• Our dedicated business support unit has SMEs training programs, credit rating and events organization to support segment growth

• Dubai Chamber has launched Tejar Dubai Initiative to support and train young local Dubai entrepreneurs

Challenges and Way Forward

Inclusive banking services for SMEs:

Provide incentives for banks to lend to SMEs.

Upgrading banking officers skills for improved ME’s credit evaluation

Broadening financial infrastructure base:

Launching credit bureaus and credit rating agencies to improved SMEs transparency

Alternate funding options:

Private equity

Crowd funding

Training:

Designing and launching training programs with banks for SMEs on

how to become more bankable.

Enhancing Dubai SMEs access to finance through:

Thank you

Essa Al Zaabi, Senior Vice President

Dubai Chamber

21 May 2014