The head of the Dubai government body set up to promote small business has called on the region’s family companies to offer stakes to outsiders with ideas that can be exploited.
Abdul Baset Al Janahi, the chief executive of Dubai SME, said that there was “a lot of money and a lot of ideas” in Dubai but that the two were often mismatched for several reasons – a lack of trust, or a conventional mindset and methods of doing business.
“It’s about time that we matched talent with capital in a proper way,” he said. “Just last week, I had a meeting with a bunch of second-generation family businesses – multimillionaires.
“They said ‘yes, we want to support’. I said, ‘Guys, come together, create a fund and we will match that as government. If you do a Dh10 million fund, we will match it.’ They were reluctant to do so.”
He said that businesses often failed to recognise ideas from their own talent or customer base that could be commercialised and that existing family businesses in the region are in a strong place to do this because of their trading expertise.
He said that those that are willing to do so could rely – in certain instances – on government to co-invest.
“We are saying that you are a group that is very good in technology, or F&B [food and beverage], or logistics. Create a fund and we will support. I’m not saying we will give money for free, we will invest in people who have ideas that are related to your business. But the trick is not only money. It is the mentorship and the kind of expertise that people can give. That’s the value.”
He said that the scale of disruption that businesses will face from technologies such as Uber, Careem and others will mean that companies need to be innovative to adapt.
“Some companies still have that kind of mindset where they have people who have innovated things for them, and you still find that innovation is the sole ownership of the company.
“The innovator – the person who came up with that idea – has nothing to do with it any more. We cannot continue to do this. Things are changing.”
Mr Al Janahi also said that the new bankruptcy law and the proposed introduction of VAT could foster a better relationship between banks and SMEs.
Earlier this week, the UAE Banking Federation said that an initiative to support struggling SMEs had led to Dh7 billion of debts held by 1,700 SMEs being restructured, reducing temptation by its owners to flee rather than face jail for non-payment of debts.
He said that the introduction of VAT “will put pressure on SMEs to have their books prepared and to organise themselves in a better way”. At the same time, he said, this should allow banks to carry out “a proper evaluation” of companies and lend to them as entities with their own assets rather than insisting on personal guarantees from owners.
“Banking should move – become more [of a] corporate relationship than personal relationship. They should not ask for personal guarantees [but] companies need to have the numbers.”
A survey published this week by online recruitment site Bloovo said that funding restraints remain a barrier to SME growth across the Gulf, with rejection rates for finance applications running at about 75 per cent.
It said that only 2 per cent of total bank lending in the region goes to SMEs.
“Funding challenges are a big constraint for SMEs,” said Iyad Abu Hweij, the co-founder and president of Bloovo.com. They find it very difficult to raise conventional debt-based finance due to risk-aversion on the part of lenders.
“There is also no way to fail safely,” he said citing the fact that bankruptcy laws are currently either harsh or non-existent.
“Fortunately, measures like the soon-to-be implemented UAE bankruptcy law will lead to a more facilitative and mature financial environment for SMEs,” he said.
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