UAE eases bank rules to spur SME growth

The government has loosened bank rules to help spur growth of small and medium-sized enterprises in the UAE, part of an ongoing effort to rationalise the bureaucracy that has stymied more rapid small business formation.

The Ministry of Human Resources and Emiratisation on Saturday issued a decree stating that from October of this year SMEs will no longer be required to secure a bank guarantee to be able to carry on as a going concern.

Saqr Ghobash, the minister of human resources and Emiratisation, said the bank guarantee rule had been in place primarily to safeguard the payroll and protect employees’ rights.

“After studying the level of commitment shown by the SMEs, we placed the decree to exempt them from bank guarantees,” Mr Ghobash explained.

The move will be welcomed by small business owners who have long called for the removal of some of the costly and – in their view – unnecessarily restrictive bureaucratic requirements that keep new businesses from growing.

“In any business cash is king, but for SMEs that’s magnified hugely because we aren’t able to access capital markets as freely as large firms,” said Paris Norris, the founder and managing director of Coba Education, a Dubai provider of staff to schools and government institutions.

“Anything that means we don’t have to have cash or other financial resources locked away unproductively is welcome,” Mr Norris added.

Iskander Ahmed, the managing partner of Buzzy Bee Communications in Dubai, also welcomed the move but said he would like to get some clarification to ensure it applies to all SMEs in the UAE, rather than just Emirati-owned ones.

“If it is fully applicable to all SMEs it will make getting a start-up or expansion loan significantly easier,” Mr Ahmed said, adding that the government has been moving in the right direction with some of the changes it has made.

“The regulatory reform that has been undertaken so far has helped our clients, especially given the economy as it is with businesses taking a bit of a hit,” he added.

Bank reform is one of the key areas for SMEs, according to a report two months ago by KPMG, a firm of consultants.

“The UAE’s SME sector forms the backbone of economic development, private-sector employment and GDP growth … [and] represents about 4 per cent of total loans and advances,” by UAE banks, KPMG noted.

But the downturn in the economy after the oil price crash meant that “a number of SME owners – particularly those focusing on commodities, food and beverages, and subcontracting – are reported to have skipped in 2015 [and] local banks have had to make significant provisions.”

KPMG also recommended further changes, especially implementation of a comprehensive bankruptcy law, to make it easier for SMEs to cope in troubled times.

“The lack of a bankruptcy law – which leads to the criminalisation of default – is one reason owners may consider fleeing the country rather than sitting with creditors to find mutually agreeable solutions,” the KPMG report said.

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