The ubiquitous small and medium enterprises (SMEs), ranging from the small grocery store in your neighbourhood to the restaurant delivering your lunch at work, are vital for sustaining economies worldwide.

In Dubai, SMEs account for 99 percent of all registered companies while employing more than half of all workers. However, like in many other markets, they struggle to gain access to funding and, by extension, to support their expansion plans.

This is one of the many findings in the latest Dubai SME report, “The State of Small and Medium Enterprises (SMEs) in Dubai,” which included responses from a random sample of 518 firms, including micro-businesses, in the emirate.

On an average, around 60 to 65 per cent of SMEs applying for loans in Dubai get rejected, said, Essam Disi, director of strategy and policy at Dubai SME.

Dubai SME is an agency of the Department of Economic Development (DED), aiming to foster an entrepreneurial culture and develop a competitive SME sector for emirate.

“The rejection rate is six times higher than [than in] OECD (Organisation for Economic Cooperation and Development countries,” Disi said.

There are approximately 151,875 SMEs in Dubai, up from more than 72,000 in 2008. The smallest of them, called micro businesses, account for 61 per cent of the total SME population, followed by small and medium firms, which account for 36 per cent 2 per cent, respectively.

Together, these companies contribute around 46 per cent of the emirate’s gross domestic product (GDP). In terms of gross value-added (GVA), these businesses contribute around 198.6 billion dirhams to the Dubai economy, which translates to a contribution of 51 per cent of the aggregate GVA of the emirate.

Their GVA contribution has been growing, particularly among the medium-sized enterprises, which posted an increase of 28 per cent in 2017, compared to 17 per cent in 2008.

As their population increased, so has the number of entrepreneurs who are seeking credit. Compared to 2013, the proportion of SMEs asking banks for funding increased from 36 per cent to 43 per cent. 

However, over the last three years, only around 24 per cent managed to avail themselves of funding, with loans granted ranging between 1.5 million dirhams and 2 million dirhams, on average.

According to the study, Dubai ranks relatively low (44 of 64 economies) on the ‘Access to Credit for SMEs’ indictors of the IMD World Competitiveness Framework for 2018.

This warrant “government intervention to enable SMEs to gain access to start-up and growth capital to fuel business growth.”

“The lack of tailored, affordable financing solutions is the most prominent challenge impacting SMEs that need external funding to sustain and grow,” Abdul Baset Al Janahi, CEO of Dubai SME, noted.

The report also found that banks tend to lend more to certain types of businesses. Around 44 per cent of trading firms and 46 per cent that are into manufacturing availed themselves of higher value loans over Dh2 million.

“This can be attributed to a combination of higher funding requirements and the preference of banks to lend to these segments, against stock and machinery that serve as collateral, vis-a-vis the asset-light service enterprises,” said the report.

(Writing by Cleofe Maceda; editing by Seban Scaria)

(cleofe.maceda@refinitiv.com)

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© ZAWYA 2019