Looking for Improved SME Funding? Here's How Dubai Will Help

While we know that Emirati economic policies are aimed at promoting business activities, we may often associate that with multinational corporations setting up operations in Dubai, Sharjah or Abu Dhabi. But, what if we told you that SMEs are the engine that power the economy of the United Arab Emirates

sme funding

SMEs power the Emirati economy, but they have trouble accessing funds

At first glance, the numbers could appear surprising. More than 94 per cent of all the enterprises currently in operation in the UAE are SMEs, and this sector of the Emirati economy is responsible for jobs for more than 86 per cent of the UAE’s private sector workforce. When we take oil out of the equation, these companies’ contribution to the economy is 60 per cent, according to a 2019 National Bank of Fujairah report cited in an Arabian Business investigation. 

In the next two years, the official economic projections expect them to contribute 45 per cent of the UAE’s gross domestic product (GDP), an increase from the current 40 per cent of GDP. However, in recent years, SMEs have experienced significant challenges in acquiring the funding that could help propel the desired increased GDP contribution. 

Difficulty in accessing banking services

In 2009, British entrepreneur Simon Ford fled Dubai after his online business Blue Banana went under, claiming that there was a lack of bankruptcy law with one million dirhams in unpaid debt. Investors claim they will never see the money to this day. The ramifications of him and other failed entrepreneurs leaving with outstanding debt caused banks in the UAE to come together in 2015 to prevent other SME owners from leaving the country without having paid their debt back first. 

As a result, according to a Roland Berger study, less than four per cent of lending from Emirati banks is designated to small and medium-sized enterprises, while the percentage of SME owners in the UAE who have difficulties opening a corporate bank account is as high as 65 per cent. It appears that many banks are operating out of fear, and banking for these business owners is a privilege rather than a fundamental component of running an enterprise. 


SME funding options

In the Middle East and North Africa (MENA) region, the SME funding gap is $260 billion. While the Funding Circle does not currently operate in the UAE, other initiatives are sprouting up to mitigate this funding gap and offer more SME funding options. There are a plethora of SME business support funds and SME impact funds out there. They include the Khalifa Fund, worth $545 million, that is an outlet to provide new SMEs seed capital and loans at low-interest rates. In February 2019, the Emirates Development Bank (EDB) announced a Credit Guarantee Scheme to support smaller enterprises worth $27.2 million. 

The Dubai Financial Services Authority is also carrying out its efforts to help these enterprises access equity markets. They did so through releasing “a consultation paper that outlines proposals for a regulatory regime that permits SMEs to list their shares on an authorised market institution (AMI) in the Dubai International Financial Centre (DIFC).” 

The idea of the DFSA scheme is to mitigate the investor fear that has caused problems for SMEs in gaining investment funds and allow them to "access equity capital markets in or from the DIFC by providing appropriate and proportionate regulatory standards, while also providing adequate levels of investor protection.” They also align with the Dubai Plan 2021 initiatives from the Dubai government authorities


Are you interested in starting your business in Dubai?

Our team of Dubai company formation experts can walk you through the available options you have at your disposal at banks and other sources, whether through a Free Zone or the mainland. If you want your idea to reach its full potential in a business-friendly economy, don’t hesitate to contact our team and start the process today. 

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