resilience.

recover.
thrive.
SPECIAL REPORT

SME INSIGHT 2022 SME INSIGHT 2022 | 1

 Editor’s Note
T
he small and medium-sized enterprise (SME) sector has never
been more important to the region’s economic health. To put it
into perspective, there are some 350,000 SMEs in the UAE alone,
representing more than 94 per cent of all active companies in the nation.
Collectively, they employ some 86 per cent of the private sector labour force
and comprise over 60 per cent of total GDP.
There has therefore never been a more critical time for the development,
promotion and support of the SME community. Reflecting this, the government
has introduced several initiatives to help nurture the sector. These include the
creation of the National SME Programme to develop general frameworks and
guidelines; the establishment of the UAE SME Council to create strategic plans
and policies for the sector; and the launch of Operation 300bn, under which
Emirates Development Bank will contribute to financing 13,500 SMEs.
In this context, the launch issue of this special report analyses the
prospects for the SME sector and offers insights into the challenges and
opportunities companies may face.
Key topics covered include the increasing role digitalisation and digital
payments can play in unlocking opportunities for SMEs, the role of the
regulatory and policy ecosystem in promoting the sector, and how it can help
them support and meet its sustainability and net-zero targets. It concludes by
examining the sales and acquisition process for SMEs and how they can best
position themselves when preparing their exit strategies.
With inputs and insights from key players such as Dubai SME, Investment
Corporation of Dubai (ICD), DP World and Masdar, we hope that this report
will be an invaluable reference point and knowledge bank for all stakeholders
by providing unique, actionable intelligence to help them grow and reach
their full potential.
Complementing the report, MEED is hosting the 11th edition of its
SME Awards in November 2022, where we will recognise and celebrate the
achievements of SMEs across a range of market sectors and segments.
Case studies from the winners on how they achieved success will be
highlighted in future reports as we look forward to further growth in this
increasingly important sector.

Edward James
Head of content & research, MEA
MEED

22 || SME
SMEINSIGHT
AWARDS2022
2022 SME INSIGHT 2022 | 3
contents. contents.
14
SEAMLESS
PAYMENTS
Insights into the
region’s transition to a
cashless economy

16
TRADE
FINANCE
Simplifying loan
applications, enabling
informed decisions
20
22
ISLAMIC FINANCE
18 Supporting SME growth with
sharia-compliant funding
GREEN
AGENDA
24
06 12
Challenges and
opportunities in REGULATORY SYSTEM
reaching net-zero goals Understanding the role of regulations in
creating an ecosystem for growth

08 10 12 20 26
THE BIG DIGITAL FINANCIAL FUNDING SELLING YOUR BUSINESS
PICTURE STRATEGY TECHNOLOGY SUPPORT Building an enterprise that is able to
Supporting SMEs to Creating effective, agile Enhancing the customer Exploring affordable demonstrate value
improve efficiencies and efficient businesses experience through alternatives to traditional

22
and grow sustainably with digital technologies digital payment systems funding channels

4 | SME INSIGHT 2022 SME INSIGHT 2022 | 5

Surviving the SME Confidence Index

cashflow crisis
Business confidence among SMEs is high in the post-Covid recovery
period, but access to financing to take the business online is a concern

By Sarah Rizvi
Commercial content editor
MEED
74% 67% 55% 46% 50%
Percentage of SMEs Percentage of of SMEs have a have a social media believe that faster
that are optimistic SMEs that believe company website presence, lower access to revenues
about future growth e-commerce will and less than half than the global and the ease of
guided by potential have a positive average not handling cash
for digitalisation, impact, with 50 per of 70% are the biggest
better data, access to cent in the UAE and benefits of a cash-
credit and upskilling 56 per cent in Egypt free economy
SMEs can free up working capital by harnessing the benefits of digital technology
Source: Mastercard 2021 Survey of SMEs in the Middle East and Africa

T
he UAE has one of the most attractive ecosystems “As a startup or SME, the process of establishing a
for small and medium buisnesses in the Middle bank account can be extremely slow and bureaucratic,”
East and North Africa (Mena). Representing 94 says Ashish Panjabi, CEO of digital solutions provider to achieving their goals. GCC governments have increasing transparency from credit bureaus, which,
per cent of all active companies in the UAE, SMEs are Jacky’s Business Solutions. been working closely to support SMEs in the region together, will mean that SMEs can raise loans more quickly,
considered the backbone of a country’s economy. “This means many young businesses struggle by establishing specialised funds, incubators and and with lower costs.
Little surprise, therefore, that when Covid hit, to accept or receive payments and have to move to incentives. For example, the Mohammed bin Rashid “Digital payment solutions give SMEs easy access
governments everywhere launched massive financial offshore payment channels,” adds Panjabi. Establishment for SME Development (Dubai SME) is an to reliable, safe and affordable payments systems that
support schemes to help shield SMEs from the downturn. But even with a bank account, SMEs may have initiative that aims to support entrepreneurs in all phases help them to expand their growth opportunities and
In fact, governments, policymakers and businesses difficulty raising funds from traditional lenders. of development starting from planning a project to unlock new markets. The adoption of the digital future
are increasing their focus on developing ecosystems that “SMEs suffer from a lack of credit lines, with banks reaching its full potential. is directly linked to the total cost of ownership and will
empower SMEs to support the enabling role they play unwilling to lend to smaller businesses at a time of The establishment of the Khalifa Fund in 2007 as an provide genuine return on investments to SMEs,” says
across different sectors. squeezed liquidity,” says V Francis John, CEO of independent, nonprofit socio-economic development FVC managing director KS Parag.
Despite this support, SMEs face strong headwinds. business incubator Ztartup.com. entity mandated by the Abu Dhabi Government has also In a study conducted by Mastercard in 2021, SMEs in
Challenged by rising costs, disrupted services, delays “For instance, in Kuwait, estimated lending in the helped the sector in establishing entrepreneurial systems the UAE identified ‘the acceptance of digital payments’
to receivables and a lack of adequate financial reserves, sector being around KD1.3bn ($4.2bn) represents 3.6 per and developing successful businesses. as one of the top three drivers for growth.
many continue to experience severe cashflow challenges. cent of overall credit outstanding, compared with around Government-supported development finance “This highlights the opportunities for small
And while restructuring, cutting costs and chasing 30 per cent for the OECD (Organisation for Economic institutions and banks are a step in the right direction businesses that arise from the mere adoption of
payments from customers have been essential to Co-operation and Development) countries.” in providing financing, coupled with capability technology,” says Al-Mashaikh.
keeping businesses afloat, access to finance is often the Al-Mashaikh agrees that SME lending is often not at development for SMEs. “Covid was a learning journey for all. It eased
difference between survival and failure. the top of the agenda for banks. But the share of formal credit channels and SME the process of digitisation and significantly changed
“Business loans for startup founders are inarguably lending by commercial banks and financial institutions in consumer behaviour. As we enter the growth and
Traditional channels time and energy consuming which is justifiable seeing general remains low in the GCC. normalisation phase post Covid today, having poor
This is particularly important as access to finance and that banks only want their fair promise that the enterprise digitisation may cause SMEs to face setbacks,” he adds.
quality banking services are frequently cited as critical is economically and financial stable,” he says. Leveraging technology By investing in digital technologies, SMEs can
barriers to SME growth in the region. This puts founders in distress, and at most times In parallel with their efforts to tap sources of finance, enhance existing revenue streams and open new
“The inability to secure finance from banks, despite at loss, as they sway between bootstrapping [using small businesses can free up working capital by taking ones. The SME sector has the potential to create
growing support from venture capitalists and incubators, personal funding or business revenues rather than steps to improve their financial efficiency by harnessing new economic opportunities, but it needs constant
is a key challenge,” says regional senior counsellor Muath external investment] and applying for funds and grants.” the benefits of digital technology to lower the cost of government support and action to thrive.
al-Mashaikh. doing business and of raising money. Governments across the GCC are conscious of the
Raising business capital is not straightforward for a Government support Tools like SME funding platforms, movable asset challenges that SMEs face and have set bold targets for
small or new company that cannot provide a financial With economic diversification high on the agenda pledge registries and fintech solutions are much needed to future diversification and economic growth.
history, nor offer significant physical assets as loan of governments in the GCC, leaders are increasingly complement traditional efforts of SME financing. On their part, SMEs must embrace digitalisation as an
collateral. Even opening a bank account can be a challenge. understanding the importance of a strong SME sector The rise of digital ‘neo-banks’ is supported by integral part of their business to sustain this momentum.

6 | SME INSIGHT 2022 SME INSIGHT 2022 | 7

Supporting interest from a wider group of investors, institutions and
the community.
efficient business model for SMEs. Digital payment
platforms also offer SMEs the potential to gather vital data

the SME
Increasing competition in the market, and complex on sales and customer trends. Increased digital adoption
rules and policies controlling access to regional markets will ensure that SMEs are future-ready, fully connected to
are also key challenges faced by SMEs in the region. the virtual world and well-placed in the metaverse.

ecosystem
By Abdul Baset al-Janahi Q: Are SMEs prepared to embrace a digital future? Q: H ow has the UAE’s new working week impacted
CEO, Mohammed bin Rashid In the UAE, and specifically in Dubai, SMEs’ relatively SME business?
Establishment for SME Development high adoption of digital technology was boosted further Businesses now have the flexibility to align with the new
(Dubai SME) during the Covid-19 pandemic. A recent study by the working week as the law gives private companies the
Dubai’s Department of Economy and Tourism (DET) and flexibility to select at least one official day off according to
Visa revealed that micro, small and medium enterprises their area of activity. Some SMEs have opted for Saturday
as their day off while others shifted it to Sunday, based on
their requirements and their priority markets.
With the right support system, SMEs can improve efficiencies and grow sustainably
Limited access to Q: H ow are smaller businesses dealing with the new
UAE corporate tax law?
conventional loan SMEs in Dubai have shown great improvement in their

facilities and a lack of

level of readiness to be aligned with the new tax regime.
A Dubai SME study in 2019 showed that 67 per cent of
regulations for new SMEs in Dubai prepared audited financial statements

investment models have

compared to 50 per cent in 2014. We believe the level of
readiness is even higher nowadays.
created a funding gap in That being said, the new corporate tax is a significant
shift, and SMEs need time to adapt to the new system.
the SME domain At Dubai SME, we are working on building the required
awareness via our HiDubai platform, in addition to
conducting training programmes through the Dubai
Entrepreneurship Academy to increase SME readiness.
(MSMEs) expanded their use of social networks,
messaging apps and online marketplaces during the Q: H ow are GCC governments supporting
global pandemic. This contributed to business continuity SMEs in the region?
and resilience, despite the new challenges. Established in 2002, Dubai SME is a pioneering initiative
However, SMEs now have to work on building the aimed at enabling a dynamic and exemplary SME
capabilities of their teams and focus more on areas ecosystem in Dubai. The organisation provides services
related to e-commerce and cybersecurity. Now that that evolve in line with the emirate’s strategic goal of
the benefits of the digital transition are evident, SMEs being a global hub of entrepreneurship.
should be supported in adopting advanced technologies Since the inception of Dubai SME, the region has
to improve efficiencies and grow sustainably. seen a growing array of SME support initiatives and
entities including The Khalifa Fund for Enterprise
Q: W hat are the biggest benefits of a cashless Development in Abu Dhabi, which was established to
economy for small businesses in the Middle East? encourage innovation and support startups in the UAE.
The cashless economy presents a huge growth At the federal level, the Ministry of Economy
opportunity for SMEs in the UAE. Internet penetration launched The Entrepreneurial Nation initiative to
in the country is 99 per cent, and 9.26 million people support new businesses, and provide solutions and
Q:What are the key obstacles to SME growth Dubai SME is connecting startups and innovators - roughly 93 per cent of the population - use mobile learning opportunities to enhance the ecosystem for
in the region? with a variety of funding opportunities including the devices to access the internet. entrepreneurial minds and companies across UAE.
Securing finance remains a challenge for SMEs. Limited Mohammed bin Rashid Fund, UAE-based peer-to-peer A cashless economy means faster access to markets, Regionally, the Monshaat SME development authority
access to conventional loan facilities and a lack of lending platform, Beehive, and the Dubai Next digital clients and revenues for SMEs. By enabling effortless in Saudi Arabia, Qatar Development Bank and the
regulations for new investment models have created a crowdfunding platform. payments, transparent automated systems, easier Ministry of Industry and Commerce in Bahrain have
funding gap in the SME domain. Recently, there has been The UAE has approved crowdfunding as a means to international transactions, and reduced scope for cash launched similar initiatives which focus on supporting
a series of initiatives launched to unlock SME financing. assist small businesses, enabling them to attract more fraud or forged currency, digital systems provide a more innovative startups and entrepreneurs.

8 | SME INSIGHT 2022 SME INSIGHT 2022 | 9

Unlocking the
benefits of By FedEx

digitalisation
Digital technologies are enabling companies to be more effective, agile and efficient

T
he height of the Covid-19 pandemic saw
businesses scramble to digitalise their operations, Having a digital
transformation strategy
services and products as physical establishments
locked down and customers moved online.
Many companies began to offer e-commerce became a must for all
businesses operating in
solutions to overcome restricted customer movement,
and others introduced customer relationship
management (CRM) systems to improve how they this new era. Many of
engaged with clients demanding round-the-clock
support. Internally, employers utilised cloud-based the companies that failed
solutions that enabled teams to remain connected as
they worked from home.
to make the transition
Having a digital transformation strategy became a did not survive
must for all business operating in this new era. Many of chain management, inventory management, customer Supporting strategy
the companies that failed to make the transition did not communication and marketing are built to collect data While the digital age is a new world with new rules,
survive. that can be analysed and used to make better business it is important to remember that a truly effective
But the Covid-19 pandemic did not initiate the made delivery app, customers can benefit from the added decisions. digitalisation process cannot be separated from the core
digitalisation of the business ecosystem, it just convenience of receiving packages at any destination. For example, an online store’s purchasing history can business strategy. Each business goal should be backed
accelerated a transformation that was already in The advent of cutting-edge technology such be leveraged to predict which products customers are up with a digital approach that can help a company
progress. as artificial intelligence (AI), virtual reality (VR) and more likely to buy in the future. achieve greater reach.
augmented reality (AR) also offers other ways to enhance You can use data from your inventory management It is important to ask how an organisation’s digital
Defining digital the customer experience. system to better predict stock that is likely to be in transformation strategy can be used to improve the
Digitalisation is the process of introducing digital In 2019 for example, FedEx trialled the use of Roxo, demand and when the best time to stock up is. customer experience and customer life cycle, how it
technology into a business to transform and streamline an autonomous delivery device designed to travel at Location and traffic data can be utilised to better can be used internally to impact business operations
operations, thus increasing productivity and efficiency. moderate speeds along roadsides and on sidewalks to map out delivery app routes to enable faster delivery. and decisions, and how will digitalisation impact the
The process can take many forms and can enable the deliver smaller shipments safely to customers at their From a marketing perspective, website analytics and entire business. Does it have potential to introduce a
creation of relevant services and products that are homes and businesses. This was in response to the SEO data can enhance advertising efforts to ensure that completely new business model?
meaningful to customers. This could be as simple as growth of e-commerce as well as the complexities and communication is with the right customer at the right time. We now live in the fourth industrial revolution,
introducing a virtual assistant to support customers as expense of reaching customers at their door. Using project management tools and software to which means any business – no matter the size – that
they navigate a company website or app. digitalise a project’s journey can enhance cross-team wants to succeed must elevate its digital capabilities.
Digitalisation in the retail space could involve Data driven collaboration. Clear communication and shared, timely Digitalisation can transform how an organisation uses
developing an online store so that customers can access The main ingredient that makes digitalisation such a access to critical information across all business units technology and data to create more business value. It
products from the comfort of their home. When an online powerful tool is data. This is because the digital systems makes it easier for projects to be delivered quickly and can empower companies to be more agile, efficient and
store is paired with a reliable delivery partner or a custom- that are used to simplify processes such as supply with less waste. enhance the customer experience.

10 | SME INSIGHT 2022 SME INSIGHT 2022 | 11

Fintech
solutions for
a digital world
By Nabil Ismail
Executive director
Gulf Capital

Digital payment systems bring smoother transactions and an enhanced customer experience

I
nvestment in fintech (financial technology) companies problems with opening accounts, excessive fees, the
has grown significantly in recent years - both globally slow release of funds, account reconciliation and
and regionally - in a bid to drive innovation to enable loan applications.
the transition to a cashless society.

64%
According to US-based business analytics platform Proportion
CB Insights, fintech companies raised a worldwide
of non-cash
total of $132bn in 2021, with 25 per cent of the funding
payments in larger, but where opening an account is still a lengthy and cash. But this does not always happen. Sellers can wait
focusing on payments. Figures from MagniTT, a local
KSA in 2021 cumbersome process. from one to seven days to get their payments from
startup data platform, indicate that fintech companies Fintechs and banks have been employing various a cashless transaction, especially if it is done with an
in the region (Middle East, Africa, Turkey and Pakistan) tactics to make it easier to open a bank account. They international card that is processed via a global scheme
raised about $2bn, which represents 6.5 times year-on- To address these issues, fintechs and banks in have improved digital onboarding and developed more and vetted for chargebacks and fraud.
year growth. the region (namely UAE, Saudi Arabia and Egypt) are seamless KYC and AML checks. New digital banks have While this delay may be detrimental to cashflow in a
These investments, along with significant support focusing on two key areas. Firstly, they are making also been established specifically to solve this problem. small business, the cost of not enabling digital payments
from regulators, have led to non-cash payments (by it easier for merchants to open bank accounts, and There have been some improvements, but further can be high. A UAE study by Visa in 2022 found that
value) reaching a record 64 per cent in Saudi Arabia in secondly, they are providing businesses with the tools to innovation and integration is needed to fully automate 68 per cent of consumers had abandoned a purchase
2021, according to a 2022 Saudi Central Bank (SAMA) transact in a cashless society. the application system. For example, when the model is because digital payments were not accepted.
study. A 2022 Visa study suggests that non-cash not entirely standard, digital processes quickly revert to But as well as securing sales, fintech can bring other
payments are likely to cross the 50 per cent mark in the Digital onboarding traditional, manual methods. Digital wallets have been benefits. When payment is integrated into a software
UAE by 2024. The excessive bureaucracy involved in opening a introduced by some fintechs to navigate the process of platform – an embedded payment - the customer journey
The transition to digital payment systems has been business bank account presents a challenge for many opening a bank account, but the solution is limited to a can be upgraded from a simple pay/receive experience to
relatively smooth, but there are lingering pain points in entrepreneurs, particularly in the UAE, which is home few industries. one that involves software and open banking/finance.
the financial sector. Bank customers are still reporting to more than 180 nationalities and over 30 jurisdictions. For example, Geidea, the largest payment company
Due to its trading hub status, businesses set up here, Embedding benefits in Saudi Arabia and a Gulf Capital portfolio company,
whether for trading or consulting activities, to get the Fintech may be enabling entrepreneurs to open bank has an embedded finance solution that enables a

The transition to digital rubber stamp of a UAE presence.

The diversity of this business ecosystem and the
accounts more easily, but the next challenge for a new
business is to secure the tools to manage and accept
customer to walk into a restaurant, order, pay and leave
without interacting with a server. At the backend, the
payment systems has transience of its population, make it difficult for banks non-cash payments. merchant has all of the inventory accounted for invoices

been relatively smooth,

to manage the process of customer identity verification To fully support customers with digital transactions, generated, amounts reconcile and data stored for future
(KYC). Also, banks face strict KYC and anti-money the whole ecosystem needs to be supported. It is not loyalty programmes. Most importantly, a great customer
but there are lingering laundering (AML) scrutiny from the Central Bank. Any possible to accept payments without the issuance of experience has been developed which leads to repeat

pain points in the

mistake in the KYC process can lead to heavy fines for payment methods. The merchant may need a credit/ orders and higher customer retention.
a financial institution, but careful checks lead to painful debit card, a wallet, an account to pay against a point of Fintech payment solutions of this type are evolving
financial sector delays for businesses trying to operate in the region. sale, a QR code and a phone. rapidly in the Middle East to ease the burden of
This particular issue is less problematic in the Kingdom Digital transactions need to be processed and settled paperwork and enable entrepreneurs to focus on
of Saudi Arabia and Egypt where the local populations are quickly to effectively compete with the immediacy of running their business.

12 | SME INSIGHT 2022 SME INSIGHT 2022 | 13

Leaving
71%
mobile top-ups, low-cost remittance and other financial
Proportion of surveyed services to migrant workers in the Gulf. The company
UAE SMEs that are or

cash behind
has received significant investment from DIFC.
By DIFC FinTech Hive plan to be cashless in
next two years Leading the way
The UAE is at the forefront of the digital transformation
of change has been the Covid-19 pandemic. Digital of financial services in the Middle East. Initiatives
payments were increasing in the region at an annual such as the DIFC Innovation Hub provide end-to-end
rate of 9 per cent in the years before the pandemic, support to fintech firms, including an Innovation Testing
according to figures published by McKinsey, but 43 per Licence from the DFSA, the independent regulator of
cent of payments practitioners say this figure increased financial services conducted in or from DIFC. This allows
to more than 20 per cent during the health crisis. companies to test financial solutions and also shape
The UAE is pioneering the development of the GCC’s digital financial services Saudi Arabia saw 70 per cent growth in card payments future regulations.
between February 2019 and January 2020. The success of fintech in one jurisdiction spreads to
It was not only cashless payment solutions that others quickly. A startup may set up in DIFC, work with
gained ground. The requirement for contact-free the DFSA to build their business, then scale to other
transactions meant that paperless solutions were found countries with similar regulatory frameworks. For some
for all potential contact points. Document verification, small and medium-sized enterprises (SMEs) that have
anti-money laundering and compliance as well as money grown in the UAE, Bahrain may provide a logical market
transfer payments and buy-now-pay-later schemes all opportunity because of its similarity to the UAE’s legal
shifted online. This had the added benefit of increasing and regulatory technology infrastructure.
transparency with regard to fees, terms and refunds.
Looking ahead
Always quick to embrace new ways of working, SMEs are

Although governments
key to the uptake of financial technology in the region.
This is because it helps reduce their business costs and
and banks have been speed up their services, which in turn offers them better
prospects and a greater potential to grow.
pushing the digital agenda A recent study by Visa found that about 71 per cent
for some time, the biggest of SMEs surveyed in the UAE said that they already
are, or plan to be, cashless in the next two years. A
agent of change has been massive 96 per cent of SMEs surveyed in the UAE said
the Covid-19 pandemic that accepting new forms of payments is fundamental
to their growth. Many fintech tools are now available
to support this ambition. Locally developed platforms
and international fintech payment companies are also
Having experienced the convenience of living in establishing a presence in Dubai to service the region.

D
espite the increasing uptake of digital payment the UAE led the way in the region in 2018 by announcing a cashless society during the pandemic, consumers From DIFC, Mamo Pay enables SMEs and startups to
solutions, cash still plays a key role in the region’s its intention to develop a national payment strategy. continue to use technology for managing their finances. send, receive and request money from phone contacts.
economy. However, the payment landscape in The strategy focuses on promoting more secure, Many digital wallets are available in the UAE including
the Middle East is at a turning point. efficient, low-cost and customer-centric payment Widening access Emirates Digital Wallet, Apple Pay, Google Pay and
The introduction of technologies such as artificial systems for local and international financial transactions. Governments and technology providers in the region Payby, in addition to virtual cards, such as the Dubai-
intelligence, blockchain, cloud computing and big data This came shortly after Dubai International Financial are ensuring that developments support inclusion of the based YAP card.
into financial services is accelerating economic progress, Centre (DIFC), the leading global financial centre unbanked population in the economy, especially in the Payment as a service has become a trend because
especially in the UAE. in the Middle East, Africa and South Asia (MEASA) process of money exchange. the technologies that support it have developed and
Governments, banks and consumer behaviours have region, introduced the region’s first Fintech Accelerator Recognising the potential of a digital solution to this evolved so much that they can be designed to fit any
been the primary drivers of the region’s transition to programme to increase the pace of change within the problem, the UAE and clients in DIFC Fintech Hive, the requirement. So there are plenty of payment solutions
a cashless economy. Governments and regulators are finance industry. first and largest financial technology accelerator in the today in the UAE and globally that are enabling the
drafting and improving regulations to enable trials of MEASA region, are supporting mobile financial services transition towards a cashless economy.
new technologies, increase consumer trust and to roll Accelerating change initiatives that provide products aimed at financial Governments, banks and consumers are planting the
out proven systems. Anticipating the increasing demand Although governments and banks have been pushing inclusion. For example, DIFC-based company Now seeds for digital financial services, however it is the SMEs
for more flexible payment systems, the Central Bank of the digital agenda for some time, the biggest agent Money offers digital accounts with a Visa debit card, that will ensure they continue to grow.

14 | SME INSIGHT 2022 SME INSIGHT 2022 | 15

Unlocking
trade finance By Mike Bhaskaran
COO digital technology
DP World

Fintech platforms simplify loan applications and enable lenders to make informed decisions

T
rade finance is a critical but often overlooked cent of SME applications for trade finance are rejected.
element when it comes to maximising business SMEs owned by women face even bigger barriers,
potential for buyers and sellers around the world. adding to the potential hurdles to overcome.
Its importance can be overshadowed by the complex The result is a USD 1.7 trillion gap between the
logistics involved in keeping goods moving smoothly amount of trade finance companies are seeking and the
from A to B, but the trade finance component is equally amount lenders are willing to provide – with the majority
vital, playing a significant role in the global trade of this affecting small businesses.
dynamic. Without it, buyers and sellers run the risk of Financiers see SMEs as a high-risk segment. They rarely
being unable to fulfil an order and lose out on business have substantial credit or a long trade history and there is
as a result. Setbacks such as these can not only hinder often a lack of reliable data on a smaller company’s financial
the growth of a business, but they can also harm the
development of national economies. But products such as fintech platforms that unable or unwilling to pay; and shipments can be affected
The value of trade finance can be clearly seen incorporate blockchain technology and artificial by weather, politics, red tape and logistical disruptions.

Financiers see SMEs as

when it comes to understanding its potential for small intelligence are being introduced to bridge this gap. Fintech platforms can smooth out some of the
and medium sized enterprises (SMEs). According to potential bumps in international transactions by
Washington-based development bank, The World a high-risk segment. Data support providing products such as receivables and payables

Lack of reliable data

Bank Group, SMEs account for 90 per cent of all Global trade and logistics companies have a wealth of finance that ensure swift payment for goods.
business worldwide and more than 50 per cent of detailed information on importers and exporters that They can also facilitate factoring, where businesses
jobs in emerging economies. SMEs’ contribution of on a smaller company’s is gathered to improve shipping performance. This sell invoices at a discount to a third party.

financial health makes

approximately 40 per cent of a country’s national income independently verified data can provide a historical This helps to accelerate payments and allows sellers
means they are vital to global trade. financial track record for SMEs, simplifying trade finance to continue trading without the need for a traditional
Therefore, helping SMEs connect with new banks and other lenders applications and allowing banks and other lenders to bridge loan while they await payment.
customers abroad is crucial to driving economic make informed lending decisions. Supply chain financing that allows an institution
growth where it is needed the most. However, without reluctant to provide These platforms have the benefit of being paperless, to pay a supplier on behalf of its customers can be
access to trade finance, accelerating overseas SME
development is difficult.
trade finance which reduces the risk of fraud and inaccuracy.
CARGOES Finance, launched by Dubai-based DP World
facilitated by finance platforms. This is useful for
companies that need to pay suppliers for stock that will

90%
in 2021, incorporates data-driven features to automate be warehoused and sold later.
global commerce security checks, optical character recognition and Another option is logistics finance, which covers
relies on compliance screening. transportation costs for cross-border trading and helps
trade finance health. This makes banks and other lenders reluctant to The trade finance platform connects SMEs with companies handle some of the financial challenges of
provide SMEs with the trade finance needed to ramp up investors and financial institutions around the world to running a supply chain.
production and connect with overseas buyers. provide instant quotes and improve transparency. Unlocking trade finance for SMEs is key to
The result is that only 10 per cent of formal lending empowering businesses to grow and scale. It is also
Funding gap goes to SMEs, and this usually comes at a higher cost Smoothing transactions vital for integrating developing countries into the global
Figures from intergovernmental body, the World Trade for the company seeking capital. The problem is more Whilst the benefits are numerous for SMEs, trading trading system. Doing so will improve not only their
Organisation, indicate that as much as 90 per cent of acute in emerging market economies where standards of across borders inevitably poses serious risks. Fluctuating economies, but also the lives and livelihoods of the
global commerce relies on trade finance – and 45 per financial reporting and processing are often less robust. exchange rates can eat into profits; buyers can prove people who live there, both now and in the future.

16 | SME INSIGHT 2022 SME INSIGHT 2022 | 17

Supporting Greening supply
Most SMEs view the move to a greener economy as an

innovation to
opportunity for growth, but there are also challenges
to be navigated, such as gaining access to knowledge
networks and resources as well as finding the capital to
invest in sustainability initiatives.

reach net zero

By Zoë Harries One of the biggest problems, however, is the need
Director for a company not only to reduce emissions in their own
Masdar City Free Zone operations, but to consider the green credentials of its
entire supply chain.
Supply chains can have a much bigger impact on the
environment than the operations of an individual SME.
According to US international consultant, McKinsey, 80
Masdar City steps in to empower SMEs in their leadership of the green agenda to 90 per cent of greenhouse-gas emissions caused by a

It is estimated that one

in three Global Fortune
500 companies in the G20
economies have committed
to a net-zero target
But the support and incentives need to come from
both the public and private sectors.
product are indirect emissions from the company’s value Showcasing this kind of collaboration, the Catalyst -
chain. This can include the production and transportation based in Abu Dhabi’s Masdar City - is the region’s first
of raw materials, employee travel and commuting, and startup accelerator focused on clean-tech businesses,
the use and end-of-life treatment of sold products. supported by Masdar and BP. The Catalyst targets
Sustainability can only be achieved through the sharing sustainability-focused business ideas that are one
of ideas and knowledge and collaborating with business to three years away from commercialisation, and
partners up and down supply chains. accelerates them through a holistic programme that
provides entrepreneurs with the range of services and
Nurturing innovation support needed to grow a business.
Known for leading innovation, SMEs are able to exploit Another enterprise is the UAE’s first economic zone
opportunities and offer solutions that are missed by dedicated to the incubation of SMEs and startups
large corporations. Pioneering industries integral operating in the space sector. This was launched in

T
he 2021 UN Climate Change Conference, Cop26, economies have committed to a net zero target. However, to the global green transition including renewable Masdar City in January 2022, in collaboration with the
put the goal of achieving net zero by 2050 high contributing up to 60 per cent of the UAE’s non-oil energy, artificial intelligence, cleantech, agritech, space UAE Space Agency.
on the agenda of governments around the world. economy, representing 95 per cent of companies and and sustainable mobility solutions, are being led by As Abu Dhabi’s pioneering sustainable urban
With over 90 per cent of global GDP now covered by generating 86 per cent of employment in the private entrepreneurs and SMEs. development and only planned and approved R&D
net zero commitments and 153 countries setting new sector, SMEs are a key component of the green transition. Supporting these industries, and the smaller cluster, Masdar City will play an important role in Cop28
2030 emissions targets, introducing measures to reduce The greening process requires SMEs to rethink their companies that play a vital role in their development will and supporting innovation-focused SMEs. The Masdar
greenhouse gas emission and adopting sustainable business practices, but this can be an opportunity to not only enable the SME sector to thrive, but will also City Free Zone provides an ecosystem of education,
practices is now essential for all businesses. introduce measures, such as a more efficient use of enhance the sustainability profile of the UAE and wider R&D, innovation and technology, and a strategic
The focus of Cop26 was on the role of large energy or materials, that save money as well as helping Mena region. This is becoming increasingly important base through which startups and SMEs can test new
corporations, with the CEO’s of global companies the environment. Action taken to achieve net zero will as we move towards Cop27 in 2022, and Cop28 in 2023 technologies and build their partnerships locally and
showcasing their green credentials. It is estimated that also provide greater opportunities for investment, - the first Cop events to be hosted in the Middle East globally, all while spearheading the innovations to realise
one in three Global Fortune 500 companies in the G20 innovation, job creation and earnings. (Egypt and the UAE respectively). greener, more sustainable urban living.

18 | SME INSIGHT 2022 SME INSIGHT 2022 | 19

Navigating of research and development, hiring staff, entering new
markets, or acquiring assets, forces most SMEs to seek
and North Africa (Mena) region with a base in Dubai.
Dtec Ventures complements the larger Dtec ecosystem

Routes to
finance from outside sources. that DSO set up to support and empower innovative and
There are many routes businesses can take to disruptive technology startups by providing access to
secure finance. funding. It aims to contribute to making DSO the largest
The first traditional funding vehicle is the bank loan, technology hub, and positioning Dubai as the leading

Finance
By Ghanim Alfalasi but many business loan applications by startups and destination for entrepreneurs in the Middle East.
Senior vice president of technology and SMEs are rejected. In 2020, the Central Bank of the UAE Another common form of traditional financing is
entrepreneurship carried out the UAE micro, small and medium-sized an initial public offering (IPO), where a company offers
Dubai Silicon Oasis enterprises (MSMEs) business survey, which found that its shares to the public, on a publicly traded stock
only 17 per cent of the sample had applied for bank exchange, such as the New York Stock Exchange, the
credit in 2020; of those, 53 per cent were rejected. London Stock Exchange and the Dubai Financial Market.
These statistics are not only testament to the high
rejection rate of credit requests from small businesses, Innovative approaches
New technologies are enabling affordable alternatives to traditional funding channels but also to the fact that very few MSMEs are willing to While there are many startups and SMEs that successfully
put themselves through the application process with raise funds through traditional sources, innovative
such a low chance of success. methods that leverage new technologies are
gaining momentum.
Crowdfunding enables businesses to access vast

600 million jobs will networks of people through social media and digital
platforms, thus expanding the pool of potential
be needed by 2030 to investors beyond the traditional circle of owners,

absorb the growing relatives and VCs.

In developed markets and jurisdictions, regulation for
global workforce, so such easily accessible methods has been increasing – the

supporting SMEs to
US Securities and Exchange Commission regulates equity-
based crowdfunding ventures in the United States, and
access affordable funding the UAE Cabinet approved a new crowdfunding strategy

should be a priority for all

to regulate platform operators in the UAE.
There are also several cryptocurrency-linked funding
governments methods, such as an Initial Coin Offering (ICO), a spinoff
from the IPO, and blockchain tokenisation. However, they
~ The World Bank Group remain on the more controversial end of the spectrum,
given the lack of regulations.

Private sources Finding the balance

Another channel of funds is from private equity (PE). The With the so many funding options available to
PE industry is comprised of institutional investors such entrepreneurs, selecting the best method can be a
as pension funds and large private equity firms funded challenge, and there is no single, correct solution.

A
ccess to finance is the second most-cited workforce, so supporting SMEs to access affordable by accredited investors. PE is dominated by funds with Ultimately, it is a compromise formula that should be
obstacle to growth for startups and small and funding should be a high priority for all governments. deep pockets and high-net-worth individuals, but tends calculated – what is the business offering? How does it
medium-sized enterprises (SMEs) in emerging to be synonymous with influence or control over a stand out against competitors? How much is it worth?
markets and developing countries. The funding block company’s operations. How much profit could it make? What are the founders
But the role that these companies play in economies Every startup follows the same path, with the same stages A sub-field of private equity investment is the venture willing to give up to obtain that extra capital?
around the world is vital. SMEs are the engine of of development – ideation, pre-seed, seed, early growth, capitalist (VC) fund. These are set up specifically to invest These are questions that entrepreneurs and business
economic growth and a major contributor to GDP, as well expansion and exit. A growing number of innovators and in growing businesses, where the VC provides cash in owners should ask themselves to guide them on the
as a primary source for innovation and job creation. entrepreneurs have the ideas and concepts, develop the return for a stake in the business and a seat on the board method that suits them best.
According to The World Bank Group, SMEs represent business plan, build a prototype, launch a minimum viable of directors. On the other side of the equation, funds and fund
about 90 per cent of businesses worldwide and employ product or service, and take it to market. One of the VC funds available in Dubai is Dtec holders should be more visible and present where
more than 50 per cent of the workforce. The Washington- At this stage they may have paying clients, but only Ventures, part of the Dubai Technology Entrepreneur entrepreneurs are looking, while employing a flexible
based development bank also estimates that 600 million a few businesses will have the cashflow and margin to Campus (Dtec) in Dubai Silicon Oasis (DSO). They invest risk aversion and a keen eye for innovation and ground-
jobs will be needed by 2030 to absorb the growing global fund development from internal profits. The high cost in early-stage technology companies in the Middle East breaking solutions.

20 | SME INSIGHT 2022 SME INSIGHT 2022 | 21

Plugging the Growing demand
Sharia-compliant banking services have grown
However, as with traditional banking, the size of many
SMEs may limit the type of products available. Islamic

gap with
tremendously since they first emerged in the 1970’s. banks prefer to offer short-term, asset-backed facilities
Over the past decade, Islamic finance grew at an annual to the sector due to issues of business continuity and the
rate of 10 to 12 per cent. Today, it is an estimated $2.5 higher risk involved in lending to smaller businesses. Long-
trillion industry spread over more than 80 countries term Islamic financing is usually only available to medium-

Islamic finance
By Hani Salem Sonbol globally. sized enterprises with strong financial and business viability.
CEO of ITFC and Despite the pandemic, Islamic financing expanded at In terms of Islamic liability products, SMEs can
acting CEO of ICD an average compound rate of about 10 per cent in 2020 benefit from the provision of the deposit, savings, and
and 2021, while conventional loan growth expanded at current accounts that are sometimes difficult to obtain
approximately 3 per cent during the same period. from traditional banks.
According to Moody’s, the economic recovery in
key Islamic finance markets will boost credit growth
and demand for sharia-compliant products. The US
Sharia-compliant funding can support SME growth, but product awareness must be promoted investment service provider says that Islamic banks’ asset
growth is likely to continue, outperforming the expansion The strong ethical and
of conventional lenders.
There are many drivers in the Islamic finance sector
moral dimensions of doing
that will guarantee future growth. Firstly, the untapped business with Islamic
and unbanked Muslim population is large. The unbanked
population of the 57 OIC (Organisation of Islamic
banks plays an important
Cooperation) countries reached around 60 per cent in 2018. role in promoting socially
Secondly, the improved breadth and quality of desirable investments
and better individual and
Islamic financial products and services is continuing to
attract more customers, Muslim and non-Muslim alike.
Growing demand for sustainable and environment- corporate behaviour
friendly development has led to a sharp uptake in green
projects and investments globally. The considerable
overlap between Islamic finance and ESG (environmental,
social and governance) principles makes it an attractive
option for many businesses. Promoting awareness
The global halal market is highly lucrative, with an Demand for Islamic finance products from the SME
estimated annual growth rate of 20 per cent making it sector has been on the rise for a decade, especially in
one of the fastest growing consumer segments in the developed Islamic finance markets.
world. Islamic finance is expected to play a leading role The need is mainly for project financing, working
in international halal trade facilitation. capital and trade financing. Cross-country evidence
points to a wide range of financing structures available
Supporting SMEs to SMEs – a testament to the flexibility that Islamic
Islamic finance enhances business opportunities by finance offers.
offering financing solutions such as participatory Despite this, awareness gaps still remain, both in
contracts, where banks are not just financiers, but also developed and emerging markets. In 2019, Malaysia’s
have a vested interest in the success of the SME. central bank reported that almost 60 per cent of SMEs

S
mall and medium-sized enterprises (SMEs) today financing, seed financing, and venture capital. There is The foundation of the Islamic banking model is in Malaysia were not aware of the availability of Islamic
require financial products, services, partners and an asymmetric information problem; the fund supplier based on a profit-sharing principle, where the risk is financing facilities. In the UAE, 27 per cent of the
collaborators to expand their business; speed their frequently has a better understanding of the details of a shared by the bank and the customer. Not only does sampled population were not aware that Islamic banking
digital journey; help them enter new markets; and give transaction than the borrower, and a lack of information this benefit a business borrower, but this system of products existed, according to the 2020 Islamic banking
them access to scale-building innovations that sharpen infrastructure for SMEs exacerbates the problem. financial intermediation contributes to a more equitable Index by UAE bank, Emirates Islamic.
their competitiveness. The result is that many SMEs end up securing distribution of income and wealth. Entrepreneurs are not fully utilising the many
But new businesses can struggle to access finance finance with considerable charges or fees, or offering The strong ethical and moral dimensions of doing financing solutions provided by Islamic banks. Awareness
as risk-averse banks are reluctant to lend to companies costly collateral, which hinders their growth. Sometimes business with Islamic banks plays an important role in of the facilities on offer must be promoted to ensure the
with no financial track record and limited physical assets. overlooked, Islamic finance may offer the solution for promoting socially desirable investments and better growth of the SME sector, as well as the ongoing success
This leads to a lack of much-needed capital expenditure SMEs seeking finance. individual and corporate behaviour. of sharia-compliant financial services.

22 | SME INSIGHT 2022 SME INSIGHT 2022 | 23

Demonstrating Creating
value to an ecosystem
secure a sale
By Prashant (PK) Gulati By Maryam Zaman

for growth
President Emeritus Partner, head of corporate governance,
TiE Dubai internal audit and financial services
KPMG Lower Gulf

Meticulous documentation, staff training and succession planning are key to selling an SME The UAE’s regulatory and policy ecosystem is being strengthened to ensure sustainable growth

E T
stablishing and growing a company is not easy, This is largely because the valuation processes he small and medium-sized enterprise (SME) sector The same law has also relaxed restrictions on foreign
and after investing many years of hard work, that are used for selling larger enterprises are not accounts for more than 94 per cent of companies ownership of companies in the country. More specifically,
business founders can struggle to sell their firm for appropriate for SMEs that are often unable to provide a in the UAE, which contributes to 86 per cent of the foreigners are now allowed to have full ownership of
a reasonable price. Proving the value of the company, well-documented, verifiable financial history. It can also private sector’s workforce. This means that changes to UAE-listed commercial and industrial activities. This
developing and retaining good staff, and ensuring ongoing be difficult for a small business to prove that its ongoing the regulatory environment in which these companies change will incentivise foreign SMEs to establish and
commercial success are the biggest challenges for an success is not reliant on the founder or the original team. operate, can have a substantial aggregate impact on the operate businesses in the country, and contribute to the
entrepreneur attempting to attract a buyer. But with careful labour market and the region’s economy as a whole. UAE’s fast-growing economy.
planning from the outset, a business owner can address For example, the new UAE Commercial Companies Special purpose vehicles (SPVs) have been
these issues and realise the full value of their asset. Building an enterprise that is able to Law that came into force in January 2022, is likely to recognised under the new UAE Commercial Companies
demonstrate value requires early
deliver significant benefits to the economy. The law Law. An SPV is a type of company that is set up to hold
planning, with a focus on three key areas:
Driving growth has reduced the percentage of net profits that must be assets or shares separate from a parent company’s assets
The UAE has established itself as a global hub for allocated to the statutory reserves of an LLC (limited and shares. This mitigates the legal and financial risks
innovation, ranking fourth in the Global Entrepreneurship • C
 omprehensive business documentation liability company) from 10 per cent to 5 per cent. This of any investment by a SME, and could encourage more
Index 2020. In this nurturing business environment, and financial accounts demonstrate viability, reduction in the statutory reserve fund threshold joint ventures in the region.
startups and small and medium-sized enterprises profitability and sustainability. The more years increases the amount of cash on-hand for a company An increase in collaboration has the potential to
(SMEs) are thriving, and now represent 94 per cent of all that a business has audited, the more value will to reinvest, enabling it to expand business activities, accelerate the introduction of innovative products and
be accrued.
companies operating in the region, according to UAE introduce new products and services, and increase services through knowledge sharing.
Ministry of Economy figures. • P
 eople are the biggest asset in an organisation employment opportunities. Startups in the UAE that hold exclusive intellectual
These businesses form the backbone of private and their continued commitment will be an property rights can also use an SPV to safeguard their
economic activity, increasing diversity and driving essential part of the due diligence process. The intellectual property rights, secure and enter into licensing
growth. SMEs make up over 60 per cent of the country’s way a business has hired, trained and retained its deals, and collect revenue from these agreements.

UAE Commercial Companies

GDP and are also the biggest creators of employment, employees is indicative of its ongoing success.
despite hiring, on average, fewer than 10 full-time Data protection and cybersecurity
Law now allows foreigners
• S
 uccession planning is required to remove
employees per company. The new UAE Data Protection Law - published at the
a founder from the day to day operations of
to have full ownership of
So it is important to incentivise entrepreneurs to start end of 2021 and expected come into effect later this
a business. SMEs tend to rely heavily on the
and grow a business, but SME owners also need to be year - will have a significant impact on SMEs. This law
business owner’s knowledge, expertise and
able to extract value from their efforts and ideas when
connections, and may not function well without UAE-listed commercial essentially protects the right of the individual to own and
they decide to sell their company. control their personal data.
that person.
and industrial activities, The updated law is a new chapter in the UAE’s
Improving saleability
Despite the economic challenges that are evident in All businesses work according to local regulations
incentivising foreign SMEs long-standing commitment to globally recognised
standards of data protection and is largely modelled
the wake of the Covid-19 pandemic, there is still a high and conditions. Making sure that the correct licences and to establish and operate on the European Union’s General Data Protection
demand from investors for viable business investment
opportunities. Yet there are a large number of SME
permits are in place along with a robust infrastructure
and processes to ensure a continuous service - with or
businesses in the UAE Regulation (GDPR). The new regulation reflects a
recognition of the importance of personal data, and the
owners who are unable to convince potential buyers of without the present management - creates value that a fundamental protection of the data subjects’ rights. The
the true worth of their business. buyer will recognise and pay for. law covers a wide scope that includes data protection,

24 | SME INSIGHT 2022 SME INSIGHT 2022 | 25

 Acknowledgements About MEED
EDITORS MEED has been integral to delivering business informa-
tion, news, intelligence and analysis on the Middle East
• Edward James, MEED economies and activities for over 65 years.
• Sarah Rizvi, MEED
Attracting a key senior management audience
• Danelle Wyper, MEED through its content and activities, MEED is a media
brand, publication and data business that covers a
spectrum of services which inform, engage, connect and
ultimately support our subscribers and partners in their
CONTRIBUTORS business development and strategic growth.

• Abdul Baset al-Janahi, Dubai SME Acquired by GlobalData Plc in 2017, MEED is now
part of one of the largest data and insights solution
• Ashish Panjabi, Jacky’s Business Solutions
providers in the world with the capacity to build global
• DIFC FinTech Hive communities for our clients.

• FedEx Our purpose is to support the region’s companies

make better and more timely decisions through our
• Ghanim Alfalasi, Dubai Silicon Oasis
innovative data solutions and grow through our compre-
• Hani Salem Sonbol, ICD hensive and worldclass marketing solutions.
To find out more, visit www.meed.com
• KS Parag, FVC

• Maryam Zaman, KPMG Lower Gulf

• Mike Bhaskaran, DP World

• Muath al-Mashaikh, Consultant

data processing, obligations and consent, data subject immediate impact on shoppers in Abu Dhabi. Retailers
• Nabil Ismail, Gulf Capital
rights such as the right to withdraw, data sharing and in the emirate are not permitted to distribute the typical
complaints processes, as well as governance of personal single-use bags, requiring shoppers to opt for • Prashant (PK) Gulati, TiE Dubai
data in emerging technologies. reusable alternatives.
For example, if an organisation has an individual’s Aside from encouraging environmental awareness • V Francis John, Ztartup.com Edward James Sarah Rizvi
data, then the law gives that person the right to request and consideration, the ban also demonstrates that Head of content & Commercial content
• Zoë Harries, Masdar City Free Zone
access and deletion. The company that holds the data the UAE is transitioning from launching initiatives to research, MEA, MEED editor, MEED
has to respond and action the request. This will be implementing laws. This means that we can probably [email protected] [email protected]
applicable to SMEs, particularly in retail and those that expect an increase in legislation in the coming years
process customer data. to ensure that the objectives of the national mandates,
visions, and objectives are achieved. We could see
The transition to net zero further laws to control the use of plastics, mandate
The UAE has been taking major steps to promote recycling, preserve water resources, increase the
sustainable development by adopting long-term plans contribution of clean energy and implement green
aimed at climate action and environmental conservation. growth plans.
Initiatives such as UAE Vision 2021, Vision 2040, the UAE Given the urgency to mitigate climate change as well
Green Agenda 2015-2030, and the Energy Strategy 2050, as to support sustainable development, international
have been developed alongside the introduction of new frameworks for sustainability reporting have been
laws and policies to support sustainable practices. updating their guidelines to allow organisations of any
There are a number of regulations that may impact size to manage, monitor and report their sustainability
SMEs in sectors such as retail, F&B and those with high- performance. Public policies could take the same
resource consumption. The ban on single-use plastics approach, requiring all businesses to comply, and we
bags, effective since June of this year, has had an expect to see this to continue in the next few years.

26 | SME INSIGHT 2022 SME INSIGHT 2022 | 27

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