SMEs and Liquidity: Bridging the Gap in the GCC
9 April 2025
The expert panel explored how SMEs in the GCC were tackling the liquidity gap amid an evolving ecosystem.
They discussed UAE’s 2024 financial restructuring and bankruptcy law; it’s positive impact and opportunities in private credit and distressed investing.
The panel also analysed the role of government incubators, investment funds and private sector solutions driving SME growth in the region.
- Omar Al Yawer, Partner, Ruya Partners
- Based in Abu Dhabi, we are a private credit firm that was established in 2020 with the support of Mubadala Capital as our anchor investor. Our primary focus is on mid-market lending. While we cover the entire Gulf Cooperation Council (GCC) region, the majority of our operations are concentrated in the United Arab Emirates and Saudi Arabia, which are the two largest contributors to the region’s GDP. Our aim is to address the financing gap that exists for small and medium-sized enterprises (SMEs), particularly those in the Emirates, where banks may not be able to provide the necessary funding.
- Abdulla Al Hamed, Senior Vice President – SMEs, Emirates Development Bank
- Emirates Development Bank (EDB) is a government development bank primarily focused on growing the UAE’s non-oil GDP. We concentrate on five key priority sectors: manufacturing, healthcare, advanced technology, food security, and renewables. Our target is to provide 30 billion in funding support by 2026. I have had the pleasure of working at EDB for over four years, gaining experience in supporting companies ranging from startups to large corporations.
- Tim Casben, Corporate Partner, Head of Middle East, Gowling WLG
- As the head of Gowling in the Middle East, I oversee our regional operations. Gowling is an international law firm, predominantly Anglo-Canadian, with 3,000 lawyers worldwide and a dedicated team of 50 people based here. Having been in the Middle East for 16 years, I specialize in assisting venture funds and SMEs looking for investment capital.
- Mubarak AlKubaisi, Founder & Managing Partner, Perhaps Consultancy
- As founder and managing partner, our consultancy offers expertise in cultural services for government entities and general consultancy for SMEs. Originating in Bahrain within the last ten years, our presence now spans the entire GCC region, advising clients across the SME and government sectors.
- Zubair Ahmed, Chief Industry Officer, Financial Services. VeriPark
- Been in Banking and Technology for 32 years, and in Dubai for over four decades.
- Moderator: Lara Sif Hrafnkelsdottir, Founder & Managing Partner, Vikingur Management – MENA, Private Funds, SMEs, Family Offices.
SMEs are the vital foundation of economies worldwide, constituting 90-99% of all businesses. Globally, they generate over 70% of jobs in developing nations and contribute more than 50% to GDP. The GCC countries mirror this importance, with SMEs representing 95% of businesses, accounting for 50-60% of jobs, and contributing 10-35% of GDP (rising to around 60% in the UAE’s non-oil sector). Despite this crucial role, SMEs have long faced significant under-service from traditional banks. While globally around 22% of bank funding reaches SMEs, in the GCC this figure is remarkably low, estimated at less than 3%, potentially even below 2%. This creates an enormous regional liquidity gap, estimated at $250 billion USD. However, this persistent challenge is now facing transformational changes. The SME ecosystem is rapidly evolving, driven by swift advancements in legal frameworks and numerous government initiatives.
Lara Sif Hrafnkelsdottir: Please summarize the main findings of your research on SMEs and describe the solutions and models you proposed. Additionally, could you compare the GCC’s performance in this area to other regions?
Zubair Ahmed: Our work began two years ago with the core belief that banks underserve the SME sector. To verify this globally, we conducted a study with over 100 diverse banks worldwide. The findings confirmed our hypothesis: SMEs are broadly underserved, as banks typically prioritize retail and corporate clients, often repurposing solutions for SMEs rather than developing tailored ones. This limits the relationship to basic transactions (credit, accounts) instead of a partnership for growth. To catalyse change, we invested six months into developing a 30-page, free, open-source maturity model. This model provides banks with a framework to strategically evaluate and improve their SME engagement across key areas like acquisition, service, and value proposition. It helps them benchmark their current position, define strategic objectives, and implement targeted initiatives. Crucially, the model promotes a shift away from merely underwriting demand towards understanding the holistic profitability and fostering loyalty with SME clients, featuring examples of banks successfully implementing this. Published in Milan in June 2023 and currently used by many institutions, this report offers banks a concrete tool to effectively address the significant unmet needs of the SME market. Contact me for a free soft copy.
Globally, the GCC region’s banking sector is moderately advanced. We see both significantly weaker examples and highly mature ones, such as Millennium BC in Portugal offering zero-data SME accounts via open banking, or CiMB in Malaysia segmenting SMEs into 18 distinct groups with tailored strategies. These leading capabilities are often driven by technology. While regions like Portugal and Malaysia currently surpass the UAE and Saudi Arabia in certain areas, the GCC is progressing. We now have a clear understanding of the elements needed for such capability building. In the past two years, several UAE banks have specifically adopted these leading models and are actively enhancing their operations based on this knowledge.
Lara Sif Hrafnkelsdottir: Given the many initiatives supporting SMEs by governments in the GCC region, please tell us how the Emirates Development Bank supports these businesses.
Abdulla Al Hamed: Our Journey Since EDB’s 2021 Strategy Launch
Let’s look back at 2021. When Emirates Development Bank (EDB) launched its new strategy, our mandate from the government was clear: support five specific priority sectors that are vital for the UAE’s growth. We targeted deploying AED 30 billion into these areas, and I’m proud to say we’ve already reached AED 16 billion. Our focus isn’t just on large companies; we’re equally committed to supporting mid-sized, small, and even micro-businesses within these sectors.
So, how are we doing this? We understand that businesses have different needs:
For Startups: Traditional lending isn’t usually an option. That’s why we created EDB 360, a digital banking app. Any small business across any sector can open an account quickly – often within 48 hours. If they’re in one of our five priority sectors, they can then easily apply for a loan through the app.
Working with Commercial Banks: We see commercial banks as partners, not competitors. We’ve teamed up with over ten of them through our Credit Guarantee Scheme. If an SME needs a loan, and the commercial bank can’t fully cover it due to their own policies, we step in. We guarantee 50% of the loan, up to AED 10 million. This lets the commercial bank increase their lending to that SME, knowing EDB is sharing the risk. This program is specifically for SMEs – large businesses don’t typically need this kind of guarantee. The typical loan amount we guarantee falls between AED 5 million and AED 30 million.
Targeting Key Sectors (Like Food Security): Food security is crucial, especially in our climate. We wanted to help UAE farmers become more like businesspeople. We launched an accelerator program (starting with a pilot, now expanding). We provide technical help to boost production and facilitate matchmaking with big companies to buy their produce. It’s about commercializing their farms.
Direct Lending: We also lend directly to businesses in our five priority sectors. Our team knows these sectors inside out. While a typical commercial loan might be 7 years, we can go up to 10 or even 15 years and offer grace periods up to two years. This is designed to align with the long-term growth and cash flow needs of these businesses.
When we evaluate a loan, it’s not just about the financials – although a solid business plan is essential. We heavily weigh the developmental impact. How much will they export? Will they bring in skilled talent? Use local suppliers? Who are their customers? These factors boost their developmental score, which can lead to better terms, not just longer tenors but also more favourable interest rates.
All these programs work together and have been very successful, which is why we’ve reached the AED 16 billion milestone. As a development bank, we have no shareholders. Any profit we make goes straight back into the bank to help subsidize programs and support more businesses. That’s our strategy and how we see our role.
Lara Sif Hrafnkelsdottir: The private credit market has been evolving and growing significantly globally over the past few years. It’s currently estimated to be around $2 trillion and is projected to double or more by 2028. Given the challenges SMEs face with banking access here in the GCC region, this presents a major opportunity for private credit. As the market in the region is also evolving, could you share some insights on its development?
Omar Al Yawer: The promise of the global private credit market, exceeding $2 trillion, is clear, yet our region’s journey in establishing a robust private credit ecosystem is just beginning. Reflecting on the 2007-2008 period in the US, a parallel emerges: a surge of new private credit managers, many of whom ultimately failed. While history offers cautionary tales, the core challenge identified then remains highly relevant here: traditional banks, the dominant players in the UAE and Saudi Arabia, are primarily structured to finance large government-backed projects and established family business empires.
This leaves a critical funding gap for the engine of most economies: Small and Medium-sized Enterprises (SMEs). Specifically, profit-generating SMEs with an EBITDA of $10 million or more need flexible capital to fuel their organic growth. Despite being cash-flow positive, they struggle to obtain suitable financing from conventional banks. This is precisely the void that private credit is poised to fill by providing the necessary adaptable funding solutions.
The emergence of this opportunity is underpinned by two significant shifts since 2007. Firstly, the forward-thinking leadership in the UAE and Saudi Arabia has initiated comprehensive national transformation plans. A cornerstone of these plans is the strategic strengthening of the economic ecosystem, with a specific emphasis on accelerating SME growth. This creates a powerful demand for diversified funding sources beyond traditional routes.
Our fund is strategically positioned to meet this demand by offering flexible financing structures. We typically provide capital for 4-5 years, including grace periods that can extend up to three years. A key differentiator is our assessment approach: rather than relying on hard assets or personal guarantees, which is standard for commercial banks, we base our decisions on the business’s projected cash flow. This partnership mindset allows us to truly understand and respond to the unique growth trajectory and financing needs of each SME.
We are inspired by successful international models where robust support systems exist for SME financing. In the United States, for example, programs like the SBIC provide government leverage to private funds, effectively lowering their cost of capital. This mechanism is crucial as it allows funds to simultaneously deliver competitive returns for institutional investors (often targeting 15-18%) and provide affordable financing to SMEs.
We are actively implementing similar proven strategies across diverse sectors in our region, including fitness, healthcare, and education. The significant growth potential within the SME segment is attracting global investment. The recent announcement of a partnership between Goldman Sachs and PIF to launch a private credit fund here is a powerful validation of this market opportunity and underscores the growing recognition of SMEs as a key driver of regional economic expansion.
Lara Sif Hrafnkelsdottir: Adding to this perspective, sovereign wealth funds act as major investors globally. Forty percent of worldwide sovereign wealth fund assets are concentrated in the GCC. These funds channel significant capital into private credit, private equity, and venture capital funds, which in turn often invest substantially in SMEs. This clear investment pathway points strongly towards considerable growth and opportunities.
Omar Al Yawer: Adding to your point, a significant catalyst in regional investment has been a recent shift. Historically, regional sovereigns preferred international private credit assets and rarely invested locally. However, starting around 2020, influenced by a growing national focus on domestic opportunities, we observed key local institutions and allocators begin to invest in the local private credit market. Examples include Mubadala Capital (as an investor from Saudi), Aramco’s pension fund, and SBC Jeddah Fund of Funds – names that represent this newfound domestic focus. We expect local participation to increase substantially over the next 4-5 years, which will be vital for empowering local participants and fostering the entire ecosystem.
Lara Sif Hrafnkelsdottir: Given your SMEs consultancy firm’s operations in Bahrain, Saudi Arabia, and recent expansion into the UAE, how do you go about supporting small and medium-sized businesses? Is the support model consistent across these three locations or the GCC as a whole?
Mubarak AlKubaisi: For the past two decades, Gulf region governments have been highly committed to diversifying economies beyond oil and gas, actively supporting SMEs through numerous funds and institutions. These include Bahrain’s Tamkeen, BDB, and BBIC; Sharjah’s Khalifa Fund; Dubai’s Sheikh Mohammed bin Rashid Foundation; and many others across the GCC, including Saudi Arabia. Our consultancy specializes in assisting SMEs and government entities with market entry, providing data, R&D, business, marketing, and development planning. Comparing the markets of Bahrain, Saudi Arabia, and the UAE shows clear differences. Bahrain is a smaller market requiring a focused, planned, and sustainable approach. Saudi Arabia is a large landscape with strong government buying; we partner with Oceanx consultancy there to provide SMEs with critical market insights (size, opportunities, risks) for successful entry and sustainability. The UAE, uniquely among Gulf countries, is highly diversified with a multinational population and business base, impacting funding access. While funds like Al-Khalifa often target locals, Dubai’s Sheikh Mohammed bin Rashid Foundation offers broader allowances. Sharjah Entrepreneurship Centre (Sheraa) builds collaborative ecosystems, proven helpful, for instance, when we connected a Kuwaiti company expanding to the UAE with Sheraa’s network for complementary services like logistics, reducing their costs and enhancing potential.
Lara Sif Hrafnkelsdottir: Do you help clients secure financing? If yes, do you generally work with banks or the government?
Mubarak AlKubaisi: As consultants, a key part of our work is providing clients with essential plans and studies, such as feasibility studies, marketing plans, and business plans. These documents are particularly important when clients seek funding, as potential investors or lenders typically require feasibility studies and business plans. By preparing and delivering these critical plans, we significantly help our clients secure the necessary funds.
Lara Sif Hrafnkelsdottir: The legal framework in the region is advancing quickly. Could you share some highlights about its current state, and specifically comment on the new financial restructuring and bankruptcy law updated in 2024?
Tim Casben: The UAE government has a strong track record of supporting SMEs, a commitment that predates recent initiatives. Back in 2014, a specific law was enacted to boost SME engagement, requiring federal entities to contract at least 10% with SMEs, and federally owned companies (25% stake or more) to allocate 5% of their contracts to SMEs. This legislative pillar has been in place for quite some time and remains relevant alongside goals outlined in Vision 2031.
Significant macro-economic changes have also provided a strong tailwind for SMEs. The shift to a Monday-Friday work week helps businesses align with international partners, while removing the 51% local partner requirement for onshore companies has been a major step, making it easier for international ventures to set up shop here.
The introduction of a new insolvency and bankruptcy regime is another key development. This regime brings a new level of certainty, which is particularly helpful for private credit companies assessing risk. Knowing the process provides lenders with more confidence to extend support to SMEs. Interestingly, the law focuses on cash flow insolvency, which arguably better suits the UAE market where many businesses, outside property, tend to be asset-light. This formalised process is a positive step.
However, there are still areas where further support could be beneficial. The current system lacks the ease of appointing independent administrators or liquidators seen in some other jurisdictions, which can hinder quick restructuring processes like “pre-pack” insolvencies designed to facilitate business continuity. Additionally, while improving, the intellectual property (IP) framework is still developing, and the cost of registering IP remains a barrier for some SMEs.
Despite these points, the government’s support, through both legislation and practical efforts, has been impressive. We see this not just in laws but also in how clients are actively supporting SMEs. A great example is an Abu Dhabi fund’s strategy: they invest in overseas tech, license it back to the UAE, and then build local manufacturing facilities or integrate the tech into the Abu Dhabi ecosystem. They benefit from the strong government and ecosystem support network, which really helps these companies grow and establish themselves regionally. This approach reflects a more mature investment focus on building manufacturing and creating value locally within the UAE, which is excellent for economic diversification.
Lara Sif Hrafnkelsdottir: It’s encouraging to see the legal framework evolving, which is proving highly attractive to investors and driving a crucial increase in foreign direct investment. Given the profound impact of technology, could you share your insights on the future direction and outlook for the banking sector?
Zubair Ahmed: Key Shifts in SME Banking
Understanding business drivers is paramount before technology implementation. The current financial focus by sovereigns and private equity on SMEs means capital is accessible. However, the banking model for SMEs must change from transactional to relationship based.
A core challenge is how banks view the customer. Individuals often embody multiple banking roles (retail, corporate, SME owner, investor). Treating these as separate segments prevents banks from offering integrated, effective service. The goal should be a “segment of one” approach, providing personalized, unified service across all facets of the customer’s financial life, as seen in some international examples and emerging in Saudi initiatives.
Technology and enabling policy are vital. The Saudi SME Bank is a prime illustration:
- Dedicated to SME funding.
- Collaborative funding model (20% by SME Bank, 80% by partner banks).
- Single technological portal for SME validation and bank selection, connecting policy and tech.
- The true value of technology lies in its ability, supported by policy, to help banks genuinely support SME operations and growth, rather than focusing on the technology itself.
Lara Sif Hrafnkelsdottir: Implementing programs that use portals and leverage technology would be beneficial for other GCC countries (assuming this isn’t already happening). This approach is also relevant to private credit; in fact, such portals are being set up for private credit vehicles in ADGM and DIFC.
Omar Al Yawer: While technology presents valuable tools for swift SME credit assessment – such as integrating with accounting software for rapid cash flow analysis, as exemplified by regional players like Liquidity Partners – the regional private credit market’s primary characteristic remains its significant unmet demand.
The market has experienced explosive growth. A striking comparison shows observed annual deal flow increasing from $100-150 million in 2008 to $2.6-2.7 billion today, seen by a relatively small team. Despite this surge in opportunities, capital constraints limit participation to only 4-5% of the potential deals.
This vast demand is not contingent on advanced technological solutions; much of it represents a fundamental need for direct lending, often assessed via traditional means like Excel models. Therefore, while technology is beneficial, the immediate and overwhelming task is simply providing capital to meet the substantial growth requirements of regional businesses. The majority of this demand comes from UAE (70%), often seeking international expansion, and Saudi (30%), focused on domestic growth.
Lara Sif Hrafnkelsdottir: As you mentioned, there are indeed many opportunities. One significant opportunity involves the collaboration between private credit funds and banks. For instance, just a couple of weeks ago, Blackrock partnered with Emirates NDB. This type of collaboration has been common in the West, and I anticipate it will be a key development in this region as well.
Omar Al Yawer: The point you raised is highly insightful. While the Western world is at the forefront of innovation, we can adopt some of their partnerships that are suitable for our context. A notable example is the Blackrock deal with Emirates NBD, which is essentially a distribution arrangement for Blackrock’s private market products to Emirates NBD customers. However, we can take this a step further by providing loans from our private credit funds to Emirates NBD customers, which would be a significant change. This move requires local knowledge and expertise, which our teams on the ground can provide by assessing credit regionally, rather than from London or New York.
There are three areas we can focus on to achieve this. Firstly, we need to encourage larger allocators to shift their funds to private credit managers like us. Secondly, we should explore tie-ups with development banks in the UAE and Saudi Arabia to be recognized as private credit managers, enabling us to secure favourable terms and leverage. Lastly, we can collaborate with local banks such as Bank Fab and Emirates NBD by sharing loans that they are unable to approve due to risk tolerance or capacity constraints. This partnership can benefit both parties, and it requires leadership from these banks to recognize the potential of such collaborations.
In summary, while the West has made significant strides in private credit management, we can learn from their models and adapt them to our local context. By collaborating with local banks, development banks, and larger allocators, we can expand our reach and provide much-needed credit to businesses in our region.
Lara Sif Hrafnkelsdottir: Does the development Bank collaborate with private financing vehicles or private funds?
Abdulla Al Hamed: Our bank’s strategy for growth and impact is fundamentally built upon strategic partnerships. With approximately 300 employees, collaboration is essential to our success, allowing us to avoid operating in silos.
A key fintech partner is Beehive, through which we channel our small lending to SMEs. This streamlined process allows SMEs to apply via Beehive, undergo credit review by their team, and receive disbursements from us, effectively expanding our reach within the SME market.
We also leverage fintech partnerships for invoice discounting. Platforms like Watermelon enable businesses, such as farmers or suppliers to large corporations, to discount their invoices. We support these platforms by providing the necessary credit limits, facilitating liquidity for the underlying SMEs and businesses. We are actively seeking new fintech partners to further enhance our loan distribution capabilities.
Our success is significantly amplified by collaborations with all UAE Free Zones. These partnerships generate valuable leads, particularly for financing factories and attracting foreign direct investment (FDI). Our initiatives have directly contributed to bringing in 7 billion dirhams of FDI since our strategy’s inception.
Supported by local government entities, our focus is on strategic sectors aligned with national priorities, such as manufacturing and promoting “Made in the UAE.” We are not merely lenders to these businesses; as a federal entity, we act as advisors and advocates, helping them connect with government bodies and voicing their concerns. These businesses are integral partners in our mission.
Ultimately, our bank’s success is predominantly driven by these strategic alliances, enabling us to effectively support key sectors, reach SMEs, and contribute substantially to the national economy.
Lara Sif Hrafnkelsdottir: The government initiatives, led by the UAE Ministry of Entrepreneurship and SMEs, are notably ambitious. By 2031, they have set three key goals for the UAE: becoming an entrepreneurship nation, achieving two unicorns, and ranking among the top three in the Global Entrepreneurship Index. These ambitious targets present significant opportunities.
Abdulla Al Hamed: While not all companies we finance become unicorns, we are proud of several portfolio examples that demonstrate significant growth. Starting with small factories, we took the initial risk to finance them and have since supported their expansion through phases three and four, progressively increasing our financial exposure. This reflects our confidence in their management and our higher risk acceptance. The result is their substantial growth into larger, key economic contributors with strong global export footprints and facilities across Dubai, Abu Dhabi, and Sharjah. We are genuinely proud of their achievements.
Lara Sif Hrafnkelsdottir: Your thoughts of the future?
Zubair Ahmed: I see two major shifts on the horizon for SME lending, both powered by technology. The first is the rise of loan syndication. It’s already happening with platforms like Beehive, allowing multiple investors to share risk, which I view as the future direction. The second challenge is that many SMEs struggle to present their business in a way that lenders feel comfortable taking a risk on. Their financial records, growth plans, and general paperwork just don’t translate into a strong proposal. This is where technology is stepping in. Look at QNB Finansbank in Turkey; they provide their SME clients with 17 embedded tools covering everything from invoicing to forecasting. Since most SMEs can’t afford a full-time CFO or similar roles, these tools offer essential support. This helps them manage their operations better and package their information into proposals that significantly improve their funding prospects. I believe these two tech-aided developments will be very important in the near term.
Abdulla Al Hamed: A defining characteristic of EDB’s lending lies in our focus on future potential. Unlike commercial banks that often base decisions on existing EBITDA, EDB pioneers lending for greenfield or brownfield projects by evaluating and taking risk on projected future cash flows. We assess the borrower’s experience, confidence, and the project’s positive economic impact to determine financing needs. This forward-looking, partnership-oriented approach is fundamental to EDB’s success and growth. We view ourselves as partners in our clients’ growth, not just lenders, a principle we convey in every interaction.
Beyond lending, we are actively developing and expanding successful programs. A key initiative is the EDB 360 platform, designed to significantly improve the banking experience for SMEs. This fully digital platform allows businesses to open bank accounts within 48 hours – a previously unheard-of speed – and offers a range of integrated services. Named ‘360’ to reflect our goal of providing comprehensive support, the platform assists SMEs at all levels, including new entrepreneurs. This rapid, digital access aligns with government efforts to streamline business setup, like 48-hour trade license issuance, and reflects our positive outlook on SME funding. Recognizing SMEs as the backbone of the economy, EDB is strategically focused on supporting their growth, mirroring the government’s priority.
Omar Al Yawer: We believe the next stage of growth for our ecosystem hinges on collaboration and partnerships. Following a model of interconnectedness, we are actively pursuing alliances with development banks, particularly in key ecosystems like the UAE and Saudi Arabia where we have focused investment and built our track record. Engagement with commercial banks, which started several years ago, is also maturing into more tangible opportunities as they increasingly see the value. A critical element is unlocking capital from regional institutional investors – including sovereigns, pensions, and endowments – who currently have limited allocation to our market. Even a modest allocation (5-10%) from their overall portfolios could make a substantial impact on our capacity to provide loans across the ecosystem. We emphasize that this is not a request for token investment, but a proposal based on financial fundamentals. Our returns are competitive with Western peers, and we seek to be assessed on an international stage, moving beyond being viewed merely as a regional investment opportunity.
Mubarak AlKubaisi: Looking ahead, the outlook for the Gulf region is remarkably promising, reflecting a substantial shift from previous decades. A key driver is the rapid increase in awareness among the populace and, crucially, among entrepreneurs. Businesses are now deeply focused on the long-term sustainability and scalability of their operations, planning for expansion across the region and globally from their initial stages. We play a vital role in this transformation, providing the consultancies and R&D needed to help them build sustainable and scalable businesses. Simultaneously, regional governments are demonstrating strong commitment, particularly in Saudi Arabia, where numerous sector-specific initiatives and funds are available for SMEs in areas like health, industry, and farming. We actively assist SMEs in connecting with these crucial government programs. This ecosystem is further energized by a large, young, and highly ambitious population eager to innovate and expand. The combination of entrepreneurial vision, supportive government policies, and a dynamic youth demographic creates a highly promising environment for future growth and sustainability.
Tim Casben: There is a clear governmental commitment to facilitating change, primarily enacted through legislation. Significant legislative reforms have occurred, like enabling security over LLC shares and movable assets. While the 2016 insolvency law initially presented challenges with court implementation, the subsequent creation of specific bankruptcy courts has addressed this. Living in this environment means benefiting from a responsive government and rapid change, with past five years’ legislative changes particularly opening doors for SMEs. While legislative hurdles have been cleared, banking has remained a major issue for eight years, significantly hindering new businesses. The positive development is that securing bank accounts is now becoming much more rapid and accessible, resolving a considerable barrier. This bottleneck was recognized at the highest levels, likely putting pressure on teams like Abdullah’s to find solutions, and it is encouraging to see these solutions materializing.
Lara Sif Hrafnkelsdottir: It’s evident the ecosystem is developing. The legal framework is progressing, and with extensive government initiatives underway, significant growth is occurring. This is creating a more robust, sophisticated, and appealing environment for investors, which in turn provides greater opportunities for SMEs.
Audience Ques: We are a payments company expanding into lending. Our experience with SMEs shows a key need: access to short-term working capital, often more than term loans. This seems to be their most significant working capital challenge. As a lending provider, we seek partnerships with institutions like EDBs interested in SME lending. How can we best explore collaboration?
Abdulla Al Hamed: We are highly open to partnering with any entity that aligns with our goals. As an example, we began our relationship with Beehive providing term loans and are now expanding to offer working capital limits through their platform for small and micro businesses. We actively seek conversations about potential collaborations, especially those focused on supporting small businesses and SMEs, which are priority sectors for us. We currently work with over five fintechs on various programs and are open to exploring opportunities with additional partners.
Our strong credit policy and capable team contribute to our low Non-Performing Loan (NPL) levels across our portfolio. While slightly higher in smaller segments than mid-corporate, our NPLs remain significantly low, even compared to commercial banks lending to similar businesses. We carefully underwrite loans to prevent defaults, protecting both the bank and the borrower. For SMEs, defined by the government as having up to 250 million dirhams in turnover, we have maintained a very low NPL level despite disbursing 16 billion dirhams in this segment, which is an achievement we are very proud of.
Audience Ques: As the head of an SME-focused fintech super app that is launching a credit feature, I have a question for Omar. You referenced Western markets like the US as benchmarks. A significant factor in the success of private and commercial credit there is the existence of active secondary markets, enabling the offloading of credit portfolios – performing assets at a premium and non-performing at a distressed discount. Currently, our region lacks this active secondary market. My question is: Do you foresee this market developing here? Are you actively working on facilitating it? What are your overall thoughts on its potential?
Omar Al Yawer: That’s an excellent point. As I’ve mentioned, while we see attractive opportunities totalling $2.8 billion, our current capital limitations mean we can only execute on 4-5% of them. This lack of ‘firepower’ prevents us from significantly growing the primary market, which in turn is essential for the development of a healthy secondary market. To increase primary activity, we need more capital, potentially through partnerships with development banks for favourable terms or securing larger commitments from regional allocators. Our own experience highlights the challenge: raising our first $184 million fund took nearly three and a half years. This is largely because many allocators were new to the region, requiring lengthy due diligence (1.5-2 years) compared to just 3-6 months in the US. Building a sizable primary market—the prerequisite for a secondary market—is a solvable problem, but it hinges on overcoming these funding timeline challenges. Unlike the deep, multi-tiered markets seen in the US with established secondaries, our primary market activity currently lacks the scale needed for anything to reach secondary trading. The evolution of this funding dynamic is critical for market growth.
Tim Casben: The market’s current phase is that of a very young, developing one. This stage is precisely where the significant opportunity lies. However, it means the market cannot realistically be compared to mature counterparts like the US, which possess established infrastructure such as robust secondary markets across various sectors. The absence or limited nature of these features is characteristic of a developing market, and they will naturally evolve over time. Consequently, exercising patience is crucial. Despite government efforts to foster development, accepting and being patient with the market’s inherent growth trajectory is necessary.
Audience Ques: I run a wealth management company with a venture capital division. I’ve noticed that many venture funds focus on businesses with established cash flow. My question is whether there are funds or initiatives specifically aimed at raising capital for new ventures, such as early-stage companies and startups that are not yet cash-flow positive.
Tim Casben: Venture capital is critical for funding early-stage, pre-revenue companies, filling a gap that traditional lending cannot address due to its reliance on existing cash flow. The venture capital market here is quite developed. However, it is not without challenges. Several years ago, for example, we saw a trend towards “safe” investments offering minimal security, impacting many early investors, including angels and initial venture funds. These investors often found that startups took significantly longer to achieve their business milestones than expected.
This prolonged timeline is common; we recently completed a transaction involving a company buying out around 1400 to 1500 investors who had reinvested repeatedly over a five-year period. While the early-stage funding market is difficult globally and there is a definite gap, a strong local venture community does exist. The opportunity lies in effectively connecting with this network.
Audience Ques: Running a national consulting firm that helps SMEs secure funding, I have a specific question for Zubair. Is funding SME growth primarily a supply problem – a lack of sufficient capital to meet demand? Or is it mainly a knowledge and awareness gap – SMEs not understanding their needs or the available solutions? What’s your take on this?
Zubair Ahmed: The challenge many SMEs face in accessing financing for operational purposes, such as warehouse financing and invoice discounting, seems to be primarily due to how they present their business activities. Banks struggle to evaluate the associated risk when presented with insufficient or improperly structured operational data. Therefore, the problem likely lies more with the SMEs’ level of knowledge and preparedness regarding financial representation than with a scarcity of bank capital. Businesses that assist SMEs through education are vital, helping them understand bank requirements before proposal submission. While banks, including EDP and SME Bank in Saudi, have access to large funds and see SMEs as a highly profitable segment, the inherent high risk is a major concern. To unlock this profitable segment, banks need risk mitigation. Third parties offering education to improve SME financial literacy and presentation can effectively help neutralize this risk, presenting a significant opportunity for development and collaboration.
Audience Ques: For three decades, our family has run SMEs in the UAE. A major issue we’ve encountered over the last ten years is the dramatically increased cost of borrowing capital. Compared to annual rates of 7-8% a decade ago, current borrowing costs are substantially higher. This rise has made borrowing less attractive and significantly hindered our growth potential. We are interested to know if any initiatives exist that encourage or require banks to cap interest rates for eligible SMEs, ensuring that borrowed money truly supports expansion beyond simply maintaining operations. This challenge of high borrowing costs impeding growth is frequently experienced by SMEs.
Zubair Ahmed: Banks fundamentally employ risk-based pricing, meaning the price (such as interest rates) increases with higher perceived risk. Several factors influence this pricing or offer alternatives. Firstly, consolidating all your business relationships at one bank provides the institution with a comprehensive view, potentially allowing for more favourable pricing on specific products (like loans) due to the overall profitability of your relationship. Secondly, a proposed transaction or venture with an inherently higher risk profile will necessitate a higher price premium. Thirdly, it’s important to note that funding is not limited to traditional banks. Private equity or investor groups are increasingly forming, pooling capital to distribute risk among investors, which can offer alternative pricing structures and terms. This third option means you don’t always have to rely solely on banks for financing.
Audience Ques: Access to funding seems more readily available for technology-focused businesses. However, traditional businesses in the UAE, which have historically formed the backbone of the economy, are currently finding it difficult to secure loans, which often hampers their growth. I’d be interested in any additional information or insights you might have on this.
Abdulla Al Hamed: We assess all clients individually via a detailed credit assessment. This involves evaluating their financial health, including profitability, turnover, industry, and receivables. Pricing is determined based on this specific risk profile, not a standard checklist. As a development bank, our aim for a minimal 5% return on equity (compared to typical commercial bank targets of 15-20%) informs our pricing approach. While market dynamics influence general SME rates (often 7-15%), a company’s sector, security, and transaction banking relationship can affect their specific cost. We strongly recommend SMEs engage with multiple banks to gain negotiation leverage on pricing. Ultimately, the rate highly depends on the company’s financial health and risk level; well-managed SMEs can secure rates comparable to corporates, while others face higher costs due to specific risks. Pricing is always on a case-by-case basis.
Lara Sif Hrafnkelsdottir: Consider the possibility of examining privately established credit platforms in the Democratic Republic of Congo (DRC) and Angola (ADM). These platforms feature private vehicles subscribing, along with Small and Medium Enterprises (SMEs). This approach fosters transparency and competition, allowing you to collaborate with multiple platforms and secure the most favourable terms.
We have received a query on LinkedIn, which we will address. Given Global Capital’s growing inclination towards Environment, Social, and Governance (ESG) aligned investments, how do financial institutions in the Gulf Cooperation Council (GCC) intend to incorporate ESG criteria into SME financing decisions while preserving liquidity access for non-compliant SMEs?
Omar Al Yawer: Our launch in 2020 presented a fundamental question: how to meaningfully integrate ESG considerations, particularly given our engagement in energy sector financing. We chose to fully embrace ESG, making it core to our identity as a firm. This commitment is reflected in every loan agreement, where we conduct ESG assessments based on the SASB model, tailoring our questions to the specific sector of the business. Interestingly, environmental compliance is generally strong among businesses in the UAE and Saudi Arabia due to stringent local laws, making it less of a challenge for us. However, Social and Governance factors often emerge as areas requiring focused attention and development. Our due diligence includes benchmarking the current ESG score and setting clear improvement objectives to be met over the loan’s lifecycle, typically by years four or five. As pioneers in this approach for our region with this fund, we’ve opted for a supportive model – a ‘carrot’ focusing on improvement incentives, rather than a ‘stick’ with financial penalties. We haven’t yet moved to the practice, seen elsewhere globally, of variable loan pricing tied to ESG milestones. Nevertheless, Social and Governance criteria remain vital to our assessment framework.
Zubair Ahmed: Islamic banking is a system that inherently aligns with ESG principles, designed to benefit the planet and society. Its ethical framework directs financing towards ventures that are profitable and contribute positively to the community. Islamic banking is currently the fastest-growing segment globally, yet significant unmet demand exists, particularly in regions like Europe. This natural fit with ESG is reflected in the UAE, where banks are creating dedicated ESG roles and embedding these principles across functions like servicing and credit. Recognizing this global demand, I am collaborating with the research company Chorus to build a global Islamic banking community. This initiative seeks to connect leading models from Malaysia, Indonesia, the UAE, and Saudi Arabia, driven by demand from regions including Africa, Australia, and Europe. The core aim is to establish ESG principles as a native design element within this global framework.
Audience Ques: From my role heading M&A, I’m looking for insight on acquisition financing structures. Could you share your perspective on LBO convertibles? I’m keen to understand their prevalence, market growth trends, and typical structuring approaches right now.
Omar Al Yawer: We don’t use a one-size-fits-all approach; every loan is unique. We evaluate the current business’s health and the proposed use of funds, including the combined entity’s cash flow in M&A. Our structure is a flexible partnership, generating returns (and determining borrower cost) via four levers: a small upfront fee, cash yield (9-12% based on growth), PIK interest (deferred cash), and warrants (1-10% equity upside for growth businesses). These components are adjusted to align with the business’s cash flow and growth plan. Our goal is for the financing to actively help the business grow; we are not vulture capitalists. This is a structured yet flexible approach distinct from traditional lending. Our process starts with a quick weekly review before proceeding to diligence. Closing typically takes 6-7 months (or a faster 3 months) as the time is spent on intricate legal and security structuring (like share pledges), not just the concept. We only proceed with businesses that are a good fit, amicably stepping away otherwise.