New SME law ready: Minister of Economy

The UAE has finalised a landmark draft law governing small and medium enterprises (SMEs) as part of a drive to attract capital within an overall economic diversification programme, the Minister of Economy has said.

Sultan bin Saeed Al Mansouri said the new law, which could be one of the first integrated SME legislations in the Arab region, would be presented to competent authorities soon and it could be enforced next year.

Quoted by local newspapers on Wednesday, Mansouri said the ministry had negotiated deals with some local banks to secure financing for such projects, adding one bank had already approved a Dh100 million funding facility.

He said the new law would also give SMEs access to government purchases and other facilities as part of incentives aimed at supporting them.

“We have completed the drafting of this law and it will be presented to the competent authorities and to the Drafting Committee shortly,” he said.

“The draft law will then be put forward to all parties concerned with SMEs in the UAE before it is approved and enforced, hopefully next year.”

Speaking at a SME forum in the capital on Tuesday, Mansouri said the law had been drafted in line with those in the European Union, Japan and other advanced nations, adding it would aim for forging a “real partnership” between all federal and local parties associated with SMEs.

“Under this law, federal and local government bodies are committed to giving part of their purchase contracts to SMEs,” the minister said.

“It will enforce internationally-recognised criteria regarding SME activities through a commission to be created for this purpose…these include the definition of SME’s capital, workforce, revenue and other specifications.”

Mansouri said the ministry had been locked in a project to create what he described as a comprehensive data network for SMEs in collaboration with the Tanmia, a government employment agency.

“The law includes incentives for Emiratis to set up SMEs and those who already have such projects…besides, we have gone a long way in our negotiations with a number of banks in the country to offer funding for SMEs.”

Mansouri said one agreement had already been signed with HSBC bank, which has approved Dh100 million to support SMEs in the country.

“Banks can play a strategic role in supporting these projects, particularly innovative ventures that will constitute the nucleus of an economic based on knowledge and technology…developing this sector is a responsibility that should be shouldered by every government institution,” he said.

The UAE is already locked in a drive to diversify its economy by attracting investment and encouraging industrial projects, seen as a key factor in diversification given the country’s limited farm potential. The country is also planning to issue laws giving bigger access to projects by expatriates.

According to the government-controlled Emirates Industrial Bank (EIB), the UAE has around 208,000 SMEs, accounting for nearly 80 per cent of the country’s total companies. It said SMEs form the backbone of any economy and this makes them critical for the process of development and growth.

In a study released recently, EIB proposed the creation of banking units which are specialised in providing funding for SMEs as they are facing obstacles in getting financing on the grounds that they are a high-risk sector. Given their significant role in domestic development because of their large number, the country should facilitate the creation of more SMEs, mainly those which are export-oriented and less-reliant on labour, it said.

"Bank financing is usually their only option, and is the predominant source of external financing for most SMEs. However, banks consider SMEs to be relatively high risk, which on the one hand impedes their ability to obtain funding, and on the other leads to the charging of higher interest rates," it said.

"Commercial banks are keen on business which meets the working capital needs of businesses, but less on business to finance SME start-ups. Thus, there is a need for dedicated banks, working on commercial principles but devoted to financing of the setting up of SMEs. Currently, not only the UAE but the entire GCC lack institutions which specialise in funding SMEs."
 
 

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