The government of Abu Dhabi has launched a financing scheme for small and medium enterprises (SMEs) that provides guarantees to Abu Dhabi banks in case of default.
The scheme aims to provide more accessible financing opportunities for SMEs based in the UAE capital and allows banks to provide additional lending into the marketplace, Saif Mohamed Al Hajeri, chairman of the Abu Dhabi Department of Economic Development announced on Tuesday at an event held in the capital.
First Abu Dhabi Bank (FAB) is the first bank to sign an agreement with Abu Dhabi Investment Office (ADIO) and the Department of Finance to launch the scheme, named ‘SME Credit Guarantee’.
“The government of Abu Dhabi is currently in talks with additional banks to participate in this scheme. We expect more banks to be part of this initiative soon,” Rashed Alblooshi, acting undersecretary at Abu Dhabi Department of Economic Development, told Zawya at the sidelines of the event.
“The ‘SME Credit Guarantee’ is applicable across all sectors and the eligibility to these loans will be assessed by the bank,” he added in Arabic.
The government will guarantee up to 75 percent of the value of a loan extended to an SME run by UAE nationals, and up to 60 percent for SMEs run by expatriates, Vikas Thapar, head of business banking at FAB, told Zawya at the event.
On the conditions for eligibility to the scheme, Thapar said: “You have to be an Abu Dhabi-based company, to have a minimum turnover of 15 million dirhams ($4.08 million), and to have a solid business case to apply for it,” he said.
Small businesses also need to have been in business for at least two years, while medium-sized businesses need at least three years of trading history.
“Last year was very challenging for SMEs to access financing. But I think with this collaboration with the government, SMEs will have the confidence of approaching banks and availing these facilities, and banks will have more confidence in extending facilities based on a case-by-case basis,” Thapar said, adding that the scheme is effective immediately.
On how this new initiative will impact the bank’s SME lending, he said: “We are expecting a double digit growth in our lending in the next 12 months.”
The ‘SME Credit Guarantee’ is part of Abu Dhabi’s three- year, 50 billion ‘Ghadan 21’ initiative announced in June 2018 and which began earlier this year. The funding has been provided as a stimulus package across economic, knowledge, liveability and social pillars. A 4 billion dirham research and development fund is also being made available to companies as part of the initative.
Abu Dhabi aims to increase the private sector's contribution to the emirate’s GDP from the current 32 percent to 37 percent by 2021, according to the chairman of the Abu Dhabi Department of Economic Development.
(Reporting by Nada Al Rifai; Editing by Michael Fahy)
© ZAWYA 2019