Khalifa Fund: SME Financing

SME Financing
in the United Arab Emirates
www.khalifafund.ae

SME Financing in the United Arab Emirates
3Khalifa Fund | 2
Table of contents
www.khalifafund.ae
Executive Summary 4
1. Introduction & Context 5
1.1 Background to the Study 5
1.2 Objectives of this Work 6
1.3 Consultations 6
1.4 Limitations 6
2. SMEs – overview of current activity (‘the demand’) 7
2.1 Definition of ‘SME’ 7
2.1.1 EU Definition of SME 7
2.1.2 World Bank Definition of SME 8
2.1.3 Criteria Used by Banks to Define SMEs 8
2.1.4 UAE Definitions of SME 8
2.2 Current overview of SME prevalence in Abu Dhabi/UAE 9
3. Finance for SMEs – overview of current activity (‘the supply’) 10
3.1 Scale of SME Finance in the UAE 10
3.2 Supply of Finance by Type 11
3.3 Sources of Finance 12
3.4 Stakeholder Mapping 13
3.5 SME Access to Finance Process 14
3.6 KPIs / metrics and baseline data 15
4. Issues and Gaps in the UAE SME Ecosystem 16
4.1 Key Findings – Supply Side 17
4.2 Key Findings – Demand Side 18
5. Areas Government Can Address 22
5.1 International Research Findings on Key Obstacles to Improving SME Access to Finance 22
5.2 Critical Success Factors to Improving Access to Finance for SMEs 22
6. Leading International Practice 24
6.1 Leading Practice SME Ecosystems: Singapore and the United Kingdom 24
6.2 Key Lessons Learned for the UAE 24
6.3 Detailed Review of Leading Practice and Regional Comparator Ecosystems 25
6.3.1 Singapore 25
6.3.2 United Kingdom 28
6.3.3 Jordan 31
6.3.4 Qatar 33
7. Options for intervention: opportunities 35
7.1 The core issues 35
7.2 An overview of the opportunities for KF and other (public and private) entities to
support SME access to finance in Abu Dhabi / UAE 35
7.2.1 Legal and Regulatory Transparency 40
7.2.2 Access to information 40
7.2.3 Capacity Building 41
7.2.4 Diversify SME Financing Mechanisms 41
7.3 Criteria 41
8. Recommended option(s) for intervention 42
Appendix 1 2 – Entities Consulted and Enteprenurship Forum Facilitators 46

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Khalifa Fund SME Financing White Paper
Executive Summary
The Khalifa Fund for Enterprise Development has engaged Deloitte to prepare a white paper on small and
medium enterprise (SME) finance in the United Arab Emirates. The document provides a comprehensive
review and analysis of the SME ecosystem in UAE; outlines core issues, challenges, and opportunities;
reviews four international and regional SME ecosystem benchmarks and provides lessons learned; and
proposes a set of recommendations to the Khalifa Fund.
Creating a supportive business environment for SMEs is essential for the long-term growth and
diversification of the UAE economy. SMEs will generate significant employment opportunities –
approximately 95% of the total business base in the UAE is made up of SMEs and they account for 90%
of total employment, which is substantially higher than other GCC countries.1
SMEs are also important
contributors to non-hydrocarbon export growth since 37% of UAE-based SMEs are either currently
exporting or capable of exporting.2
SMEs will also increase economic diversification which is important
to reducing GDP volatility. Therefore, increasing the GDP contribution by SMEs will be a major priority
for the UAE Government. According to the Ministry of Foreign Trade and the Ministry of Economy, the
GDP contribution by SMEs doubled between 2010 (30%) and 2011 (60%). SMEs will also encourage
innovation and enhance competitiveness. SME activities in the UAE are mostly trade-oriented and there
is significant growth potential in the science, technology and innovation (STI) sectors.
Although there is substantial growth potential in the UAE SME sector, significant challenges remain
and urgent attention is required to address key policy, institutional, legal and regulatory gaps in the
UAE SME ecosystem. One of the challenges is facilitating access to finance for SMEs – the topic of this
study. This white paper is one of four UAE-specific research studies that are focused on developing a
world-class SME ecosystem for the country. The other research topics are: Microfinance; Youth and
Entrepreneurship and Social Inclusion. These studies are being undertaken in conjunction with the
Khalifa Fund’s Annual Forum which will be held during the first quarter of 2013. Forum attendees will
include key UAE-based SME stakeholders from the government, private sector and academia, along with
regional and international experts in SME finance.
The white paper includes eight sections and appendices. Section 1 provides a background to the study
and outlines the key objectives. Section 2 provides an overview of the current SME activity in the UAE.
It specifically highlights the need for a UAE-wide consensus definition of SMEs.
Section 3 follows with a discussion of the scale, supply and sources of SME finance in the UAE. It maps
the key SME financing stakeholders and provides a brief overview of the SME access to finance process.
One of the central issues – perhaps the most significant issue - in the UAE SME environment is the
lack of information on the SME sector and the absence of an SME information infrastructure. This
lack of information impedes the ability of banks to assess the creditworthiness of SME clients; it also
complicates efforts by government to design and implement policies and programs tailored to SMEs as
it does not have a clear picture of the SME sector. Section 4 highlights this challenge and others that
impact the UAE SME ecosystem both on the supply side and the demand side. Section 5 examines SME
financing issues in a broader international context by comparing the UAE’s challenges with findings from
international research and identifying key success factors for countries that have significantly improved
their SME finance ecosystems.
Section 6 provides a detailed review of two leading practice SME benchmarks – Singapore and the
United Kingdom. Both Singapore and the UK have a highly advanced policy, institutional, legal and
regulatory framework to support SME development. They have a broad network of institutions – both
governmental and non-governmental – that provide an array of programs to support SMEs from start up
to growth and expansion. This section also includes a high-level overview of SME ecosystems in Jordan
and Qatar. These countries are useful comparators to the UAE as they are: 1) both in the MENA region
and; 2) they face similar challenges in expanding access to finance for SMEs.
1. 2009 GEM Report on Entrepreneurship in the UAE, Mohammed. Zayed University, Mohamed Bin Rashid
Establishment for SME Development, and Khalifa Fund for Enterprise Development
2. Exports: A Vehicle for SME Growth, Middle East SME Forum, October 2011 ,3, Abu Dhabi Department of Economic
Development (ADDED)
Section 7 presents an overview of potential opportunities for the Khalifa Fund and other public and
private sector entities in the UAE to support expanded access to finance for SMEs. It outlines the four
core areas where intervention is needed: 1) legal and regulatory transparency; 2) access to information;
3) capacity building; 4) a limited range of SME financing options. The proposed recommendations,
roadmap and implementation plan are included in Section 8.
1. Introduction Context
1.1 Background to the Study
The Khalifa Fund for Enterprise Development was launched in 2007 to support the development of
small and medium enterprises in Abu Dhabi. Its initial paid up capital was AED300 million and it was
subsequently increased to AED 2 billion. The Fund provides a range of services such as training and
business advice as well as financing solutions to foster entrepreneurship and support early stage
businesses in the Emirate3
.
The Khalifa Fund engaged Deloitte to undertake a comprehensive research study to identify the major
issues and potential solutions related to SME financing in the UAE as well as prepare a roadmap and
high-level implementation plan for the Khalifa Fund to facilitate SME financing.
This study is one of four UAE-specific research studies that are focused on developing a world-
class SME ecosystem for the country. The other research topics are: Microfinance; Youth and
Entrepreneurship and Social Inclusion. These studies were undertaken in conjunction with Abu Dhabi
Entrepreneurship Forum 2013. Forum attendees included key UAE-based SME stakeholders from the
government, private sector and academia, along with regional experts in SME finance who facilitated
workshop discussions. The key findings and recommendations resulting from the research studies were
presented during this event; and the research study was updated to incorporate the contributions from
the Forum.
SMEs account for nearly 60% of the UAE’s GDP.4
They represent approximately 95% of the businesses
in the country and account for 90% of employment in the UAE. 5
SMEs in Abu Dhabi account for 74%
of the total number of companies which are present in the Emirate; moreover, 37% of these SMEs are
either currently exporting or are capable of exporting6
. This presents an opportunity for the government
as SME exports can help achieve the objectives of Abu Dhabi Economic Vision 2030 by diversifying the
economy and creating job opportunities for Emiratis.
Given their critical importance to the UAE’s long-term economic development, Khalifa Fund seeks to
use the Forum as an opportunity to develop a concrete action plan to support the creation of a sound
enabling environment for SME start up, growth and expansion.
3. www.khalifafund.ae
4. UAE Ministry of Economy
5. 2009 GEM Report on Entrepreneurship in the United Arab Emirates
6. Exports: A Vehicle for SME Growth, Middle East SME Forum, October 2011 ,3, Abu Dhabi Department of Economic
Development (ADDED)

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1.2 Objectives of this Work
The principal objectives of this exercise are to conduct a detailed review of the SME landscape in
the UAE in order to identify the key barriers to SME access to finance; compare how the UAE’s SME
ecosystem compares with leading practice countries; and develop a detailed, realistic and credible action
plan that is UAE-specific and informed by global leading practice in SME access to finance. The study
will address a range of topics, including the following:
• Current state and evolution of access to finance for SMEs in the UAE
• Current access to finance options for SMEs in the UAE
• Opportunities and challenges in the SME sector
• Policy implications for SME development
• Current SME financing needs
• Challenges faced by current UAE government schemes in SME funding
1.3 Consultations
During the course of the project, the SME Finance Research team met with several stakeholders in
government, the private sector and the NGO sector (research institutions and think tanks). Please refer
to Appendix 1 for a complete list of all of the individuals interviewed and entities consulted as part of
this research.
The key findings and recommendations of this report were presented at the Abu Dhabi Entrepreneurship
Forum 2013, SME Financing workshop, with the key question of “what are the core issues,
opportunities and challenges that entrepreneurs face when it comes to financing and growing their
business in the UAE?.” The workshop featured a number of roundtable discussions, led by regional
experts in SME finance. Please refer to Appendix 2 for a complete list of facilitators.
1.4 Limitations
The team has endeavoured to be as thorough as possible with regard to data collection. However, a key
project limitation has been the lack of comprehensive and reliable data on the SME sector in the UAE.
Government offices, statistical departments and research institutions have not been able to aggregate
SME-specific data across the various Emirates. As a result, the team has been required to make a
number of assumptions about the size and profile of the SME sector based on the available data and
information obtained during interviews.
2. SMEs – overview of current activity (‘the demand’)
According to the Abu Dhabi Commercial Bank (ADCB), there are currently estimated to be approximately
300,000 enterprises in the UAE, 94% of which are SMEs. Current estimates of the SME contribution to
UAE employment generally range from 90% and upwards. However, given the lack of a clear, UAE-wide
definition of SMEs, these figures are not entirely reliable. The Ministry of Economy is currently finalizing
an SME law for the UAE which includes a proposed UAE-wide definition of SMEs. Dubai has its own
SME definition and banks operating in the UAE use their own definitions. There is an urgent need for a
UAE-wide definition of an SME and a consistent set of SME data figures across the Emirates.
This section provides an overview of SME definitions used by international organizations such as the
European Union and the World Bank, along with those used by many global financial institutions.
2.1 Definition of ‘SME’
There is no universal definition of what constitutes an SME. The most common definitions used by
regulators are based on the number of employees, sales and/or loan size. Among the three criteria,
the one most commonly used is the number of employees7
. Many countries define SMEs as businesses
with fewer than 250 employees.8
By applying this definition, 95% of registered firms worldwide would
be categorized as SMEs. To further refine this category, SMEs can sometimes be distinguished from
microenterprises, which are firms with a very small number of employees (i.e., fewer than 10).
Although there is no universal definition of SMEs and individual banks in the same country apply
different definitions, the European Union and World Bank SME classifications are good examples of
criteria that are internationally recognized and applied by many countries.
2.1.1 EU Definition of SME
The European Union (EU) defines SMEs as firms with 10 to 250 employees, with less than Euro 50
million in turnover or less than Euro 43 million in total assets. The table below describes the EU’s SME
definition. The EU has made significant progress in standardizing the SME definition and there are
currently 27 countries which apply the EU definition.9
Table 2.1
Firm Size Headcount Turnover or Balance Sheet
Micro 10 and below €2 million or less €2 million or less
Small 50 and below €10 million or less €10 million or less
Medium-Sized 250 and below €50 million or less €43 million or less
Source: Scaling-Up SME Access to Financial Services in the Developing World, International Finance Corporation, 2010
2.1.2 World Bank Definition of SME
In order to qualify as a Micro-, Small or Medium Enterprise (MSME) under the World Bank’s definition, a
firm is required to meet two of three requirements for employees, assets or annual sales.
7. “Small and Medium Enterprises: A Cross-Country Analysis with a New Data Set,’ World Bank, 2011
8. SME Banking Knowledge Guide. International Finance Corporation (IFC)/World Bank, 2010
9. Scaling-Up SME Access to Financial Services in the Developing World, International Finance Corporation, 2010

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Table 2.2
Firm Size Employees Assets Annual Sales
Micro 10 and below US$100,000 or less $100,000 and below
Small 50 and below US$ 3 million or less US$3 million and below
Medium 300 and below US$15 million or less US$15 million and below
Loan Size Proxies
Micro US$10,000 and under
Small US$100,000 and under
Medium US$1 million and under (US$2 million and under for some advanced countries)
Sources: SME Banking Knowledge Guide, International Finance Corporation/World Bank, 2010 and Ayyagari, Beck and
Demirguc-Kunt (2005)
2.1.3 Criteria Used by Banks to Define SMEs
Many banks use an enterprise’s annual sales figure to define SMEs, as per the table below.
Table 2.3
Firm Size Minimum Sales Maximum Sales
Small US$200,000 US$4 million
Medium US$2 million US$16 million
Sources: SME Banking Knowledge Guide, International Finance Corporation/World Bank, 2010 and Ayyagari, Beck and
Demirguc-Kunt (2005)
2.1.4 UAE Definitions of SME
There is no unified, UAE-wide definition of an SME. In addition to the definition being proposed by the
UAE Ministry of Economy (MoE), Dubai has its own definition, and banks operating in the UAE have their
own definitions of an SME. Banks typically use turnover as a determinant of SME size.
UAE Ministry of Economy (MoE) Definition of SME
The MoE has developed a definition for an SME that is included in the proposed SME law. The law has
already been drafted and it is currently being reviewed by the Ministry of Economy and its partners.
The UAE’s SME definition will be based on the South Korean standard. Under the proposed SME law,
SMEs in the UAE will be classified according to three sectors, namely:
• Commerce
• Industry
• Services
They will also need to meet at least two of the following criteria: 10
Number of employees
• Annual revenues
• Capital
• Company assets
10. Draft of UAE Federal Law on Small and Medium Enterprises, 2012
Most countries use annual turnover and number of employees to define SMEs. Other countries, such as
South Korea, have distinct definitions of SMEs for each of the following categories: Industry, Trade, and
Services.
During the first three years, the MoE will add a category based on the number of employees or annual
turnover – this approach is being proposed as a means to improve data collection. When the UAE SME
law is introduced, all banks will be required to use the recommended definition.
Dubai’s Formal Definition of SME 8
Dubai SME - Dubai‘s official SME development agency - has created its own definition of SMEs. An
SME is defined as an entity engaged in an economic activity, with a legal form and meets the thresholds
of employee headcount and turnover as applicable to the industry group to which it belongs (Trading /
Manufacturing / Services) as specified in the table below:
Table 2.4
Employees Turnover Employees Turnover Employees Turnover
Headcount AED Million Headcount AED Million Headcount AED Million
Micro 9 or below 9 or less 20 or below 10 or less 20 or below 3 or less
Small 9 and ≤ 35 9 and ≤ 50 20 and ≤ 100 10 and ≤ 100 20 and ≤ 100 3 and ≤ 25
Medium 35 and ≤ 75 50 and ≤ 250 100 and ≤ 250 100 and ≤ 250 100 and ≤ 250 25 and ≤ 150
Trading Manufacturing Services
AND AND AND
Source: Dubai SME – obtained from Khushnir, Khrystina, “How do Economies Define Micro, Small and Medium Enter-
prises.” Companion Note for MSME Country Indicators, 2008
2.2 Current overview of SME prevalence in Abu Dhabi/UAE
Obtaining the actual number of SME businesses in the UAE, including the number of employees, is
one of the country’s most significant data collection challenges. Data collection across the Emirates
is complicated by the fact that agencies such as Statistics Centre – Abu Dhabi (SCAD), Dubai Statistics
Office and others collect only Emirate-specific data. There is a UAE National Bureau of Statistics (NBS);
however, aggregate SME data across the Emirates is not available.
The sponsorship laws and ownership structure of SMEs also impede the collection of accurate data. UAE
nationals often own multiple businesses – in addition, many of these businesses – while nominally
owned by UAE nationals – are managed and operated by expatriates. There are also expatriate-owned
businesses for which they have 49% ownership and UAE nationals 51%; however, statistics on SME
ownership are not broken down by nationality.
Many organizations have estimated that SMEs account for upwards of 90% of employment in the UAE.11
However, the actual number of employees is difficult to determine due to the lack of a consistent, UAE-
wide definition of an SME based on the number of employees. The number of visa sponsorships for
which companies apply is often used as a proxy to estimate the number of employees; however, such an
approach is not entirely reliable due to the fact that many visa sponsors use workers for other business
operations. In addition, many companies actually sell their visa quota to other companies.
The Ministry of Economy noted that since the country does not have a tax system – which would
facilitate the compilation of SME specific data – it is difficult to develop a full picture of the SME
landscape.
Although the actual number of SMEs in the UAE is not entirely clear, there is a slightly better picture of
the distribution of SMEs by Emirate and sector, as reflected in Graph 2.1. 12

11. 2009 GEM Report on Entrepreneurship in the United Arab Emirates. Khalifa Fund, Zayed University, Mohammed
Bin Rashid Establishment for SME Development
12. SME Lending in the UAE: 2008, Dun Bradstreet (DB) Business Insight Series – Industry Perspectives, 2008

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Graph 2.1
Breakdown
of SMEs by
Emirate
45% Dubai 16% Sharjah
32% Abu Dhabi 7% Other Emirates
73% Trade Retail 11% Manufacturing
16% Services
Breakdown
of SMEs by
Sector
3. Finance for SMEs – overview of current activity (‘the supply’)
Banks constitute the principal source of funding for SMEs in UAE. The most commonly used financing
mechanisms are letters of credit and overdrafts; relationship-based lending is not common.13
Despite
the fact that the SME sector is regarded as a growth market, banks remain somewhat leery of financing
SMEs. For instance, the rejection rate for SME lending in UAE ranges from 50% to 70%.14
In addition,
interest rates are very high compared to typical SME lending rates as noted in Graph 3.2. Given the
importance of SMEs as a key contributor to economic growth and diversification, the UAE government
has undertaken a number of initiatives to expand SME financing. Funding programs have been introduced
by a number of entities including the Khalifa Fund; the Ministry of Economy; and the Mohammed Bin
Rashid Establishment for Young Business Leaders among others. In 2009, the Ministry of Economy and
the Central Bank launched a lending program focused on entrepreneurs.15
This section provides an overview of the key stakeholders in UAE SME financing landscape along with
the mechanisms for obtaining access to SME finance in UAE.
3.1 Scale of SME Finance in the UAE
The scale of SME banking in the UAE has expanded significantly in recent years. Among the 52 banks
that are authorized to operate in the UAE, 40 offer SME banking services.16
SMEs are regarded by most
banks in the UAE as a major growth market; as a result, many of these banks have set up specialized
banking units focused on this market. They have also introduced services that are specifically targeted
to the unique needs of SMEs.
13. Ibid.
14. Ibid.
15. 2009 GEM Report on Entrepreneurship in the UAE
16. SME Lending in the UAE: 2008, Dun Bradstreet
3.2 Supply of Finance by Type
There are various financing options for UAE-based SMEs. Given the perceived risk associated with
SMEs, secured lending – based on hard assets and accounts receivables - tends to be the most common
form of lending. 17
However, from a regulatory perspective, the definition of a secured loan is not
clear.18
Lending based on financial statements is less common as these are not considered by banks to
be especially reliable barometers of an SME’s creditworthiness. Most SMEs do not have proper financial
statements and only a very small minority among them have audited statements19
. According to a
number of senior UAE bank executives, audited financial statements can be fairly easily obtained.
Although relationship-based SME lending is common throughout the world, it is not the norm in the
UAE.20
Due to the frequent inflow and outflow of UAE residents, it is difficult for banks to develop long
term client relationships; indeed, the high risk premium for SME lending is attributable in part to the
large turnover of expatriates in the country, especially in Abu Dhabi and Dubai. 21
Typical credit products offered to SMEs by UAE banks include the following:22
• Letters of credit
• Equipment loans (secured)
• Working capital loans (unsecured)
• Overdrafts (used for working capital purposes)
• Performance bonds and guarantees (common in the construction sector)
Letters of credit and overdrafts are the key credit products used by SMEs as noted in Graph 3.1.
Graph 3.1
Source: SME lending in the UAE: 2008, Dun Bradstreet Business Insight Series, 2008
Interest rates in the UAE are high (around 15%) on unsecured loans as a result of a significant risk
premium and the perceived risk of lending in the UAE. However, typical interest rates for secured lending
and overdrafts were 4% and 10% respectively which are close to the rates in Western Europe23.
17. Ibid.
18. ADCB meeting, August 2012 ,6
19. SME Lending in the UAE: 2008, Dun Bradstreet (DB) Business Insight Series – Industry Perspectives, 2008
20. Ibid.
21. Ibid.
22. Ibid.
23. Ibid.

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Graph 3.2
3.3 Sources of Finance
Based on figures provided by UAE Central Bank, there are twenty-four national banks and twenty-eight
foreign banks that are authorized (licensed) to operate in the UAE,24
forty of which actively compete for
the SME segment (7 or 8 banks are dominant).25
A list of the most prominent banks and other entities
that provide funding to SMEs is provided in the table below.
Table 3.1
Key Banks and Financing Programs Focusing on SMEs
Standard Chartered Bank One of the world’s largest banks, worldwide SME strategy
RAK Bank Rapidly growing, widely regarded as a leading innovator, aggressive in
marketing to SMEs
Mashreq Bank Especially popular with retailers
National Bank of Fujairah Especially popular with Northern Emirates
ADCB One of UAE’s largest banks
Union National Bank Popular especially with smaller businesses
Citibank Small SME division, but regarded as innovative by other banks
Khalifa Fund (KF) Supports SMEs in Abu Dhabi with a total capital investment of AED 2
billion
Tasnea (KF) Financing up to AED 10 million for greenfield industrial development
projects
Microfinance (KF) Funds raw materials for small home based businesses
Khutwa (KF) Financial scheme program for micro-projects
Bedaya (KF) Provides assistance to entrepreneurs by providing them seed capital
Zeyada (KF) Supports existing enterprises for their growth and expansion goals
Al Hasila (KF) Supports fishermen who operate on a small scale
Sources: SME Lending in the UAE: 2008, Dun Bradstreet Business Insight Series, 2008 and Khalifa Fund
24.. Ibid.
25. ADCB Meeting, August 2012 ,6
Given the importance of SMEs and the reluctance of commercial banks to lend to SMEs, the government
has taken initiatives to support the financial needs of entrepreneurs. The Ministry of Economy in
conjunction with the UAE Central Bank has announced that it will launch an SME start-up loan program
targeting entrepreneurs.26
The Khalifa Fund provides start-up and expansion loans as well as training for entrepreneurs in Abu
Dhabi. It offers the following programs:
• Khutwa: a microfinance program that offers flexible loans up to AED 250,000 to support micro
businesses. The program is social in nature, allowing the creation and growth of income
streams for specific target groups, specially divorced women, widows and retirees.
• Bedaya: a start-up loan program, designed to support new SMEs with flexible loans of up to AED
3 million.
• Zeyada: an expansion and development loan program that provides existing, early-stage SMEs
with flexible loans of up to AED 5 million.
• Tasnea: a program to finance greenfield industrial projects up to AED 10 Million.
In addition, the Mohammed Bin Rashid Establishment for Young Business Leaders provides start-up
capital for aspiring UAE national businessmen in Dubai.
The Mohammed Bin Rashid Establishment for SME Development offers a 5% Government Procurement
Program, which requires that Dubai Government departments set aside at least 5% of their procurement
budget to companies that are registered with the Establishment.27
3.4 Stakeholder Mapping
Diagram 3.1 provides an overview of the key stakeholders in shaping the SME Finance landscape in the
UAE.
Diagram 3.1
Main Players in the UAE’s SME Financing Landscape
Main Stakeholders
Main Players
Government
Federal Entities Ministry of Economy Central Bank
UAE-wide SME
Entities
Khalifa Fund
Local SME
Agencies
Dubai SME
Ruwad
Establishment
Saud Bin Rashid
Al Mualla Program
for Youth Projects
Support
Saud Bin Saqr
Program for Young
Business Leaders
Emirate-
Level Dept.
of Economic
Development
Abu
Dhabi
DED
ADCED
Dubai
DED
Sharjah
DED
Ajman
DED
Fujairah
DED
Umm Al
Quwain
DED
Ras Al
Khaimah
DED
Emirate-Level
Chamber of
commerce
AD
Chamber
Dubai
Chamber
Sharjah
Chamber
Ajman Chamber
Fujairah
Chamber
Umm Al
Quwain
Chamber
Ras Al
Khaimah
Chamber
Statistical
Departments
SCAD
Dubai Statistics
Center
National Bureau of Statistics
26. 2009 GEM Report on Entrepreneurship in the United Arab Emirates. Khalifa Fund, Zayed University, Mohammed
Bin Rashid Establishment for SME Development
27. Article 12 of Law No. 23 of 2009 issued by HH Sheikh Mohammed Bin Rashid Al Maktoum, UAE Vice President,
Prime Minister and Ruler of Dubai

15Khalifa Fund | 14
PrivateSectorNGO’s
Banks with
SME Products
Noor Islamic Bank, AD Commercial Bank, AD Islamic Bank, NBAD, RAK Bank, Standard
Chartered, HSBC, Mashreq Bank, First Gulf Bank, National Bank of Fujairah, Union National
Bank, Citi Bank, Doha Bank, Commercial Bank International, Bank of Baroda, Emirates NBD
Credit Agencies EmCredit, Central Bank Risk Bureau
Research
Institutions
Non-Governmental Organizations
(Hawkamah – The Institute for
Corporate Governance)
Think Tanks (i.e.
Emirate Center for
Strategic Studies and
Research)
Independent Research
Institutions
3.5 SME Access to Finance Process
The following diagram provides an overview of the generic process for loan approval.28
Diagram 3.2
The procedures for SME loan application to approval vary from bank to bank. The typical criteria for
credit approval are the following29
:
• SMEs must have been in operation for a minimum period, usually between one and three years
• They must have financial statements over that period, ideally they should be audited, but for
smaller companies bank statements are often accepted
• Many banks specify a minimum annual turnover between AED 100,000 and AED 250,000
• According to the Abu Dhabi Commercial Bank, the typical collateral requirements depend on
the size of the loan. Although there’s no collateral required for a loan up to AED 500,000, the
collateral required for a loan greater than AED 500,000 ranges from %5 to %20 cash margins.
28. SME Lending in the UAE, 2008
29. SME lending in the UAE: 2008, Dun Bradstreet Business Insight Series, 2008
Different banks employ different risk mitigation techniques. For instance, the Abu Dhabi Commercial
Bank (ADCB) applies the following: a scoring system; tools similar to those applied by Moody’s in term
of credit rating; and lending staff who visit each customer at their location30
.
When a loan becomes delinquent for over 90 days, it is reported to the Central Bank.31
ADCB has a
dedicated SME collection team to recover bad loans.
3.6 KPIs / metrics and baseline data
The SME share of bank lending in the UAE (4%) is significantly below the MENA average (9.3%)32
, as
reflected in the following Graph 3.3.
Graph 3.3
30. Abu Dhabi Commercial Bank meeting, 2012
31. Abu Dhabi Islamic Bank meeting, 2012
32. ADCED, SME Start-Ups: Bridging the Financing Gap, 2010; Joint study by the World Bank and the Union of Arab
Banks, 2010

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4. Issues and Gaps in the UAE SME Ecosystem
This chapter identifies the principal issues – both from the demand side and the supply side – that
influence the provision of SME finance in Abu Dhabi and the broader UAE. In an effort to identify the
key issues and gaps in the UAE SME ecosystem, the Deloitte team developed a Mind Map which provided
an initial hypothesis of the factors affecting SME finance in the UAE. This hypothesis was subsequently
tested through stakeholder interviews and research. Diagram 4.1 provides an overview of the Mind
Map.
Diagram 4.1
Source: Deloitte analysis
4.1 Key Findings – Supply Side
During interviews with banks offering financial services to SMEs in the UAE, a number of key issues
were identified.
• Lack of data/statistics on SME finance in the UAE33
This was a common issue identified primarily by Abu Dhabi Islamic Bank, National Bank of Abu Dhabi
and Noor Islamic Bank. The lack of good data/statistics on potential borrowers substantially increases
their risk profile. This issue is compounded by the fact that there is no legal requirement for information
sharing in the UAE.34
In many ways, banks in the UAE have a greater understanding of the SME sector
in the UAE due to the fact that they have SME customers, but this information is not systematically
collected and centralized. These banks also indicated that there is an urgent need for a reliable central
database on SMEs at the UAE Central Bank. The existing database is generally deemed to be unreliable.
Although Emcredit, UAE’s first private credit bureau, began operations in 2006, it faces challenges – as
would other potential entrants into the market – due to the absence of data.35
In addition, the absence
of solid data on the SME sector makes it more difficult to measure the impact of programs/initiatives
that are targeted to SMEs.
• High interest rates on unsecured business lending linked to key aspects of SME business
environment in the UAE
Abu Dhabi Islamic Bank, National Bank of Abu Dhabi and Noor Islamic Bank note that SMEs often do not
have business plans, reliable accounting/audit reports, or adequate collateral.36
This impedes the ability
of banks to assess the creditworthiness of potential SME borrowers. As a result, the banks are compelled
to charge a risk premium for loans. This situation is compounded by the fact that banks encounter
significant administrative challenges in recovering SME assets in the event of a loan default. 37
• Loans are often issued based on fraudulent information or they are regularly used for other
purposes (i.e., business loans are used for private consumption and personal loans used for
business reasons)38
The National Bank of Abu Dhabi noted that some SME borrowers do not use loans for their intended
purposes. In addition, loans are often issued based on salary information. This has resulted in false
salary declarations by some borrowers. 39
To address this issue, banks often require SMEs to provide
proof of funds in an active bank account. 40
Banks have indicated that a number of these issues could
be addressed if borrowers worked more closely with their SME relationship managers. SMEs do not
regularly avail themselves of a bank’s non-financial services which can often be useful in guiding
SMEs through the lending process and ensuring that that they provide the appropriate supporting
documentation.
33. Notes from Dubai SME meeting
34. Ibid.
36. Ibid.
37. Ibid.
38. Ibid.
39. Ibid.
40. Ibid.

19Khalifa Fund | 18
• Weak legal and regulatory framework does not facilitate SME lending
Abu Dhabi Commercial Bank, Abu Dhabi Islamic Bank, National Bank of Abu Dhabi and Noor Islamic Bank
have noted that a few targeted reforms in the banking regulatory regime could significantly improve
the enabling environment to support expanded SME lending. For instance, UAE law does not permit the
registration of collateral (with the exception of property and cars).41
The introduction of a collateral
registry along with the implementation of a credit bureau would increase the willingness of banks to
expand SME lending. Indeed, in a survey prepared by a group of SME finance researchers, 70% of banks
in developing/emerging markets noted that the presence of a credit bureau in their market made it
easier to provide lending to SMEs.42
The absence of a bankruptcy law complicates the efforts of banks to work with delinquent loan
applicants as many of them flee the country to avoid prosecution and imprisonment. This situation
is exacerbated by cumbersome visa regulations and procedures that require expatriates to apply for a
residency visa every two years instead of having a 5-year residency visa which is standard practice in
countries that have successfully attracted expatriate workers. The absence of a bankruptcy law and the
lack of security do not encourage expatriate SMEs to reinvest in the country and establish a long-term
stake. A structured bankruptcy process would allow banks to work with clients to ensure repayment in
lieu of writing off bad loans.
Given the fact that the vast majority of SMEs in the UAE are owned and operated by expatriates, the
continued ineligibility of non-Emirati SMEs to receive support from government programs is problematic.
4.2 Key Findings – Demand Side
SMEs have identified several aspects of the financial environment that they consider challenging.
• Excessive fees for processes at different government agencies43
SMEs in the UAE have expressed concerns about the excessive and high fees that they must pay
to various government agencies. These concerns are corroborated to some extent by findings from
World Bank research on the cost of business start-up procedures in the UAE (Graph 3.4). One specific
recommendation proposed by SMEs to rectify this issue is increasing the number of years of licensing
fee exemptions from 3 years to 5 years in order to facilitate an SME’s growth and expansion during the
early years of investment. 44
Graph 4.1
Source: World Bank, 2011
41. Notes from ADCB meeting - August 2012 ,6
42. Ibid.
43. Abu Dhabi Chamber of Commerce and Industry (ADCCI) meeting notes
44. “SME Owners Demand More Incentives,” SME-UAE Issue No. 3 – July 2012
• Cumbersome and confusing lending regulations
SMEs in the UAE have indicated that they do not fully understand the loan application process -
procedures and regulations are unclear. This is reflected in the World Bank’s ease of doing business
index in Graph 4.2. Although the UAE is mid-level performer among its key GCC competitors, there is
significant room for improvement. The new UAE-wide SME Law is currently scheduled to be promulgated
by the end of 2012. This law will clarify the definition of an SME enterprise as well as other aspects of
the SME legal and regulatory regime.
Graph 4.2
Source: World Bank, 2011
• SMEs often use own financing – bank financing is normally a last resort due to high interest rates
and difficult terms45
SMEs often mention that interest rates for business loans are excessively high.46
There are several
hidden fees that ultimately increase the cost of lending. 47
Recurrent administrative errors also make bank
lending less attractive as an option. 48
Graph 4.3 illustrates the significant level of SME dissatisfaction
with interest rates.
Graph 4.3
45. Notes from Dubai SME meeting, Nov. 2012 ,11
47. Ibid.
48. Ibid.

21Khalifa Fund | 20
• Need to improve SME “bankability”
UAE SMEs do not fully understand the requirements for obtaining a loan or how to make themselves
attractive financing candidates for lenders. Capacity building in this area is needed. Dubai SME provides a
promising solution in the form of its Be-bankable website – this approach could be further developed to
provide UAE-wide coverage.49
The following diagrams provide an overview of the key issues faced by SMEs and banks in the context
of the key stages of the SME financing process. Diagram 4.3 provides an overview of the key phases of
the SME financing as well as a more detailed analysis of SME financing requirements from early stage
funding to venture capital – along with the risk profile No issue is specific to any particular stage of the
process – they are largely cross-cutting.
Diagram 4.2
49. Notes from Dubai SME meeting, Nov. 2012 ,11
Diagram 4.3 visually highlights the key demand side and supply-side findings based on the initial
hypotheses developed in the Mind Map.
Diagram 4.3
Source: Deloitte Analysis
RISK CAPITAL RISK CAPITAL LOAN FINANCE

23Khalifa Fund | 22
5. Areas Government Can Address
Research on leading international practice in SME finance indicates that most SME funding issues –
both demand side and supply side - are similar to those found in the UAE SME business environment.
International research further suggests that the following are some of the key success factors in
countries that have created dynamic and robust SME financing systems: 1) improving the legal/
regulatory frameworks; 2) direct government intervention in SME financing sector via loan guarantees
and other mechanisms. However, other studies note that strengthening institutional and information
infrastructures and establishing a sound policy framework have proven to be far more effective roles for
government entities versus direct government financing of the SME sector. Clearly, the success factors
and lessons learned vary from country to country; it is therefore important to develop an approach
tailored to the UAE’s overall environment and specific needs.
5.1 International Research Findings on Key Obstacles to Improving SME Access to
Finance
International leading practice research on the key issues/obstacles affecting the provision of SME finance
identifies four common areas:
• Regulatory obstacles
• Weak legal frameworks
• Macroeconomic factors such as overall economic instability, high interest rates, exchange rate
issues, etc.
• Weak credit information infrastructure
The key issues and obstacles to finance encountered in the UAE context generally align with the
aforementioned international research findings. 50
5.2 Critical Success Factors to Improving Access to Finance for SMEs
There are a number of ways that governments throughout the world have expanded SME access to
finance in their countries. Some of the most commonly-used measures include: 51
• Revamping the legal/regulatory framework. Illustrative examples include streamlining accounting
procedures and start up requirements for business.
• Implementing programs to develop the SME finance sector as a whole. On the demand (SME)
side, this involves the provision of training to SMEs on becoming more “bankable” – improving
their financial accounting. On the supply (banking) side, it involves the development of credit
bureaus and collateral registries.
• Direct government intervention in the SME finance sector to catalyse greater SME lending. This
involves direct SME lending through government-controlled entities and the provision of loan
guarantees and various forms of directed credit.
Creating a sound enabling legal, policy, regulatory and institutional framework that will support
increased access to finance for SMEs is a core function for governments in countries with international
leading practice SME ecosystems. The following table summarizes some of the most important
examples of how governments can create a thriving SME financing environment.
50. SME Banking Knowledge Guide. International Finance Corporation (IFC)/World Bank, 2010
51. Beck, Demirguc-Kunt and Martinez Pereira, Bank Financing for SMEs Around the World: Drivers, Obstacles,
Business Models and Lending Practices. Washington, DC World Bank, 2008 – cited in IFC SME Banking
Knowledge Guide
How governments can support the development of a dynamic SME finance environment52
Establish a sound policy
framework for the
financial sector
Strengthen the
institutional infrastructure
Build the information
infrastructure
• Liberalize interest rates
• Promote competition
• Promulgate supportive
regulations regarding
SME banking, leasing,
factoring and equity
• Reduce and rationalize
direct public sector
intervention
• Improve the legal and
judicial frameworks
• Support relevant training
and technical assistance
for interested financial
institutions
• Provide or facilitate
initial financial support
(equity infusion,
product development,
risk mitigation
methodologies)
• Promote accounting
standards
• Invest in and promote
credit bureaus and
registries
• Invest in technology
Evaluate performance and incorporate lessons learned
There is no “silver bullet” to improving SME access to finance; however, government programs to support
the SME sector on the demand and supply side (training and improving information infrastructure) have
been successful and well-received. Such programs have proven far more effective than the direct
provision of government credit which risks market distortions.53
52. Malhotra, Chen et al., Expanding Access to Finance: Good Practices and Policies for Micro, Small and Medium
Enterprises. World Bank, August 2006
53. Ibid.

25Khalifa Fund | 24
6. Leading International Practice
This section provides a detailed review of two countries widely considered as leading international
success stories in SME financing – Singapore and the United Kingdom. It also provides a high-level
analysis of the SME financing ecosystems in countries that are good comparators for the UAE (i.e.,
the policy, legal and regulatory framework for SME development is not as well developed and the
institutional infrastructure remains weak) – Jordan and Qatar.
The objective of the benchmarking review is to highlight the specific areas that leading practice
countries have done well and to identify key gaps in the UAE SME financing ecosystem and relevant
lessons learned.
Diagram 6.1 provides a high level comparison of UAE’s SME financing ecosystem with key benchmark
countries.
Diagram 6.1
Comparison of UAE’s SME Financing Ecosystem With Benchmark Countries
*Please note that this is not a comprehensive comparison of benchmark countries, as an in-depth benchmarking
analysis was conducted for only Singapore and the United Kingdom. The benchmarking analysis for Jordan and
Qatar was high-level.
6.1 Leading Practice SME Ecosystems: Singapore and the United Kingdom
Both Singapore and the United Kingdom have a highly advanced policy framework to support SME
development. This is essential as a starting point. In addition, they both have a broad network of
institutions – both governmental and non-governmental – that provide an array of programs to support
SMEs from start up to growth and expansion.
Based on a review of the leading practice SME ecosystems and analysis undertaken by the Khalifa Fund,
some of the key gaps in the UAE’s SME financing ecosystem are institutional in nature. For instance,
there is a dearth of entities that offer specialized financing and grant schemes targeted to SMEs. There
are no venture capital or business angel networks that can offer business advice – as well as financial
support – to emerging SMEs. In addition, there are few institutions or programs tailored to provide
training to SME owners on finance-related topics.
6.2 Key Lessons Learned for the UAE
• The absence of a transparent and predictable legal framework for doing business (bankruptcy and
sponsorship laws) impedes business start-up generally, but it has a particularly negative impact
on SMEs seeking bank financing.
• The current legal and regulatory framework results in perverse incentives – it is more practical
for expatriates to flee the country and leave debt unpaid instead of remaining in the country and
working with creditors to develop a structured repayment plan that will allow them to continue
their business operations.
• In leading practice SME ecosystems, governments work closely with a wide range of stakeholders
to ensure that SMEs have a broad range of support – from the start-up phase through the
development and growth phases in areas ranging from financing, business management,
marketing, procurement, etc. In addition, the leading practice ecosystems provide substantial
capacity building support for SMEs including basic business skills. For emerging countries, such
early and sustained support for SME development is essential as most SMEs are most likely to fail
within the first 3 to 5 years of operation
6.3 Detailed Review of Leading Practice and Regional Comparator Ecosystems
6.3.1 Singapore
Diagram 6.2 highlights the constellation of entities that exist in Singapore to support SMEs from pre-
start up to development. Diagrams 6.3 and 6.4 highlight the range of SME support mechanisms provided
by the Government of Singapore’s lead SME Agency (SPRING Singapore). Support ranges from financing
schemes, tax incentives, SME capacity building and start up support. Singapore’s SME ecosystem is
among the world’s most highly advanced, and its approach to SME development is regularly studied
and adapted by countries seeking to develop their own dynamic SME ecosystems. The diagrams reflect
Deloitte analysis and they are intended to be illustrative.
Diagram 6.2
Singapore’s SME Ecosystem

27Khalifa Fund | 26
Diagram 6.3
Singapore’s SME Ecosystem (1/2)
Diagram 6.4
Singapore’s SME Ecosystem (2/2)

29Khalifa Fund | 28
6.4.2 United Kingdom
Diagrams 6.5 through 6.7 highlight the range of SME support mechanisms provided in the UK. Like
Singapore, key elements of the UK’s SME ecosystem include a wide range of specialized financing
mechanisms for SMEs, capacity building programs and start up support. They reflect Deloitte analysis
and they are intended to be illustrative.
Diagram 6.5
UK’s SME Ecosystem (1/3)
Diagram 6.6

31Khalifa Fund | 30
Diagram 6.7
6.3.3 Jordan
Some of the regional benchmarks provide a useful frame of reference. Although Jordan’s SMEs face
similar challenges to SMEs in the UAE, Jordan’s SME ecosystem is more advanced, particularly in terms
of business start-up and innovation-focused support. Diagrams 6.8 and 6.9 provide a high-level
overview of Jordan’s SME ecosystem as well as a list of the key institutions and initiatives that provide
support to SMEs in Jordan. Given Jordan’s dearth of natural resource wealth, the country has focused
on implementing a job creation strategy centered on promotion of entrepreneurship. The diagrams
reflect Deloitte analysis and are intended to be illustrative.
Diagram 6.8
Profile of Jordan’s SME Sector

33Khalifa Fund | 32
Diagram 6.9
Jordan’s SME Support and Financing Ecosystem
6.3.4 Qatar
As a fellow GCC member, UAE faces very similar challenges to Qatar in building its SME ecosystem. A
key driver for Qatar’s quest to strengthen its SME support ecosystem is the World Cup 2022 tournament.
Diagrams 6.10 and 6.11 provide a SWOT analysis for SME growth in Qatar and a high-level overview
of Qatar’s SME financing ecosystem. The diagrams reflect Deloitte analysis and are intended to be
illustrative.
Diagram 6.10
SWOT Analysis for SME Growth in Qatar

35Khalifa Fund | 34
Diagram 6.11
Qatar’s SME financing ecosystem
Source: SME Toolkit Qatar
7. Options for intervention: opportunities
7.1 The core issues
The core issues in the UAE context are legal and regulatory transparency, access to information and
capacity building. The legal and regulatory framework governing access to finance is unclear. In
addition, there is a dearth of reliable information on the SME sector that can better inform policy
development. In addition, the lack of reliable information on the SMEs in the UAE (results in a risk
premium applied to SME loans in the UAE).
Legal and Regulatory Transparency
The overarching legal and regulatory framework of the UAE does not support the development of a
robust, SME-driven economy. It has taken a number of years to develop a new SME Law, which has
been under review for a considerable period of time; in the interim, SMEs - as well as their lenders - are
operating in an environment where the rules of the game are not entirely clear.
Access to Information
The lack of adequate information on the SME sector (the number of SMEs, number of employees, sectors
of operation, etc.) is a major issue. It is difficult for government entities to formulate the right policies
unless they are informed by rigorous analysis. Such rigor cannot occur if there is no reliable data to
analyze. In addition, banks that lend to SMEs need to obtain reliable information about companies
(assets, number of employees, track record, etc.) Such information is rarely available as there are no
institutions that coordinate the collection and dissemination this information.
Capacity Building
During the course of this assignment, a consistent view expressed by SME lending managers and at the
Entrepreneurship Forum, was a lack of understanding on the part of SME owners on how to become
“bankable.” Indeed, many SMEs in the UAE need financial management training – preparing reliable
financial statements and financial projections. There are few programs offered by governmental and
non-governmental institutions that train new and existing SME owners on how to launch and manage
their businesses.
Diversity of SME financing mechanisms
There are limited financing options for SMEs in the UAE beyond commercial banks. There is an urgent
need for venture capital and business angel networks in the country. Given the significant population of
high net worth individuals (HNW) in the country, development of such networks should be encouraged.
7.2 An overview of the opportunities for KF and other (public and private) entities
to support SME access to finance in Abu Dhabi / UAE
The section below is a synthesis of potential options for intervention gleaned from UAE-specific studies,
meetings and research. They are currently organized under each of the core issues identified in Section
6. They are also organized in terms of delivery timeframe – immediate, medium term and long-term.

37Khalifa Fund | 36
Diagram 7.1
Core Issue Opportunities Recommendation options for Intervention
Lack of
Regulatory
Transparency
Promulgate
SME law and
by-laws
Promulgate
Bankruptcy
Law
Overall
recommen-
dation for
preferred
funding
Anticipat-
ed level of
funding
Key stake-
holders
Targeted
benefi-
ciaries/
eligibility
for funding
support
Introduce/
amend
Central Bank
Regulatory
requirements
Launch SME
Policy Ad-
vocacy unit
within KF
US$500,000 Khalifa fund,
Ministry of
Economy
Judiciary
Department
Chambers of
commerce
National
Network for
SMEs
SMEs
Launch
SME Policy
Advocacy Unit
within KF
Setup formal
SME Public-
Private
Consultative
Forum on these
reforms
Set up formal
SME pri-
vate-public
consultative
forum-legal
and regulato-
ry reform
US$500,000 Khalifa fund,
Chambers of
Commerce,
Min. of Econ-
omy, National
Network for
SMEs
SMEs
Open SME
funding
programs to
expatriates
Develop
national SME
procurement
program
Agenda items
for Advocacy
Unit and Forum
Immediate (6-12 months) Medium (1-2 years) Long-term
(2 years+)
Promulgate SME
Law and bylaws
Amend Central
Bank regulatory
requirements
Promulgate
bankruptcy law
Open SME
funding to
expats
Develop
national SME
government
procurement
program
Core Issue Opportunities Recommendation options for Intervention
Access to
Information
Improve trans-
parency of
Information
Set up SME
Advisory Panel
Overall
recommen-
dation for
preferred
funding
Anticipat-
ed level of
funding
Key
stakeholders
Targeted
benefi-
ciaries/
eligibility
for funding
support
Create SME
rating Agency
based on
financial/
management
considerations
Set up collat-
eral registry
Launch
SME Rating
Agency
Set up SME
Advisory
Panel
US$1,000,000
US$500,000
Khalifa
Fund, Min.
of Economy,
Central Bank,
Chambers of
Commerce,
National
Network for
SMEs
Khalifa
Fund, Min.
of Economy,
Chambers of
Commerce,
National
Network for
SMEs
SMEs
SMEs
Agenda items
for Advocacy
Unit and Forum
Immediate
(6-12 months)
Medium
(1-2 years)
Long-term
(2 years+)
Set up system
for SMEs to
report finan-
cial data to
chambers of
commerce
Regular quar-
terly reporting
of SME lending
by financial
institutions
Set up collateral
registry

39Khalifa Fund | 38
Core Issue Opportuni-
ties
Recommendation options for Intervention
Capacity
Building
Overall rec-
ommendation
for preferred
funding
Anticipated level
of funding
Key stake-
holders
Targeted
benefi-
ciaries/
eligibility
for funding
support
Interaction
with exist-
ing Khalifa
Fund fi-
nancial
support
Design and
Launch
training
programs
for SMEs
on how to
become
“bankable”
Design and
Launch train-
ing program
for SMEs
on how to
become more
“bankable” -
Building on a
similar Dubai
SME initiative
US$250,000 Khalifa
Fund, UAE
commer-
cial banks,
Chambers
of Com-
merce
SMEs N/A
Partner-
ships with
universities
to focus on
SME finance
instruments
and how to
gainfully use
financing
Enter into
partnership
with at least
three UAE
universities
to develop
a finance
curriculum
oriented to-
wards SMEs
in targeted
beneficiaries
US$250,000 Khalifa
Fund,
Zayed
University,
Khalifa
Univer-
sity, UAE
University,
Higher
Colleges of
Technology
University
students,
Business
start-ups
Can build
on existing
Khalifa
Fund part-
nerships
with uni-
versities
Agenda items
for Advocacy
Unit and Forum
Immediate (6-12 months) Medium (1-2 years) Long-term(2
years+)
Develop training
curriculum
for SMEs on
becoming
“bankable”
Develop
SME finance
curriculum in
conjunction
with university
partners
Core Issue Opportuni-
ties
Recommendation options for Intervention
Diversi-
fy SME
Financing
Mechanism
Overall rec-
ommendation
for preferred
funding
Anticipated level
of funding
Key stake-
holders
Targeted
benefi-
ciaries/
eligibility
for funding
support
Interaction
with exist-
ing Khalifa
Fund fi-
nancial
support
Expand the
KF Guaran-
tee frame-
work within
the UAE
Enhance the
scope of KF
loan scheme
through
banks for
majori-
ty-owned
SME enter-
prise
US$350,000 Khalifa
Fund, UAE
Commer-
cial Banks
SMEs N/A
Develop
long-term
SME Access
to Finance
Plan for the
UAE
Develop Abu
Dhabi Access
to Finance
Strategic Plan
for SMEs
US$150,000 Khalifa
Fund
SMEs
Prepare a
study on the
development
of a UAE
Business
Angel Net-
work
Develop
a medi-
um-sized
lending
program for
downstream
industrial
projects
US$40,000,000-
100,000,000
Khalifa
Fund
SMEs
Establish
Proof of
Concept
funding
programs
Prepare a
study on the
development
of a UAE
business an-
gels network
US$100,000 Khalifa
Fund,
Dubai SME,
Ruwad
SMEs
Agenda items for
Advocacy Unit
and Forum
Immediate (6-12 months) Medium (1-2 years) Long-term
(2 years+)
Business model
for a KF loan
Guarantee
Scheme
Assess feasibility
of SME
Development
Bank
Develop 10-Year
Access to Finance
Strategic Plan for
SMEs
UAE business
angels network

41Khalifa Fund | 40
7.2.1 Legal and Regulatory Transparency
Immediate (Within 6 – 12 months)
• Promulgate SME law and by-laws (implementing regulations)
• Introduce/amend Central Bank regulatory requirements to reduce burden on SMEs
* Amend Central Bank regulations regarding account classification (i.e., the timeframe during
which loans become delinquent and get reported to the Central Bank). Current regulations
apply equally to large enterprises and SMEs, and the regulations should be tailored to the size
of the company.
* Help the Central Bank introduce a standard definition for SME’s and embed reporting
requirements from all banks accordingly
• Reduce bid bond and bank guarantee requirements for national SMEs providing goods and services
to government agencies (Ministry of Economy)
• Promulgate bankruptcy law and by-laws (implementing regulations)
• Launch SME Policy Advocacy Unit within the Khalifa Fund
• Set up formal SME Public-Private Consultative Forum on Legal and Regulatory Reform
Medium-Term (1 to 2 years)
• Open SME funding programs to majority-owned Emirati enterprises since they form %80 + of
the businesses in the country54
Long-Term (2 years+)
• Develop a formal national procurement program targeted to SMEs in all Emirates – i.e., %5 “set-
aside” program for SMEs
7.2.2 Access to information
• Improve the transparency of information regarding the SME sector
* Set up system for SMEs to report financial data linked to license renewal to the Chambers of
Commerce
* Require quarterly reporting of SME lending by financial institutions
Medium Term (1 to 2 years)
• Set up SME Advisory Panel with SME representatives, financial institutions and other public sector
agencies to advise government on SME policy
• Create an SME Rating Agency to focus on financial background/management capacity of SMEs.
This could eventually evolve into a full-fledged, pan-UAE credit agency along the lines of the
proposal by Dubai SME and Moody’s Analytics. 55
It could operate under the auspices of the DIFC
or any relevant SME Development Agency. 56
• Facilitate registration of collateral (other than property and vehicles)57
* Set up collateral registry
54. Notes from ADIB meeting
55. Notes from DED meeting
56. Ibid.
57. ADCB meeting notes
7.2.3 Capacity Building
• Design and launch a national training program for SMEs on how to become more “bankable,”
building a similar initiative developed by Dubai SME
• Enter into a partnership with at least three UAE universities/commercial bank training academies
to develop a training program targeted to emerging SMEs
Discussion during the Abu Dhabi Entrepreneurship Forum identified that loan guarantee schemes of
100% where banks face no liability are generally not effective. This is due to the fact that banks have
zero risk, and as such have no stake in the success or failure of the SME. It was agreed that a more
optimal loan guarantee scheme would range from 80-90%, thus providing banks with a manageable
level of financial risk.
During the SME finance research interviews, some interviewees indicated that increasing loan
guarantees and directed credit programs would be a particularly effective way to expand SME access
to finance and give banks greater comfort to lend to SMEs. The mixed results internationally from
directed credit programs – based on research conducted during the course of this project - suggest that
KF should carefully consider whether this approach should be pursued. International leading practice
indicates that government’s role is better-suited to reforming laws and regulations and supporting
capacity development initiatives (not competing with the private sector to fund SMEs). During the bank
interviews, few of the SME business banking directors expressed a need for a loan guarantee fund – the
biggest concerns centered around the need for a credit bureau, collateral registry and reform of laws and
regulations such as the bankruptcy law.
7.2.4 Diversify SME Financing Mechanisms
• Expand the Khalifa Fund guarantee framework within the UAE
* Many banks are interested in a loan guarantee scheme
»» Initial attempt by KF to create such a scheme encountered opposition by some banks due
to lack of clarity concerning who would be responsible for screening and selecting loan
applicants along with interest rates to be charged.
»» Needs to be backed by a robust UAE federal law58
• Develop long-term strategic plan for access to finance in the SME sector59
Medium Term (1 to 2 years)
• Prepare a study on the development of a UAE Business Angels Network. This could include a panel
of non-executive directors to help SMEs, specifically in accessing finance.
• Establish SME Proof of Concept Funding Programs: This program aims at creating new companies
with the potential of strong commercialisation and significant growth by helping leading-edge
technologies, products, processes from universities/ research institutes to export ideas and
inventions from labs to markets. The key objective is to establish the commercial potential of
a concept resulting from in-house research and ideas. The Qatar Science and Technology Park
(QSTP) also grants proof of concept program funding support.
7.3 Criteria
The proposed interventions will need to address each of the three aforementioned areas. There is a
clear role for UAE government institutions in all three areas, with support from key stakeholders such
as banks, statistical agencies, and research institutions/think tanks. The proposed interventions will
require a partnership among these entities. It can be led by the government but it must be driven by
private sector.
58. ADCED, 2010
59. Ibid.

43Khalifa Fund | 42
8. Recommended option(s) for intervention
Recommended option(s) for intervention – Legal and Regulatory Transparency
Overall
recommendation
for preferred
funding option
Anticipated
Scale of
Funding
Structure
of Financial
Mechanism
Key
Stakeholders
Targeted
beneficiaries/
eligibility
for funding
support
Interaction
with existing
Khalifa Fund
financial
support
Launch SME
Policy Advocacy
Unit within
Khalifa Fund
US$500,000 N/A
• Khalifa Fund
• Min. of
Economy
• Judiciary
Department
• Chambers of
Commerce
• National
Network for
SMEs
SMEs N/A
Set up formal SME private-public consultative
forum- legal and regulatory reform
US$500,000
N/A
• Khalifa Fund
• Chambers of
Commerce
• Min. of
Economy
• National
Network for
SMEs
SMEs N/A
Agenda Items for
Advocacy Unit
and Forum
Immediate (6-12 months) Medium-Term (1-2 years)
Long-Term
(2 years+)
Promulgate SME
and by laws
Amend Central
Bank regulatory
requirements
Promulgate
bankruptcy law
Open SME
funding programs
to expats
Develop national
SME government
procurement
program
Recommended option(s) for intervention – Access to Information
Overall
recommendation
for preferred
funding option
Anticipated
Scale of
Funding
Structure
of Financial
Mechanism
Key
Stakeholders
Targeted
beneficiaries/
eligibility
for funding
support
Interaction
with existing
Khalifa Fund
financial
support
Launch SME
Rating Agency
US$1,000,000 N/A
• Khalifa Fund
• Min. of
Economy
• Central Bank
• Chambers of
Commerce
• National
Network for
SMEs
SMEs N/A
Set up SME
Advisory Panel
US$500,000 N/A
• Khalifa Fund
• Chambers of
Commerce
• Min. of
Economy
• National
Network for
SMEs
SMEs N/A
Agenda Items for
Rating Agency
and Panel
Long-Term
(2 years+)
Set up system for
SMEs to report
financial data
to Chambers of
Commerce
Require quarterly
reporting of
SME lending
by financial
institutions
Set up collateral
registry

45Khalifa Fund | 44
Recommended option(s) for intervention – Capacity Building
Overall
recommendation
for preferred
funding option
Anticipated
Scale of
Funding
Structure
of Financial
Mechanism
Key
Stakeholders
Targeted
beneficiaries/
eligibility for
funding support
Interaction with
existing Khalifa
Fund financial
support
Design and
launch training
program for
SMEs on how to
become more
“ bankable –
building on a
similar Dubai
SME initiative
US$250,000 N/A
Khalifa Fund
UAE
commercial
banks
Chambers of
Commerce
SMEs
Could potentially
be incorporated
into Khalifa
Fund’s current
university-level
entrepreneurship
programs
Enter into
partnership with
at least three UAE
universities to
develop a finance
curriculum
oriented towards
SMEs in targeted
beneficiaries
US$150,000 N/A
Khalifa Fund
Zayed
University
Khalifa
University
UAE University
Higher
Colleges of
Technology
University
students
Business start
ups
Can build
on existing
Khalifa Fund
partnerships with
universities
Agenda Items Immediate (6-12 months) Medium-Term (1-2 years)
Long-Term
(2 years+)
Develop training
curriculum
for SMEs on
becoming
“bankable”
Develop
SME finance
curriculum in
conjunction
with university
partners
Recommended option(s) for intervention – Diversifying SME Financing Mechanisms
Overall
recommendation
for preferred
funding option
Anticipated
Scale of
Funding
Structure
of Financial
Mechanism
Key
Stakeholders
Targeted
beneficiaries/
eligibility
for funding
support
Interaction
with existing
Khalifa Fund
financial
support
Expand the
KF Guarantee
framework within
the UAE
US$350,000 N/A
• Khalifa Fund
• UAE
commercial
banks
SMEs N/A
Develop Abu Dhabi
Access to Finance
Strategic Plan for
SMEs
US$150,000 N/A • Khalifa Fund SMEs N/A
Prepare a study on
the development
of a UAE business
angels network
US$100,000 TBD
• Khalifa Fund
• Dubai SME
• Ruwad
SMEs N/A
Develop a
medium-sized
lending program
for downstream
industrial projects
AED
40,000,000 –
100,000,000
TBD • Khalifa Fund SMEs N/A
Delivery
Timeframe for
Recommendations
Long-Term
(2 years+)
Business model
for a KF Loan
Guarantee Scheme
Assess feasibility
of SME
Development Bank
Develop 10-Year
Access to Finance
Strategic Plan for
SMEs
UAE business
angels network
Launch Proof of
Concept Funding
Programs

47Khalifa Fund | 46
Appendix 1 –
Entities Consulted
Government and Research
Institutions
Ministry of Economy
• Dr. Ayman Ibrahim, Senior Advisor for Policy and International Cooperation
• Ahmed Ali Al Hosani, Director, Trade Registration Department
Department of Economic Development (Abu Dhabi)
• Dr. Suleiman Warred Al Masaied
• Aidha Saleh al Beraiki
• Ahmed Seddik Abdel Rahman
• Dr. Ibrahim M. Al Abed
Abu Dhabi Council for Economic Development (ADCED)
• Dr.Abdulaziz Istaitieh, Manager – Strategy Policy Planning Division
• Rashid Ahmed Al Jumairi, Associate – Strategy Policy Planning Division
Dubai SME
• Alexandar Mathew Williams, Director – Strategy and Policy
• Essam Omran Saleh Disi, Senior Manager - Policy Formulation, Strategy Policy
Abu Dhabi Chambers of Commerce and Industry (ADCCI)
• Abdulla N. Al Dhaheri, Director – Business Development Department
• Salma M. Almansoori, Head of Entrepreneurs Consulting Section
• Abdulrahim Elrayah Mahmoud, Corporate Development Consultant
Statistics Center Abu Dhabi (SCAD)
• Abubaker Abdulla Al Gifri, Executive Director – Strategy Policy Sector
• Mohamed Ibrahim Al Balooshi, Head of Social Statistics
• Naser Mohamed Dayan, Economics Statistics Department Manager
• Osama Mahmoud Awad Al Zoubi, Economics Statistics Co-Manager
Emirates Center for Strategic Studies and Research (ECSSR)
• Mohammad Al Ali
Dubai Chamber of Commerce
• Omar Khan, Director, Membership Documentation Services
Financial Institutions
Noor Islamic Bank
• Ehsaan Uddin Ahmed, Global Transaction Services and SME Head, Corporate Banking Group Bank
Abu Dhabi Commercial Bank (ADCB)
• Nilanjan Ray, Senior Vice President and Head, Business Banking Division
Abu Dhabi Islamic Bank (ADIB)
• Mahdi Mamdoh Kilani, Executive Vice President, Head of Business Banking Division
National Bank of Abu Dhabi (NBAD)
• Haitham Al Refaie, Head of Business Banking Group
Hawkamah
• Dr. Nasser Saidi, Chief Economist, Dubai International Financial Center (DIFC)
• Aathira Prasad, Director, Macroeconomics and Statistics, Governor’s Office, DIFC
• Jahanara Sajjad Ahmad, Programme Manager
Appendix 1 – Abu Dhabi Entrepreneurship Forum Facilitators
Noor Islamic Bank
• Ehsaan Ahmed, Global Transaction Services and SME Head, Corporate Banking Group Bank
Envestors
• David Moleshead, Chairman
Abu Dhabi Commercial Bank
• Howard Gaunt, Head, Corporate Business Banking Group,
Microfund for Women (Jordan)
• Fatina Abu Okab, Deputy General Manager
Abu Dhabi Islamic Bank
• Mahdi Kilani, Head of Business Banking
National Bank of Abu Dhabi
• Nilanjan Ray, Head of Commercial Banking (Gulf)
Khalifa Fund
• Ahsan Ali, Director, Credit Department
Deloitte
• Rashid Bashir, Strategy Partner
• David Mason, Strategy Director

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