- Less than a 10th of loans to SMEs
- Sheikh Hamdan launches Ignyte
- Platform links startups and mentors
Less than a tenth of total loans issued by UAE banks in the first half of the year went to small and medium sized enterprises amid renewed calls to reduce the funding gap.
The total amount of facilities and loans extended by banks operating in the UAE reached AED856 billion ($233 billion) by the end of the first half of 2024, according to the latest statistics released by the central bank. Loans to SMEs accounted for AED81 billion of that at the end of June.
“We still need to address the huge gaps in funding,” said Lucy Chow, general partner of the World Business Angels Investment Forum’s investment fund.
“Dubai may rank better than most cities with early stage funding, but we need more follow-on capital if we want to see companies expand globally.”
Lucy Chow says there are ‘huge gaps’ in funding
In a move to provide fresh impetus into the sector, Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum this week launched Ignyte, a digital platform which he said would benefit more than 100,000 startups, connecting founders with a global network of investors, mentors, corporate organisations and government entities.
The platform, developed by Dubai International Financial Centre, aims to attract 5,000 venture capitalists, 5,000 vetted mentors and 500 corporate and government partners.
The SMEs sector represents more than 95 percent of the total number of companies operating in the country and provides jobs to about 86 percent of the private sector’s workforce. It is forecast that there will be 1 million SMEs in the UAE by 2030.
“Globally and regionally, the banking sector has an unfavourable relationship with early-stage startups,” said Racha Ghamlouch, co-founder of Digital Digest, a UAE-based digital economy news and market intelligence aggregator.
“But we are seeing more debt-funds and venture debt funds investing in growth stage deals, which is filling that gap for later stage companies.”
Where banks may be falling short, entrepreneurs are turning to the private credit market to meet their funding needs.
Omar Al Yawer, senior executive at Abu Dhabi-based Ruya Partners, who was speaking on the sidelines of the Alternative Investment Management Summit in Dubai this week, said:
“The reality is the Middle East has such a big funding gap that exists because the banks are only lending to the big family groups and government backed projects. “So the middle market’s been really left to grow at a turtle-like pace”
- Dubai prepares laws to support digital businesses
- Better terms and returns swell private credit demand
- Saudi Arabia pumps funding into startups as it vies for Mena No 1
Private credit is non-bank lending and has soared in popularity since the global financial crisis.
It hit $2 trillion in assets and committed money in 2023, according to a report in April from the International Monetary Fund, which warned that the sector could heighten financial vulnerabilities “given its limited oversight”.
Ruya, which is on the verge of closing a second funding raise worth $250 million, will typically lend $10 million to $25 million and provide annual returns in the region of 15 to 18 percent.
“The banks are not incentivised to go after these smaller loans,” said Al Yawer.
Ekta Tolani, chief of investments at KBW Ventures, said venture debt, the process of lending funds to early-stage, high-growth companies that are already supported by venture capital, is an essential category that needs to be built into the banking system.
“That would allow startups to make reasonable choices for their capital structure,” she said.
