Allen Baby1 and CA. Ciby Joseph
While SME Sector plays an important role in the UAE Economy, it has its own unique challenges, especially funding by banks. Banks in United Arab Emirates have an important responsibility to fund SME Sector which is the real backbone of the economy, in such a manner that there can be a mutual win-win scenario. However, recently the banks are reluctant to lend to SME citing several skip cases. Some banks have even shut down SME departments. On the other hand, when we speak to SME segment, we get the sense of fear and panic amongst them in case of a possible default. It may be noted that such a situation usually arise due to circumstances beyond the control of business people. Though vast majority of business in UAE are SMEs, the Bank lending to them is just 3.85% of the total Bank exposure. SME sector complains about the difficulties involved with dealing with banks while banks have their grievances about SME clients. In the current market, the situation has aggravated with banks further tightening the credit lines that has started impacting even the genuine businessmen, triggering a chain reaction. This article tries to analyze the reasons for the challenges faced by the SME and Banks and explore possible solutions.
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