On the Importance of Small and Medium Enterprises (SMEs) in Dubai Mohamed TRABELSI March 18 th, 2015

Source: World Development Indicators (2014) and Dubai Statistics Center (2014)

Small and Medium enterprises (SMEs) in Dubai SMEs in Dubai represent:  95% of all firms registered  42% of the labour force  40% of the emirate’s GDP

Figure (2): Whether the establishment applied or not for loans or lines of credit (%) Source: Business Environment Survey (2012)

Figure (2): The ratio of SME loans to total loans in the MENA region (%)

From the point of view of enterprises (Business Environment Survey 2012)  The preference of SMEs to rely on their own funds may be accounted for by insufficient collateral, i.e. unacceptable or unsuitable collateral.

From the point of view of banks (survey covering 7 banks operating in Dubai)  The banks are agreeing that SME’s opacity or lack of transparency is one of the major obstacles facing lending to SMEs.  Credit information system is also important as the absence of information on borrowers regarding their creditworthiness leads to information asymmetry and creates a risk premium for those who want to access bank finance.

Main Recommendations  Improving the current regulations on collateral requirements to make them more flexible. This includes encouraging banking institutions to accept movable properties as collateral which needs a deep reform of secured transaction laws and registries.  The development of an independent institution that keeps track of credit information on borrowers. The different experiences across developing countries is an important element in improving the access to finance to individuals’ and corporates’ borrowing.

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