Digital lending rewrites UAE financial inclusion rules

More than 90 per cent of all businesses in the UAE are small and medium-sized enterprises (SMEs), yet they account for over half of the country's GDP. Ironically, only about 4 per cent of all outstanding bank loans go to them, creating a credit gap of around $260 billion for the entire Mena region.

- Kunal Jhunjhunwala

From family-run workshops in Sharjah to tech startups in Abu Dhabi and export merchants in Fujairah, the imbalance in credit access limits working capital and impedes growth. High-potential SMEs often forced on overdrafts or informal lenders, leaving them vulnerable to cash-flow shocks. This creates an imbalance and impedes innovation and growth in the sector, as SMEs find it hard to access the necessary funding for scaling and technological advancement.

Legacy lending: A barrier to growth

The traditional banking processes of the UAE are not attuned to the needs of the modern-day dynamic entrepreneurs. Documentation requirements remain exaggerated, demands for collateral often exceed the sanctioned amount, and decision-making through manual underwriting takes weeks. All these factors become tipping points for asset-light businesses such as digital agencies or freelance professionals. Thus, with their asset-heavy conglomerate business approach, banks are leaving behind the burgeoning clan of modern entrepreneurship. This failure of the banks to come up to speed with the whims of these innovation-driven enterprises creates a lid on their growth as well as a great disservice to the general economy. This failure to change is bringing all high-growth, low-asset businesses to a grinding halt in terms of accessing financial support for scaling and pushing innovation.