Dubai: The newly launched commercial credit checks by the UAE Credit Bureau will benefit not just the banks, but small businesses in need of extra capital as well.
Six months after launching personal credit reports, the Al Etihad Credit Bureau (AECB) unveiled on Tuesday the commercial bureau reporting service that will provide full and up-to-date information on the borrowings of companies in the UAE. It is estimated that around 65,000, or 16.25 per cent, registered businesses in the UAE have credit facilities, such as loans or overdrafts.
Analysts said the new and first-of- its-kind service will promote transparency in doing business in the UAE, make it easier for banks to filter out delinquent companies and ensure that they are extending financing only to creditworthy organisations.
Borrowing companies, for their part, can now check the accuracy of the credit data that financial institutions have, and establish their case that they are creditworthy.
Securing additional funds has been a problem to a lot of organisations, particularly small companies, in the UAE who wish to expand their business. A number of companies that operate a small business and are practically unknown in the industry have had their applications rejected.
“The establishment of [commercial bureau reporting] will aid financial inclusion and reward entrepreneurial spirit. SMEs drive the UAE local economy – they are wealth generators and job creators,” said Mahesh Shahdadpuri, executive director of TASC Outsourcing.
“The reports will ensure that SMEs are transparent in the way they do business and consequently help them find funding. It will also make lenders feel confident in their investment.”
Shahdadpuri said that before the new system was put in place, lenders would provide capital to companies based on relationships, as most entrepreneurs do not have assets to their name when they start out.
“A [credit report] will act as a formal third-party endorsement for investors.”
The credit reports include the full address of the organization, as well as details of company ownership, borrowings or “credit facilities” used, total amount of funds borrowed and the company’s history of payments over the past two years.
Preeti Bhambri, managing director of MoneyCamel.com, however, said that the new system applies only to companies with existing borrowings and doesn’t do anything for the majority of businesses that don’t have loans or any form of borrowings.
“The bureau is offering information only on the companies that have some sort of financial repayment history in terms of overdraft, loans and credit cards. This will assist banks in managing the issue over exposure to a company or leverage,” she said.
“It doesn’t do much for the 80 per cent plus SMEs who have not been granted any credit facility yet. A few common reasons for rejection by banks are inadequate turnover in bank, tenure of business and unaudited financials. Business owners are also wary of the SME finance due to high interest rate and fees charged by banks,” she added.
The system, she said, is most beneficial to banks because it gives them more control over leveraging and bad credit customers. “Existing borrowers will also benefit if banks offer lower pricing for a good credit report.”
Marwan Ahmad Lutfi, CEO of Al Etihad Credit Bureau, said that it is important for financial institutions to have easy access to the credit history of companies, not just individual borrowers, so that they can make accurate “credit decisions.”
“As the UAE’s financial sector matures and increasingly positions itself as a competitor on the global financial stage, it is essential for the country’s banks, lenders and utility providers to have as much information at their fingertips as possible when making important commercial credit decisions- especially as the amount of credit in question can be substantial,” Lutfi said.
“With the launch of the commercial bureau, lenders will now have a clear picture on the financial obligations of individual companies and how well they are dealing with them – such as pinpointing if there have been any defaults or delinquent payments,” the credit bureau said in a statement.
Shahdadpuri said the commercial credit reporting is one way of encouraging companies to observe good business practices.
“It will encourage good business practices, as without them the AECB can disqualify them for a loan even if they have enough assets to act as collateral. Overall, the establishment of the AECB will change the way we do business in the UAE for the better.”
The credit bureau has set up customer service centres in Abu Dhabi and Dubai to entertain requests from companies who wish to see their credit reports. They can also visit aecb.gov.ae or call 600566662 if they wish to get more details on the service.
