The cry for easing access to finance to SMEs comes from numerous, well-worn and tired sources. So-called seminars on SME finance organised by publishing houses and other assorted entities are one such example.
I stopped attending these years ago as the unchanging chorus of the same cry, the torturous presence of the same attendees and mind numbing regurgitation of the same topics of discussion — viz., improving access to finance — has achieved nothing except turn a profit for the organisers.
It then struck me that the one voice that shouted its silence the most, in representing SMEs, was that of the affected parties themselves.
In other words, there has been no meaningful pressure, creation of awareness or proactive steps of any kind by any trade or industry association, in raising issues of the access to finance faced by their SME members.
So, basically, what have SMEs done for themselves to highlight issues with capital providers, both debt and equity, and the government, to improve capital flows to their sector?
As not only a close observer of this space but also a financial adviser to SMEs in assisting them with raising debt from banks, we can confidently say — not a Lot. We have not seen any trade or industry association in the UAE meaningfully create an aggressive agenda for doing anything for their members on the financial front.
Most seem focused either on networking activities, marginally effective “knowledge seminars” and attempts at changing government policy.
The time has come for industry associations to consider financing a serious issue and to improve its access to members as a top priority, if they were to seriously improve the lot of their members by influencing the flow of capital to their industries.
We have seen that there has been a move towards activism last year by groupings such as the Foodstuff Traders Association in Dubai to bring bankers together. But that was to repair the damage caused by the significant bankruptcies in that trade last year. Locking the stables after the horse has bolted is an useless activity.
So what can associations do? Here are some practical steps, to commence a discussion.
Firstly, if a trade or industry does not have an association, and if it has a meaningful presence in the country, it must be formed with financing as a key plank. Capital will only get scarcer in the foreseeable future, so this will hardly be a misplaced priority.
Second, for existing associations, adopt financing as a key plank and draw up an exhaustive and considered frame to start engaging with lenders, equity providers and advisory firms with an aim to:
a) Create sound industry awareness among financiers. This must cover all aspects of the industry, its strengths and weaknesses, opportunities, importance and so on. This will create interest among finance providers as they too are looking for financing opportunities.
b) Encourage regular interactive sessions between the two sides to improve understanding.
c) Show openness by regularly taking stock of the state of the industry, issues faced and prognosis for the near and medium terms.
d) Seek feedback as to what the association can do to make the industry more “finance friendly”.
Fourth, create a solid database of members and work with financiers to create robust membership criteria that include aspects meaningful from a financiers’ perspective as well. A good way to about it is to make the membership reflect the individual or entity’s standing, reputation and integrity.
Membership must not be automatic, and both securing and retaining membership must have ongoing and meaningful criteria. These can be arrived at after discussions with financiers.
Some examples of pertinent criteria are: a minimum number of years in existence, absence of financial defaults or persistent delays in payments, poor service delivery, frequent abrogation of contracts without reason and so on.
I think the drift is clear. Another critical factor in financing decisions is the quality of financial transparency. Perhaps, a key criterion could be the use of a particular set of approved auditors to audit members’ accounts.
Sixth, associations should form an advisory board comprised of members drawn from various quarters like bankers, financial advisers and lawyers to advise on how the association can build an effective strategy to improve access to capital for its members.
Bankers and other capital providers do not have detailed, ongoing feedback on the goings-on in any industry other than anecdotal feedback from existing clients. Banks rely on portfolio behaviour to gauge what is going on an industry. If a particular industry portfolio shows signs of stress with payments becoming overdue and so on, it is already too late. Needy members asking for help at that stage will be viewed with suspicion and little sympathy.
There is an huge opportunity to create awareness of each industry, highlight its problems, work closely, regularly and proactively with lenders, and play an uplifting role in raising disclosure and knowledge levels among capital providers.
Removing ignorance is removing barriers. This involves a considered effort. Lenders are not the only ones to blame for the parsimony, tough lending criteria, the lack of understanding and so on.
What is the trade doing about it?
The writer is the Managing Director of Vianta Advisors.
