Certainly not waiting around for rate cut cycle to start - that seems to be the sentiment among UAE SMEs when it comes to new bank credit. And banks are willing to meet this demand. Image Credit: Supplied

Dubai: Small and mid-sized businesses in the UAE are not waiting around for the US Federal Reserve to decide when to make the first interest rate cuts since pushing them higher 11 times since March 2022. Instead, UAE SMEs have been consistently tapping local banks regularly for credit to support their business operations right through the first three months of 2024, according to a senior banker.

“Their (SMEs) immediate liquidity needs is what’s driving the credit requirements - they are not delaying asking for lending support while waiting for a Fed rate cut,” said Dhiraj Kunwar, Managing Director for Business Banking at RAKBank, which has brought out a business sentiment survey based on feedback from SME owners.

“These business operations are not as rate sensitive as the UAE’s bigger companies, and who might be waiting for the Fed decision.”

In broad terms, current lending rates to SMEs start from 7-7.5 per cent on average.

What SMEs are seeking is targeted financing support, whether it’s specifically to support trade finance activity to secure shipments, etc.

- Dhiraj Kunwar of RAKBank

When will that cut happen?

At the start of the year, March was seen by many analysts as heralding the likely start of the US - and UAE - interest rate drops. Now, the most likely scenario would be at the June meeting of the Fed, and then a couple of further cuts before the year is out. (At one point late last year, the sentiment was that there would be between 3-6 drops all through 2024.) UAE banks have been particularly focused on keeping the funding flows as smooth as possible. In Dubai, a special SME program is being run, whereby Emirates NBD will disburse up to Dh500 million for such businesses, whether for their expansion needs or other capital requirements. (These businesses will need to be profitable and with an operational track-record to qualify.) “What SMEs are seeking is targeted financing support, whether it’s specifically to support trade finance activity to secure shipments, etc.,” said Kunwar. “While trading continues to be a major requirements for SME credit, we are also seeing sizeable off-take from construction and manufacturing focused businesses. But the appetite for loans cuts across all sectors, that’s what UAE banks are seeing now.”

In its first ‘SME Confidence Index’ report, these UAE businesses netted a score of 61, with two in three SMEs having an upbeat view of the business environment in the country. (More than 1,000 SMEs were polled in the survey held over November and December last.)

Which sectors scored

SMEs in the construction and manufacturing sector has a ‘confidence’ index score of 62, having seen the highest revenue increase over the last two years compared to other industries.

Transport-dependent SMEs, with an index score of 60, were cautious in their optimism ‘due to pricing adjustments’.

Public services SMEs and those engaged in professional services also had an index score of 62, thanks to revenue growth gains.

Consumer and retail services entities and trading business saw a more subdued trend, reflected a score of 59.