Emirates Development Bank prioritising longer loan repayment tenors offers much needed flexibility for businesses. Image Credit: Shutterstock

Dubai: Agritech ventures as well as projects in renewables will get extra attention when it comes to Emirates Development Bank extending loans at lower than market rates – and for longer tenors too.

“This year, there will be further focus on specific sectors – agritech would further strengthen the UAE’s food security agenda,” said Ahmed Mohamed Al Naqbi, CEO. “We would look to create specialised financing for businesses in agritech, more so as the UAE casts itself as a food manufacturing hub. We can tailor specific financing packages for these businesses, allowing them longer time to reach breakeven, etc. The nature of the agritech businesses needs such support.”

The other focus area, renewables, is quite in sync with the times, given that the UAE is host to COP28 and is also running the ‘Year of Sustainability’. “Whether it’s businesses wanting to launch new renewable projects in the UAE or relocate here, EDB can extend the necessary support,” said Al Naqbi.

Ahmed Mohamed Al Naqbi, CEO of EDB
“Whether it’s businesses wanting to launch new renewable projects in the UAE or relocate here, EDB can extend the necessary support,” said Al Naqbi.

In 2022, EDB sure did quite a bit of that across five core areas, with manufacturing being a priority. It meant more than Dh6.1 billion being provided to businesses that could show a detailed feasibility study and where the promoters can give proof of having put in a lot of own equity into their projects.

Mix of lending

SMEs received Dh1.8 billion of the disbursals last year, with larger corporates pulling out Dh4.3 billion. The EDB mandate is to get more manufacturing projects off the ground, with competitive lending that does offer a greater degree of flexibility than what a conventional lender can offer.

On lending with interest rates rising, the CEO said: “The structure of EDB’s own funding (requirements) are clear – one’s equity and the other is through bonds. We took $1.5 billion in the last 3 years out of $5 billion (earmarked). That means we have stability in our cost of funding. We are in good shape, and that allows us clarity in our own lending to others. Even when rates are going up.

“On what we lend, we cover our risk with a fixed rate plus variable margin. Even then, we are quite competitive vis-à-vis commercial banks in the country.”

Longer tenors

As much as a competitive rate on the loans, where EDB does score decisively is by offering extended tenors, of 10 years and more. “Conventional banks would offer 3-5 year tenors on greenfield projects – and that’s where EDB comes in with 10 years,” said Al Naqbi. “So, the cost of funds ends up being much cheaper for the borrowers. They get more time to get the business up and running, reach breakeven and all at lower payment.

“That’s what we call our patient debt approach.”

Get into refinance? No way, says EDB chief
EDB’s focus will remain rigidly fixed on financing new projects, especially those in and related to manufacturing in the UAE. What will not happen is EDB using its funding resources to help businesses with their refinance, restructure or cashflow needs.

“We want to inject new capital into productive assets, typically those that are greenfield projects,” said Ahmed Mohamed Al Naqbi. “We may do the occasional brownfield projects, such as a business wanting to expand its capacity or create a new product-line. But that’s where our mandate ends.

“We do not want to get involved in buyout loans from commercial banks as part of business’s refinancing. That’s not what we should be doing, it’s definitely not creating anything new for the economy.”