The 'Dubai International Growth Initiative' funding program will extend loans to SMEs in multiple categories. They need to show a profit track record and also have a compelling reason for how they plan to use the funds. International expansion could be a good reason to be eligible. Image Credit: Shutterstock

Dubai: The first small and mid-sized businesses to qualify for funding from Dubai’s newly launched Dh500 million initiative will be confirmed shortly, from among the more than 200 applications already submitted.

The chosen SMEs will get up to Dh15 million on favourable lending terms at a time when the interest rate regime is very much on the higher side. These funds can be used for expansion projects, primarily for international moves.

To qualify, the SMEs must, however, show a track record of profitability.

Read More

'Moratorium on interest'

As for the loan itself, “We are very flexible and the payback period can go up to 7-8 years,” said Marwan Hadi, Group Head of retail Banking and Wealth Management at Emirates NBD, which is responsible for selecting the SMEs and disbursal of the funds.

“These loans come with a moratorium period of one year, so that the SME doesn’t have to pay the interest on the first 12 months. We understand that any expansion requires the SMEs to have a strong cash flow.

“Our job is to make sure we structure the lending in such a way that’s beneficial to the entrepreneur.”

"Many international banks don’t target the SME segment here. For Emirates NBD, this is one of our strategic priorities within the retail banking services...” says Marwan Hadi of Emirates NBD Image Credit: Supplied

Currently, loans come with average interest rates 8-10 per cent (even higher, some say) in the UAE depending on the type of business and the industry it is in. Plus, factors such as whether these loans are secured or not also come into play in fixing the final cost for the company.

This is where the Dubai International Growth Initiative project can help. Especially with the part of the 1-year interest-free provision. 

"They need to be established companies based in Dubai and who are out to start on their next phase of growth, i.e., expand internationally," said Hadi.

Why only select SMEs with a profit?
"We have to make sure see that at the end of the day, we don't want to over-debt the business and then have them in a position where they can't pay the dues," said Marwan Hadi.

Ideally, SMEs should also have been in operations for an average 7 years or so.

Dubai's D33 Agenda

It was late January that the ‘Dubai International Growth Initiative’ was announced, as part of the program making up the ambitious Dubai Economic Agenda D33 plans to double the emirate’s GDP.

As for Dubai’s SMEs, the best part is that the funds are not meant for any particular industry. It can extend to those in manufacturing, F&B and other categories, but with the provision that the SME must have a track record of performance and it should be profitable.

“We taking the 200 applications through the process of due diligence and making sure they fit our eligibility criteria,” said Hadi. “This is just the beginning…

“The Dh500 million has already been allocated to the fund, if we are able to support up to 10 SMEs in this process, it will be a great achievement.”

On whether there will limits to how much of the Dh500 million will be allotted to a particular industry, Hadi said: “We will only look at the (financial) strength of the individual company,” said Hadi. “We are not too fussed about the sectoral percentage.

“What I don’t want to see is we get 10 applications from F&Bs and then when a 11th one comes in, we don’t want to tell the entrepreneur that he’s not in because we’ve reached the sector limit.”

How the funds will be provided

Not all of the available funds will be released in one go. Instead, it will follow the existing structure with all such business loans. "Again, we don't want the borower to be over burdened with the interest," said Hadi. "Even though it is margin-free, there is still the EIBOR element that's in play.

"As the lender, depending on the business' needs, we will support accordingly. Show us what you need to buy or spend on, and then we will pay for that once the receipts are submitted. Just like any corporate or SME lending proposal..."