A model for success: New focus on policies for SME development

The effectiveness of Bahrain’s efforts to develop and encourage the growth of small and medium-sized enterprises (SMEs) is evidenced by the high percentage of SMEs operating in the local economy. Indeed, according to the Bahrain Chamber of Commerce and Industry (BCCI), SMEs represent roughly 98% of companies in the kingdom. The UN Industrial Development Organisation’s (UNIDO) efforts to export the Bahraini model for SME development to other countries provides additional evidence of the success of its SME segment. (The Ministry of Commerce and Industry’s [MoCI] definitions of what constitutes a micro-sized, small and medium-sized company can be found in the accompanying table.) ASSISTANCE: A number of recent efforts have been initiated to develop the SME segment. The SME Development and Support Centre (SME DSC), for example, was recently established by the BCCI. Launched in February 2013 and located inside the BCCI building in central Manama, the new centre essentially serves as an advisory house that provides both financial and non-financial services. A range of partners have worked with the BCCI in developing the centre, including UNIDO, the MoCI and the Bahrain Development Bank (BDB). SMEs and entrepreneurs do not need to be members of the BCCI in order to receive assistance from the centre.

Abdul Aziz Abbas Al Gassab, secretary-general of the Tender Board, told OBG, “In Bahrain, preference is given to local and GCC products. If a bid proposes to supply using regionally-sourced products, then a 10% preference goes to this bidder.” Non-financial assistance from the SME DSC is wide-ranging. Entrepreneurs can obtain help regarding the procedures for starting a new business in addition to project implementation assistance and advice on conducting market research. Services for existing companies include guidance with quality management, franchising, supply chain management, risk assessment, subcontracting, and financial and technical auditing. The BCCI is also close to reaching agreements with the three telecoms companies operating in Bahrain – Batelco, Zain and VIVA. Under these agreements, the telecoms companies will provide special offers and packages for SMEs through the new SME DSC.

Financial support at the new centre is provided by two local banks: the BDB and Family Bank. The BDB was set up in early 1992 and currently provides a significant amount of the financial support for SMEs in the kingdom. Family Bank was established more recently in 2010 and focuses on providing micro-financing; it was the first sharia-compliant micro-finance lender set up in the Middle East.

The recently inaugurated SME centre is not the BCCI’s first initiative to encourage the development of small businesses. Indeed, the chamber’s SME Committee often sets up events for local business leaders to meet with relevant government ministers to ask questions and discuss market conditions. In addition, the BCCI supplied financial assistance to SMEs when the economy slowed down to some extent in 2011. Beginning in August 2011 the chamber provided a total of BD300,000 ($790,230) to qualifying BCCI-member SMEs. According to recent BCCI data, the initiative benefitted nearly 170 companies.

NEW PRODUCTS: Another effort to support local SMEs was recently launched by the Kuwait Finance House – Bahrain (KFH–Bahrain), a provider of sharia-compliant services and a fully owned subsidiary of the publicly traded Kuwait Finance House (KFH). The firm announced in September 2012 that it had introduced a new financial product for SMEs.

The initiative was launched through a partnership with Tamkeen, a Bahraini government organisation set up to facilitate the creation and development of local companies as well as to assist Bahrainis gain employment in the private sector. Bahrain’s SMEs are able to access as much as BD50,000 ($131,700) of sharia-compliant financing – 50% of which is subsidised by Tamkeen – through the newly created KFH-Bahrain/Tamkeen initiative. Available financial products include ijara, which provides project and equipment financing, as well as murabaha, which provides coverage for trade finance and working capital, according to the KFH.

TRAINING: The BDB also offers a range of non-financial services to the SME segment, including the Entrepreneurship Orientation Programme (EOP) and the Entrepreneurship Development Programme (EDP). The EOP is a five-day course covering the fundamentals of entrepreneurship. Students learn how to generate, develop and implement a business plan and run a commercial enterprise. While each course has a maximum intake of 50 trainees, all Bahrainis are eligible for the EOP and there is no tuition cost for the programmes, according to the BDB. The EDP admits 20 students per training session, which last for four to six weeks. Training covers the tools and methods to collect data and conduct market analysis; financial administration and accounting; information on SME support schemes and institutions; legal processes such as human resources, e-commerce and IT; how to create a business plan; and soft skills, among other subjects. Students must complete a business plan before graduating, and those who do graduate have access to a fast-track approval system for small business loans, according to the BDB.

CAPITAL MATTERS: To fund SMEs, the bank also extends funding opportunities to entrepreneurs. The Pre-Seed Capital Support Scheme (PCSS), for example, basically serves as an innovation grant, offering as much as BD5000 ($13,170) to Bahraini entrepreneurs or a group of entrepreneurs whose business will be at least 51% owned by Bahrainis. The PCSS is implemented through a partnership with Tamkeen, and applicants should be between 18 and 45 years of age, according to the BDB. Proposed commercial projects must be headquartered in the kingdom to qualify for the grant. The bank’s Feasibility Study Support Scheme (FSSS) provides funding for 50% of the cost of a business feasibility study for either a new business or a company interested in researching a new business avenue. The BDB reported that funding under the FSSS initiative is capped at BD5000 ($13,157) for each feasibility study. As with the PCSS, the FSSS is carried out in cooperation with Tamkeen, and qualifying businesses must be based in Bahrain with at least 51% Bahraini ownership.

Another Tamkeen/BDB funding scheme provides start-ups and SMEs with financing at an annual profit rate of 4.16%. According to figures provided by the BDB, those awarded receive between BD5000 ($13,157) and BD250,000 ($658,525) of Islamic financing over a seven-year period. A grace period of as much as two years is offered, and after all the required criteria have been met, the application processing time takes only 14 days. Eligible companies must have fewer than 250 employees and operate with an annual turnover of less than BD5m ($13.16m).

SPACE FOR GROWTH: Other BDB services include the Bahrain Business Incubator Centre (BBIC), which works to facilitate the growth and development of local start-up companies. Funded and wholly owned by the BDB, the centre was the first such facility to be set up in the GCC region. Services offered by the BBIC include rental spaces in various sizes available for short-term periods, a conference hall, a meeting room, an office support facility and a central reception area. These services are all provided in collaboration with Tamkeen.

Notably, 40 incubators at the BBIC are allocated for female business owners, and as of late 2012, 15 businesswomen had benefitted from the centre, according to Tamkeen figures. The BDB will also be managing a new incubation centre dedicated solely to female entrepreneurs, which will begin operating sometime during the second quarter of 2013.

Further BDB efforts to encourage new start-ups in the kingdom focus on university students. For example, the bank is helping to set up a business incubator at the University of Bahrain (UoB). With its status as a large public institution with close to 2400 graduates in 2012, according to university data, UoB provides a wide audience for the incubator. The centre is scheduled to open in 2013, and the BDB will help manage it. In an additional effort to reach out to students, the BDB has created an advisory team that provides free, one-day courses in a range of subjects related to entrepreneurship at institutes of higher education, as well as among the local schools.