Small but mighty: Financing and other services expand to support SMEs

Small and medium-sized enterprises (SMEs) make up around 16% of the sultanate’s GDP – no small feat for companies with fewer than 100 employees. SMEs in Oman, as defined by the Ministry of Commerce and Industry (MoCI), are businesses with no more than 99 workers and annual sales of up to OR1.5m ($3.8m). Depending on size and sales numbers, businesses below these rates are divided into the categories of micro, small, and medium-sized. In the past, Oman had a lower density of SMEs per capita compared to other countries in the GCC – less than 10 per 1000 people, compared to more than 30 per 1000 people in Saudi Arabia, according to a 2010 report released by the World Bank Group’s International Financial Corporation.

Opening Doors

The relatively low density of SMEs has translated into opportunities for the sultanate’s entrepreneurs, as supporting these smaller businesses has been a major priority for the government, thanks to their tendency to create jobs and encourage innovation. Leading the effort to support SMEs is the Sanad programme within the Ministry of Manpower (MoM). Established in 2001, the organisation has the overall objective of promoting entrepreneurship among young Omanis and boosting employment through the support of SMEs. To that end, Sanad offers assistance in the form of soft loans, mentorship and assistance with government services. With the government expanding the SME support infrastructure and the private sector taking on a larger role in the segment, opportunities for funding, facilities and networking are all on the up.

Financial Planning 

For SMEs, making it through the initial years of operation is often the largest obstacle to long-term success. Because the government has a vested interest in employment and economic activity generated by successful SMEs, it has created channels through which it can offer financial support to these businesses during the formative years.

MoM’s Sanad has been instrumental in pursuit of these goals. The programme can offer loans at more favourable interest rates than those on the market, thanks to government subsidies. Currently, the interest rate is 2%, greatly reducing the borrowing costs and risk for entrepreneurs. Once a loan is approved, applicants receive their funding through the Oman Development Bank. When Sanad began offering these loans in 2001 they were capped at OR5000 ($13,030).

By 2006, following input from entrepreneurs, the maximum went up to OR20,000 ($52,121). In May 2011 the government raised the limit for partnerships involving at least four people to OR50,000 ($130,303).

To date, the programme has made significant progress.

Between 2001 and March 2012, Sanad has funded 3184 projects. Between June 2011 and June 2012, alone, the organisation disbursed OR4.7m ($12.2m) for 462 projects. The amount of funds distributed has been on the up, as well. In the first quarter of 2012, the government agency accepted 136 loan applications with a total value of more than OR1.3m ($3.4m), a rise from the OR900,000 ($2.3m) approved during the same period in 2011. The programme boasts an impressive repayment rate, with 84% of loans repaid between 2001 and the first quarter of 2012.

Fund Creation

In April 2012 MoCI announced it would form the SME Development Fund under the management of the National Company for Projects and Management (NCPM). Its planners aim to raise a total of OR100m ($260.6m) in five tranches of OR20m ($52.1m) by drawing on investments from private sector pension funds, financial institutions and large business groups, Raphael Parambi, CEO of NCPM, told the third Oman Economic Forum in Muscat. In addition to supporting the broader SME community, the fund strives to engage college and university students who are just entering the job market. To garner interest in entrepreneurship, the programme plans to kick-start the creation of on-campus resources for enterprising students, including entrepreneurship clubs, seminars and training. “Over the next 10 years, we hope to cover every college campus and major selected schools to train 500,000 students,” Parambi said. Drawing on a success rate of 1.5% – even though rates of 5-7% are expected – the fund is targeting at least 7500 entrepreneurs, creating 50,000 jobs over the next 10 years.

Flexibility

Another organisation, the Sharakah Fund for Development of Youth Projects, is also working toward the same goals as Sanad and MoCI. Founded in 1998 by royal decree, the fund is aimed at helping youths carry out their business ideas. Sharakah has financing options for both starting and expanding businesses whose total project costs do not exceed OR1m ($2.6m). Unlike some equity investments, the fund has a more flexible approach for young entrepreneurs. Sharakah encourages business-owners to buy back the fund’s equity share within six years. This model ensures that entrepreneurs have the short-term funding they need and in the long term they have the option of regaining complete ownership of their ventures.

The private sector is becoming increasingly involved in SME financing. The Oman Arab Bank, which is 51% owned by the Oman International Development and Investment Company and 49% owned by Arab Bank, has started a new programme for SME financing. Called Tomouhi, which means “my ambition” in Arabic, the fund works in partnership with MoCI and Oman Development Bank’s loan guarantee programme.

BankMuscat, meanwhile, has financing designed specifically for SMEs. Through its SME banking department, the bank offers loans up to OR250,000 ($651,513). In addition, it runs workshops and seminars for the owners of SMEs.

The banks offering financing to SMEs in the sultanate are additionally joined by several private funds. The Intilaaqah Enterprise Fund (IEF) is a $17m fund, which has been designed to stimulate entrepreneurship among the young Omani population by providing financing, guidance and business development services. Offering a more traditional private-equity approach is Oman-based Al Anwar Holdings. The firm, which is publicly traded on the Muscat Securities Market, is a for-profit institution investing in its specialty sectors.

Whether for-profit or not-for-profit, growing private sector participation in SME growth could bode well for the segment as a whole. Diversity of funding could lead to more upfront capital for entrepreneurs and, accordingly, faster development of their projects.

Service Upgrade

Non-financial services for SMEs are also expanding, with MoM’s Sanad programme taking the lead. In August 2012 the agency announced new services for SMEs through its 20 business centres in the Muscat governorate. Through these centres, Sanad is set to begin offering services such as renewal of commercial registers, changes of business names and cancellation of commercial registers, helping to streamline the bureaucracy serving small-businesses, Ibrahim bin Said Al Alawi, executive director of Sanad, said in the announcement of the plan.

A growing number of conferences and meetings for SME stakeholders, meanwhile, is expanding networking opportunities for the segment. The fourth annual SME Expo took place in February 2012 at the Oman International Exhibition Centre in Seeb. At the gathering, stakeholders including government representatives and business owners discussed the future of SMEs in the sultanate and identified potential areas for closer public-private partnership.

Soon after the conference, the MoCI held its first annual meeting for SMEs, where representatives from the Directorate General of SME Development met with representatives from the business sector to discuss government services, investment and loans. The third annual Oman Economic Forum in April 2012, meanwhile, honed in on small business development and investment opportunities in Oman. Organisers emphasised that the intent of the conference was to attract new business participants as well as potential investors, who would have the opportunity to meet in person with business delegates from across the country.

Shared Space

Something as simple as sharing a physical space can greatly affect business development for smaller enterprises, since networking and collaboration with other companies can help new firms take off. To that end, opportunities offered at Knowledge Oasis Muscat (KOM) are laying the groundwork for more tech-based SMEs to grow and develop in close proximity to one another. KOM’s 68-ha campus is located just outside Muscat near the airport. The project started in the late 1990s as a public-private partnership with the Public Establishment for Industrial Estates.

Although the area hosts technology multinationals such as Microsoft, ITON, Huawei Technology Investment and Motorola, the park is largely geared toward nurturing new businesses. The centre’s incubator, The Knowledge Mine, offers tech start-ups affordable working space and utilities, as well as business mentoring and access to training.

The creation of a more robust SME sector could have far-reaching effects. SMEs can contribute to job creation and diversification, both major goals for the Omani government. In the long term, a growing stream of new entrants into the economy could also generate more innovation and strong competition among businesses.