Qatar SME Special: Off to the bank

In recent years, Qatar has placed an increasing emphasis on the importance of small and medium-sized enterprises (SMEs) in the state’s overall development plans.

This has been for a host of good reasons. SMEs have the capacity to provide jobs, innovation and diversification in an economy, bolstering the private sector and fostering entrepreneurialism.

Often the un-sung heroes of the Qatari economy, SMEs currently account for around 80% of all companies registered in the State. Helping develop them also means facilitating expansion of the wider economy, particularly in the non-oil and gas sector.

Yet, while numerous, SMEs also only account for around 10% of Qatar’s GDP.

Boosting this and creating an environment where SMEs are able to flourish has been government policy for some time. The contribution to GDP that SMEs make in Dubai, for example, is some 40-46% though this is mainly as a result of a much lower hydrocarbons base than in Qatar. Either way, the importance of this part of the economy is not to be underestimated.

Much is, fortunately, already being done to improve the lot of SMEs. A range of government-backed bodies and programmes, such as those offered by the Qatar Development Bank (QDB) – which now includes Enterprise Qatar (EQ) – the Qatar Business Incubation Centre, the Silatech initiative and the Social Development Centre (SDC), are all working to help local SMEs. Meanwhile, a series of special economic zones, targeted specifically at SMEs, is also being rolled out around Doha.

One area, though, in which more work may need to be done is that of financing.

This has long been a particularly problematic area for many SMEs. Often these companies are family businesses unused to formal bookkeeping and business plans. They may also lack credit history or experience in approaching banks and other financial institutions when seeking loans, preferring family, friends and even unregistered lenders to fund their activities. This necessarily limits the scope of their ambitions.

In the current, more straightened climate of continued global economic slowdown finance can be even more difficult to find, with lenders more risk conscious and unknown SMEs less likely to be received well. Indeed, recent reports from the UAE show that a major credit squeeze is currently impacting the sector there.  A recent report by the Arab-EU Business Facilitation Group also showed that SMEs took just 0.5% of total lending in Qatar in 2013, a figure below the GCC average.

Qatar does run several programmes to help SMEs in this regard, though. QDB’s Al Dhameen programme connects SMEs with partner banks to offer loan guarantees of up to 85% of the project’s value, while SDC runs Rasameel, which gives zero-interest loans of up to QR250,000 to Qatari nationals. EQ has also launched a private equity fund to help finance SME development.

Al Dhameen has certainly proved popular, too, with Commercial Bank, QIIB, and QNB announcing earlier this year that they had signed up to a new portfolio of offerings under the scheme. From its launch in 2010 to early 2015, Al Dhameen had provided around QR573m in bank guarantees to some 212 SMEs.

Expanding the take-up of Al Dhameen and other such programmes is now a major focus. In this, the new “portfolio risk” package being offered under the scheme recognises and attempts to tackle some of the past challenges.  The package allows, for example, partner banks to assess the viability of loans without recourse to the QDB, thus speeding up the process.

This requires the setting of more clearly defined criteria, however – not only in determining what constitutes a bankable idea but also overall credit worthiness, and even what constitutes an SME, which has long been unclear in Qatar. The “portfolio risk” package effectively defines such an entity as one with revenue turnover less than or equal to QR30m.

And, given the current economic climate, such programmes will likely provide an even more crucial lifeline to many SMEs. If the sector is to continue developing, there will need to be an ongoing commitment to fund such schemes, despite short-term ups and downs in the economy. Banks need encouragement to take risks on these lines, with a cast-iron QDB guarantee a major incentive. The authorities recognise that they must continue to back such programmes, not only in order to provide the jobs and incomes the country will need for the longer term, but also to help provide the kind of innovative and entrepreneurial future it wants.

---This original article from OBG originally appeared in the 2015 SME Annual Magazine “SME Impact”, produced by The Edge.