Recent reports point to relatively low levels of lending to small- and medium-sized enterprises (SMEs) in the UAE and the wider Gulf Cooperation Council (GCC).

According to one local banker, this means there is potential for growth in SME financing in the region, including the provision of letters of credit (L/Cs).

Loan potential

Group executive officer at Gulf Finance Corporation (GFC), Steve Williams, reckons that the SME market in the UAE alone requires more than six billion UAE dirham (AED6 billion) worth of new credit in 2013.

He says that only 4 per cent of bank lending goes to the federation's SMEs, whereas in developed countries, loans to smaller businesses account for more than 15 per cent of total bank loans.

Levels of lending are even lower for SMEs in the other GCC countries of Bahrain, Kuwait, Oman, Qatar and Saudi Arabia says Williams.

L/C demand

According to a Dun and Bradstreet report, almost 55 per cent of SME borrowers in the UAE required banking services for their L/Cs, which were the most commonly used product. In comparison, unsecured loans were used by only 13 per cent of similar firms.

According to Williams, GFC aims to provide more than 10 per cent of that credit requirement and wants to triple the AED1 billion of loans the Shuaa Capital subsidiary currently makes to SMEs to AED 3 billion over the next three years.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.