The global necessity for small and medium-sized enterprises (SMEs) to have access to funding was covered today at the World Islamic Economic Forum that concluded today (October 30) in Dubai.

During a discussion on the opportunities and challenges SMEs face, Asad A Ahmed, managing director of Alvarez & Marsal’s Financial Industry Practice, and Aparajita Agrawal, director of the Sankalp Forum at Intellecap, provided expert insight on how access to funding often remains the primary challenge for SMEs, but when made available can be the key to their success.

Despite the vast potential many SMEs display, due to the fact they may operate in a niche market, provide a high-quality service or product and display resourceful innovation, traditional banks are often unwilling to provide funding during the critical stage of their development, said a statement.

The misconceptions around a lack of corporate governance, business planning and a pre-disposition that SMEs are inherently risky, are often given as reasons why banks turn down SME lending opportunities, it said.

This is particularly evident when SMEs fall between the $50 million to $250 million valuation bracket, or between one to four years in their development journey as a company.

However, given the vital role that SMEs can play in developing a healthy, well-balanced economy, there is more that can be done to help such business grow throughout their development, said the statement.

In high-income countries, SMEs average 51.5 per cent of GDP, but this falls to just 15.6 per cent in low-income countries demonstrating the significant opportunities that still exist to grow the sector worldwide.

“It is well-established that SMEs have a vital role to play in any nation’s economy. However, the vast potential that many SMEs display remains constrained by a lack to funding, particularly from the traditional banking sector,” said Ahmed.

“This is a universal issue and although significant progress has been made over the past decade, there is still more that can be done. Banks which have a dedicated SME-focused division and take each individual investment opportunity on its own merits are primed to be successful, both in the UAE and internationally.”

“It is imperative that SMEs have a strong ecosystem in which to operate and in order to nurture their development. This can be achieved by providing innovative funding techniques outside of the realm of a traditional bank,” said Agarwal.

“This can help SMEs to bridge a financing gap and the ‘missing middle’, where SMEs are too developed for Venture Capital or Angel Investors, but too small for traditional bank lending. There is undoubtedly a significant market opportunity for a SME focused venture debt provider which has the expertise and experience to help fund such business and enable them to grow. In itself, this can have widespread positive outcomes for the wider economy and the growth of a nation.”

The forum was held under the theme ‘Innovative Partnerships for Economic Growth,’ with an aim to build on the strong fundamentals of Islamic values as the basis for sustainable economic development and enhance cooperation.

It aimed at encouraging relations between the private sector and government, the individual and the community, as well as law and regulatory agencies. - TradeArabia News Service