Bridging the SME finance gap in the GCC

SMEs struggle to secure financing required to enable their growth despite the vital role they play in national economies. Bridging the financing gap requires improvements within the ecosystem compounded by collaboration between development finance institutions and commercial banks, as well as the introduction of innovative tools to facilitate financing. 

Key Takeaways 

• SMEs are important contributors to the economy but SME lending in the GCC is 3% with an estimated credit gap of USD 250 billion 
• Government-supported development finance institutions and banks are a step in the right direction in providing financing, coupled with capability development for SMEs
• There is a need to widen and tailor the range of instruments (both debt and equity) to finance SMEs to address their diverse needs at various stages of their business from seed, start-up to growth and more matured businesses
• SME financing requirements should be complemented by financing entities with non-financial services and advice as per the business lifecycle
• Share of formal credit channels and SME lending by commercial banks and financial institutions remains low in the GCC region and needs enhancement. Financial institutions may overcome their data and operational challenges with respect to SME lending in several ways which could include streamlining collection of borrower information and deploying non-traditional sources of information
• Operational roadblocks could be addressed through smarter channels of credit decisioning, adopting risk-based pricing and other similar measures
• Development finance institutions can work collaboratively with commercial banks to increase lending and reduce interest rates on loans through several measures like insurance backed by development bank, and regulatory support backed by government incentives
• Any SME financing and subsidy efforts need the backing of regulatory and policy support through measures like better information sharing, sector-specific support, improving SME financial literacy, regulatory incentives etc.
• Tools like SME funding platforms, movable asset pledge registries and leveraging Fintech are much needed to complement traditional efforts of SME financing