Helping SME’s work

As the recovery from the Covid-19 global pandemic starts to gather pace, Rashid Al Qubaisi, Chief Executive Officer of Aafaq Islamic Finance tells MEA Finance Magazine that the road to recovery for SME’s is going to be based on cooperation between banks, finance providers and SME’s, who themselves should also take a proactive role in ensuring they are effectively equipped to tackle the current difficult environment and the coming challenges of recovery.

SME’s are vital to the economy, and regional demographics point toward a busy SME scene. What are you and others doing to help foster growth in this part of the economy? 

Aafaq Finance’s concentration on the UAE SME sector has grown over the last few years and it now plays a pivotal role in our daily business operations.

Under the able guidance of the Chief Executive Officer, Aafaq has been aggressively and actively promoting the financing needs of the SME sector via many Islamic lending products including Corporate Liquidity Murabaha, Corporate Equipment Murabaha, Vehicle Murabaha and Goods Murabaha, to name but a few.

Moreover, the Company has been actively providing financial advice and assistance to existing SME customers who are or were adversely affected due to the pandemic and various COVID-19 related lockdowns and restrictions imposed by the Government over the past year and a half, by allowing moratorium and payment holidays to service their financial commitments without any delay or delinquency.

Aafaq Finance continues to lend to new SME customers whose business performance were affected owing to the prevailing negative economic conditions, with the aim of seeing their growth prospects improve and grow in the post-COVID era, as the SME sector gradually adjust their business models to fit the new market norms of the post-pandemic world.

Funding and investing options are now manyfold. How are you adapting to the meet needs and choices of the expected wave of younger entrepreneurial activity in the region? 

SMEs and entrepreneurs were already confronted with tough working capital requirements and capital investment requirements before Covid-19 struck. Then came the pandemic which impacted them dramatically with significant drops in revenues while still being burdened with their fixed costs which continued during the restrictions brought in to combat Covid-19.

The crisis led in many cased to the temporary or even the permanent closure of many SMEs due to a lack of short-term and long-term financing arrangements and facilities. However, the UAE’s Markets have shown a strong recovery from the recent lows of the pandemic’s impact and we can now offer tailor made products and services to support the entities and businesses as they strive to grow into the future.

How do you risk manage your SME lending decisions? 

With increased and proactive lending to the SME sector now taking place, it is important that assessing the repayment capacity of our customers is taken into serious consideration at all times. With this as a backdrop, Aafaq has revisited and reviewed its financing products and policies to streamline the processes, as well as to seek out and identify bad credit risks.

Aafaq has also upgraded its risk mitigation policies to identify potentially difficult issues at the early stages of the credit assessment process with the adoption of robust credit and risk features.

How have you helped SME’s cope with the fallout of the global pandemic? 

Now, over one year since the start of the pandemic, SMEs are still as, or even more vulnerable than at the outset of the start of the crisis. With this being the case in so many places, countries and governments have extended and expanded liquidity relief measures in order to help SME’s cope and grow back to economic health as quickly and strongly as possible.

With an increasing number of government recovery packages available, we are using “moratorium tools” to restructure payments plans in line with company cash flows and extending the repayment periods for businesses with additional finance to support them through their periods of drops in revenue. This has helped businesses survive and is also a good opportunity to generate long-term goodwill and trust.

What can SME’s do to help themselves when interacting with banks and financial institutions? 

Lack of credit background information is a factor that contributes to the constraints faced by SME’s when assessing their creditworthiness to interact and request for finance with Banks and Financial Institutions, so they need to keep data that records this clearly and efficiently.

SME’s must make sure to maintain and validate their trading and business documents such as Trade licenses, Patents and other agreements and certificates too in order to ease their applications for financial services. They also need to maintain their books of accounts and reports and importantly, to honor their supplier payments without delay. Avoiding diversion of their funds from short term sources to long term investments may impact the liquidity of the company too.

Project reports and feasibility studies of funding requirement with clear justification and utilization funds along with projected cash flow is a very important way they can help themselves when interacting with their banks.