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Helping Those Who Help Themselves

George Hojeige, Group CEO, Virtugroup describes the current financing environment for SMEs in the region, highlighting changes in the banking sector aimed to help small businesses but pointing out how they must be properly prepared when approaching lenders for funding.

George Hojeige, CEO of Virtugroup

What is your assessment of the banking and financial services provided to SMEs in the GCC at this time?

The advent of digital and neobanks in the UAE has definitely made a marked difference in improving SMEs’ access to corporate banking. In recent years, we have seen notable neobanks emerge in the country with a shared goal of easing the way for new entrepreneurs and start-ups to open corporate bank accounts and access a host of financial services.

We now have YAP, the country’s first independent digital banking platform, which is also set to launch in the Kingdom of Saudi Arabia, as well as Wio Bank, a bank built for businesses and the region’s first platform bank.

Traditional banks have also stepped up and begun offering digital banking services. One of the first ones to identify the gap in the market was Mashreq, which established Mashreq NeoBiz to provide a digital business banking platform for entrepreneurs, startups and small businesses.

These neobanks and digital banks have made it easier, faster and more cost-effective for start-up founders and small business owners to open and maintain a bank account. This trend is not just evident in the UAE, but across the region as well, particularly in Saudi Arabia, which has been actively building and nurturing its own start-up ecosystem in the past couple of years.

However, despite these advancements, the banking industry as a whole still has a long way to go. Onboarding new clients and maintaining accounts have vastly improved, but SMEs require a complete suite of banking services that will support them in all aspects of their business.

Access to financing is one critical aspect, and although the UAE and KSA are leading the way in financing start-ups in the region, their banking institutions need to catch up and play bigger roles in supporting businesses. Aside from financing, the banking sector can initiate support services that are specially designed for start-ups and SMEs.

What range of options exist for SME financing in this region?

As I have pointed out in my answer to the previous question, SMEs still have very limited options for financing from traditional banks. Start-ups and SMEs are generally viewed as high-risk, which makes it more challenging for them to secure loans or credit facilities from traditional banks.

The silver lining is that the region has been making significant strides in venture investment over the last few years. The Middle East and North Africa region has reportedly raised USD 3.94 billion last year, with the UAE ranking first with USD 1.85 billion across 250 deals. Saudi Arabia took second place with USD 907 million across 153 deals, while Egypt landed on the third spot after securing USD 736 million across 180 deals.

These astounding numbers, however, indicate that the key source of financing for start-ups and SMEs in the region remains to be venture capital, and other key funding sources include private equity and self-financing.

What can SMEs do to help themselves have the best interactions with regional banks and finance providers?

As an investor myself, one thing I consider crucial in start-ups is how they handle due diligence. Start-ups that invest the time and resources to prepare proper and solid documentation to show to banks and potential investors have higher chances of securing funding.

Your due diligence should include a detailed business plan of your company, development appraisals or valuations, sales forecasts and realistic projections of your cash flow and asset growth. For those aiming to secure a loan, it will also be best to devise a structured repayment plan to demonstrate your company’s ability to pay off the loan within a timeframe that is amenable to the bank.

Another area that start-ups should focus on is their cash flow. SMEs should aim to keep minimum balances and maintain a healthy and stable cash flow to give banks and financial institutions confidence in their liquidity.

Start-ups and SMEs should also place high value on building an excellent management team and illustrate their corporate strategy and direction, risk management plans, and industry experience and qualifications. Showing that your business has a capable management team also gives financial institutions confidence in your company’s ability to thrive, generate revenues, maintain liquidity and overall establish a robust business profile.

How do you risk manage your SME lending decisions?

Implementing a progressive scheme where banks increase the financing options available to businesses as their relationship and trust develop over time can help effectively manage and decrease risk, while improving support for SMEs and enhancing their access to funding.

Installing stringent entry requirements at the start is not the solution to risk management, as these only pose more barriers to SMEs seeking to get funding. Risk is part and parcel of doing business – and banks should be prepared to face a certain or minimal element of risk, and not zero risk.

What are the main requests or issues raised by SMEs in your relationships with them?

We have been in the industry for more than 14 years now, and to date, we have enabled more than 70,000 entrepreneurs to set up their businesses in the UAE. The major concerns that most of our clients face when it comes to business banking are the difficulties in opening bank accounts, the stringent and complicated blanket KYC and compliance requirements and occasional bank account closures that can potentially cripple their operations.

One of the solutions we have come up with to help our clients have a better banking experience and successfully open bank accounts for their businesses is to build partnerships with local and trusted banks. These relationships that we have nurtured over the years give our partner banks a certain level of trust and confidence in the clients that we connect with them, thus raising our clients’ success rates in opening bank accounts and accessing banking facilities.