SMEs also hit by payment delays, cash-flow woes

By Conrad Prabhu — MUSCAT: Jan 3: Omani small and medium enterprises (SME) can take heart from the government’s pledge, articulated in the newly unveiled 2017 State Budget, to address their funding and cash-flow challenges – part of a litany of woes that have weighed down small businesses in the Sultanate in 2016. The Budget Statement affirms a commitment to supporting speedy payments to SMEs, as well as meeting their funding needs through soft loans from Al Raffd Fund and Oman Development Bank. It also reiterates a pledge to support small businesses by allocating a percentage of government contracts to SMEs.

It is now evident that delayed payments, cash-flow constraints and limited access to credit – the bane of the contracting sector in Oman for the past over two years – are also hurting small businesses in a significant way.

Abdullah al Jufaili, General Manager of Sharakah, a closed joint stock company set up by Royal Decree to support SMEs, says it’s been relatively tough-going for small businesses. “2016 hasn’t been a very easy year for SMEs in light of the economic situation,” he said, noting that payment delays have been part of the challenges faced by small firms.

“At the moment, some of these (outstanding) payments have exceeded 120 days, which really poses serious liquidity challenges for SMEs.  Ideally, payment terms should not exceed 60 days, if possible even 30 days, in order for an SME to have the cash flow to be able to pay their salaries, expenses, rents and so on.”

Access to banking credit, which the Central Bank of Oman (CBO) has stipulated should not be anything less than 5 per cent of a lender’s total credit, is also proving problematic for SMEs, said Al Jufaili.

“Quite honestly, banks have (not been forthcoming) with funding support during the past six months. Since June, some banks have been very selective than before in providing credit.  But I would rather wait for the CBO to come up with its assessment of the size of lending to SMEs for this year, compared to 2015.”

Also getting short-shrift is the stipulation that 10 per cent of any government contract should be outsourced to SMEs as a way of supporting small businesses.  Anecdotal evidence suggests that this provision is not being fully met, according to the official.

Nevertheless, enforcing this provision is fraught with challenges on both sides of the equation, Al Jufaili explains. “Sometimes the (main contractor), even if they would like to commit to SMEs, they would find it difficult because they are bound by their commitment to the client to deliver on quality and efficiency, and on time and within budget. So we need to work on this problem at both ends, firstly by encouraging large contractors to outsource part of their services to SMEs, and secondly, by helping the SMEs themselves to upgrade their operational output and quality performance.”