Are the banks not willing to provide loans to small and medium enterprises (SMEs) in the Sultanate?
This question has been discussed time and again at different forums. While banks claim that they are disbursing loans to deserving firms, there are complaints galore they are not doing so despite a directive to allocate five per cent of their total credit portfolio to SMEs.
In a recent interview to the Observer, Shaikh Salah bin Hilal al Maawali, CEO, SME Development Fund, suggested that penal action be taken against lenders who fail to provide loans to SMEs.
According to him, some banks are not willing to provide loans to small companies on grounds that they are not properly managed and there is a risk involved in repayments.
“Hefty fine should be imposed on commercial banks that do not allocate the mandatory five per cent credit to SMEs,” he said.
Data from Central Bank of Oman shows that to achieve the five per cent target, SMEs in Oman would have to be granted loans to the tune of RO 1 billion.
According to Al Maawali, SME Development Fund has so far disbursed RO 33 million worth of loans to more than 350 companies, which have about 1,000 employees working with them.
Of this, RO 12.5 million has been allocated this year, while 14.5 million is expected to be disbursed next year.
At the same time, bankers suggest the need for a more proactive approach to support SMEs along with expert guidance particularly on matters related to portraying their financial position and transparent reporting of audited accounts with their lenders.
Experts are of the opinion that financial acumen has been the major challenge for SMEs as it is the key to understanding whether or not their business is profitable and sustainable in the long run.
The Omani authorities have over the years launched a number of initiatives to promote the growth and development of SMEs, including raising awareness, providing training and education, and mentoring in some fields.
The government also made provisions for reserving some contracts for SMEs or making it compulsory for certain companies to reserve a part of their sourcing and outsourcing of works only for SMEs.
Khalid Safi al Haraibi, Acting CEO of the Public Authority for the Development of SMEs (Riyada), expects significant growth in the sector in the current year.
“The 2018 budget targets economic diversification, increase in employment rates, achieve medium-term fiscal and economic stability and aims to increase Oman’s growth rates through stimulation of the private sector. The success of the budget will have a reflection on the SMEs,” Al Haraibi said.
According to Al Haraibi, the small and medium enterprises should learn to work with their feet.
“If the services of a financial institution are not matching with their requirements, the owners of SMEs should stop interaction with them and seek assistance from specialised entities which have dedicated sections for SMEs,” he suggested.
He said the current year will witness a significant share in the major tenders.
“The budget aims at stimulating growth by encouraging entities to work with the SMEs. We are working closely with Tender Board. We expect that the share of tenders to the sector will witness more than 10 per cent this year,” he said.
One of the major supports that the authorities have identified as key to assisting SME growth is giving them a greater role in the large-scale infrastructure and industrial development programme currently being embarked upon.
SMEs, indeed, are the drivers of GDP accretion and employment generation. They also operate in some of the most important sectors of the economy.
The contribution from SMEs to Oman’s GDP is expected to be more than 30 per cent within three years.
“On the back of increasing investments and generation of more jobs, the GDP, which was only 15 per cent in 2014, will more than double,” said Al Haraibi.
According to National Centre for Statistics and Information, the SMEs registered with Riyada till the end of June stood last year stood at 27,923.
This was 35.2 per cent less compared with the same period of 2016.
Most of these small-scale businesses in Oman are rated as micro-enterprises, with almost 78 per cent of companies employing five people or fewer, between them accounting for just 10 per cent of total employment nationwide.