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UAE SMEs receive Dhs420m trade credit support during Jan-Nov 2020

Etihad Credit Insurance insured the exports of the SMEs as well as their operations in the domestic market allowing them to stay competitive

by Zainab Mansoor

December 21, 2020

Small and medium enterprises (SMEs) in the UAE have received Dhs420m in trade credit support from January through to November, 2020.

The support came from Etihad Credit Insurance (ECI), the UAE’s Federal export credit entity. The trade credit support given to SMEs translates to Dhs1bn non-oil trade insured turnover.

The ECI has insured the exports of the SMEs as well as their operations in the domestic market allowing them to stay competitive in the trade industry, especially during the Covid-19 pandemic, state news agency WAM reported.

The guarantees have helped protect the liquidity of the SMEs amidst the challenging economic cycle, assisting businesses in reducing their cost of bank funding and allowing them to request their preferred bank to discount the invoices secured by the ECI at a preferential rate.

In 2019, ECI had launched ‘SME Protect’, a trade credit solution to support SMEs’ growth plans globally and assist them while entering high-growth markets. The launch of this product made the ECI the first government export credit company in the Middle East and Africa to offer SMEs an online trade credit solution to secure trade and export to more than 50 countries.

‘SME Protect’ is a result of the survey conducted in 2018 in cooperation with Abu Dhabi Chamber of Commerce, Dubai Chamber of Commerce, and Ras Al Khaimah Chamber of Commerce, which revealed that 97 per cent of the SMEs still preferred letter of credit and cash payments, whereas only three per cent preferred selling on credit.

Massimo Falcioni, CEO of the ECI, said: “The ECI understands the vital role the SMEs play in building the nation’s economy that is why we have developed an online user-friendly solution in 2019, named ‘SME Protect’ to allow the SMEs in the UAE to trade safely and confidently and gain access to international markets, thereby positioning the UAE as the global hub of trade and export.”

The Federal export credit company offers financial support to international export activities of the SMEs through its ecosystem of strategic partners, including local and international banks. The ECI provides banks guarantees so these institutions can reduce the capital they allocate for their funding if they use collateral, thereby securing the supply chain.

“The close cooperation with Abu Dhabi Department of Economic Development (ADDED), and the chambers of commerce of Abu Dhabi, Dubai, Sharjah and Ras Al Khaimah and Dubai Exports allowed a dedicated ECI team to develop several webinars coaching, counselling and guiding the SMEs to better understand their export potential, and understand how to enter international markets and offer competitive payment terms with secured terms,” said Falcioni.

Only 50 per cent of startup businesses make it to the fifth year of operation, furthering dipping to 33 per cent on the 10th year, according to data released by US Bureau of Labour Statistics, highlighting the vulnerability of the sector. Only one in three small businesses survives after 10 years.

Meanwhile, World Bank data reveals that SMEs represent about 90 per cent of businesses and more than 50 per cent of employment worldwide. In the UAE, the Federal Competitiveness and Statistics Authority showed that the contribution of the SME sector to the UAE’s GDP is estimated at 53 per cent in 2019, up from about 49 per cent in 2018. In addition, the SMEs also contribute to 95 per cent of the companies in the country and employ 86 per cent of the total workforce in the non-oil private sector. However, despite its contribution, SMEs are considered high-risk by financial institutions, due to which securing access to credit proves to be a hurdle.