The UAE government plans to put regulation in place allowing banks to use assets of small and medium-sized enterprises (SMEs) as collateral for loans, said Murat Sultanov, Mena project manager of the International Finance Corporation (IFC), a member of the World Bank Group focusing on the private sector in developing countries.

The UAE’s Ministry of Finance, aided by the IFC and the Arab Monetary Fund, is looking at introducing a law on secured transactions and the creation of a registry where banks can file notices of security interests, detailing the assets SMEs have put up as collateral.

“Among the factors why SME lending becomes a less attractive option, the lack of adequate financial infrastructure is an important one. The nationwide registry will promote transparency among creditors and ensure priority of their rights in secured assets,” said Sultanov.

SME banking revenue in the Mena region is expected to grow by 18 per cent per year, reaching $15bn by 2015, according to management consulting firm McKinsey.

The amount of lending that regional banks give micro, small and medium-sized enterprises (MSMEs) in the Mena region is, at eight per cent, significantly less than that in middle income countries (18 per cent) and high income countries (22 per cent), stated a report based on a survey by the World Bank and the Union of Arab Banks of over 130 Mena-based banks. In the GCC that number is even lower - two per cent.

The majority of enterprises in Mena are MSMEs, estimated to total 19 to 23 million, comprise 80 to 90 per cent of businesses in most countries in the region. The financing gap for MSMEs in the Mena region is estimated at $210 to $240bn. Nearly 63 percent of MSMEs do not have access to finance, according to the report.

“MSME finance in MENA is restricted by the lack of an enabling environment,” says Qamar Saleem, Senior SME Banking Specialist - Mena, IFC.

“Regulations are insufficient, financial infrastructure is inadequate, lending capacity and tools are lacking, SME management skills need to be improved, financial transparency needs to be encouraged, and the availability of collateral is scarce. Banks and financial institutions in the Mena region are also not equipped to offer sustainable and profitable SME banking products.”