Role of Government in Enabling an SMEFriendly Environment

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Role of Government in Enabling an SME-Friendly
Environment

• Presented By
• Alexandar Williams
• Director, Strategy Policy
• 21st April 2009
• V INSME International Conference, Dubai
• Roundtable Session 1 SME Financing

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Outline

• Mohammed Bin Rashid Establishment (MBRE)
• Role of Government in SME Development
• SME Financing Needs
• MBRE Funding Program
• MBRE Future Direction and Initiatives

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MBREs Vision, Mission Roles
Vision
Dubai as a Global Magnet for Innovative SMEs and
Intellectual Property -based Businesses
Advocate, Seed , Groom
Mission
MBRE Roles
Foster the development of a flourishing
entrepreneurial culture and a competitive SMEs
sector to support Dubais economic development
goals.
SMEs Development (Groom Dubais Top 500 SMEs)
Entrepreneurship Development
Focus on Intellectual Property, Innovation,
Technology, Creative Design-based businesses
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Expanding Entrepreneur Development Role to SME
Development Role
Facilitate, Enable, Support and Develop
Programs focused on sectors policy development
and advocacy (remove barriers), training
capability development (sector productivity
competitiveness), incubation, access to finance
and market access
SMEs

• Strategy Policy
• Industry/sector focus
• Advocacy
• Management
• Funding
• Markets
• Know-how
• Innovative SMEs (SME 500)

Entrepreneurs

• Knowledge Skills
• Funding
• Resources
• Markets

Focus on Intellectual Property (IP)
Creation, Attraction, Ownership, Protection,
Commercial exploitation
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Role of Government
Creating a stable and friendly ecosystem for
Entrepreneurs SMEs to thrive and compete in the
global economy
SME-friendly Ecosystem
Create the demand conditions for Entrepreneurs
and SMEs to access markets
Organize the market for SME resources enable
support for SME professionalization and
capability development
Demand
Supply
(e.g. set-asides for government procurement,
lobby other governments for cross-border trade
investment, provide market information and
facilitate business matching deals)
e.g., SME-friendly resources such as assess to
finance, management consultancy services,
specialized services (IP, branding, IT), Training
Capability development
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Role of Government
Enterprise Life Cycle Needs as Starting Point for
Government Intervention

• Leadership/
• Managers
• Branding
• Distribution/ SCM
• IP
• Systems Processes (IT, QMS)
• Growth Financing
• Market (Mkt Access)

• Sophisticated Leaders Managers with Global
  outlook
• Corporate Finance (Capital)
• Design / ODM Infrastructure
• RD
• Extensive Global Presence

• Managers
• Licenses
• Financing
• Market Opportunities
• Training Development
• Test Bedding
• IP
• Mentorship

Growth
Maturity
Startup
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SME Financing Needs
Government intervention is relevant in all
stages, but the degree, tools and business models
differ. Best to use a combination of government
and market-based solutions
Financing Needs
Life Cycle Stage
Internationalisation
Growth
Start-up
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State of SME Financing in Dubai
SME Financing Needs

• High cost of unsecured borrowing (interest rates
  are around 15, which is twice what is typical in
  the USA)
• Information asymmetry between lender and borrower
  (higher risk)
• High loan rejection rates (50 70) largely due
  to the gap in banking requirements Vs ground
  level realities.
• Working capital and letters of credit are the key
  product lines required by SMEs.
• SMEs are not satisfied with finance facilities,
  which are limited.
• But major banks are starting to look at SME
  lending market

Source DB 2009
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Dubais Economic Growth path
SME Financing Needs

• Moving from Capital Labor-Driven to
  Innovation-Driven Economy

Innovation- Driven Phase
Window of Opportunity to Transit and Prepare for
Upturn
Growth
Capital Labor- Driven Phase
Time
2009

2015
(Defined as application of knowledge in a novel
way, mainly for economic benefit)
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Implications on Access to Finance
SME Financing Needs

• Focus on asset-light financing
• Focus on financing IP-based/creative businesses
• Focus on financing the commercialization of
  ideas.
• Financing test-bedding and proof of concept
• Build pre-seed / start-up financing ecosystem.
• Government to work closely with the market and
  play a developmental role.

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Start up
SME Financing Needs
Why the region needs VC ?

• Need for growing employment opportunities and
  national empowerment
• Current over-dependence on oil gas, real estate
  and construction sectors
• Banks are generally risk averse and dont lend to
  SMEs
• Private investors consider it highly risky to put
  capital in such ventures
• Bulk of SME financing is currently from family,
  friends
• Small entrepreneurs with ideas unable to
  implement due to lack of equity capital
• Provide a way out for family-owned SMEs going
  through succession issues
• Fostering innovation and entrepreneurship
• Creation of profitable destinations for excess
  regional liquidity from oil surplus

Vibrant venture capital entrepreneurial ecosystem
will drive UAE leadership in innovation and
enterprise
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SME Financing Needs

• In Summary Access to finance is not the major
  issue, the issues are
• Finding good innovative and commercializable
  RD-based/technology-based business models to
  fund
• Fostering a new mindset and instinct towards
  supporting IP and technology-based businesses (As
  opposed to trading and real estate business
  models)
• Developing bringing the right financial and
  business capabilities here to fund high-tech,
  creative based business ideas (e.g., skill sets
  in IP valuation, commercializing new inventions,
  technology brokers)

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MBRE Funding Program

• The objective of the programme is to address the
  challenges faced by SMEs in getting finance and
  to make capital available to reliable businessman
  to start and/or grow their business.
• Provides access to capital through banks at
  preferential terms.
• Funding through commercial banks.

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MBRE Funding Program
Terms Conditions

• Loan amounts range from AED 100,000 to 3 million.
• Loan Interest Rate/Profit Margin EIBOR 1 to
  2
• Tenor Maximum 3 years grace period and 5 years
  settlement period
• (terms conditions of the loan depends
  on the financial viability)
• The project must be implemented in Dubai Emirate
  first and then growth and expansion could be in
  any place inside and outside UAE.
• Minimum financial contribution by the applicant/
  partners is 20 of the project total cost.

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MBRE Funding Program - Process
Key Steps

• Develop creative, innovative, business ideas
• Decide to start business
• Identify market gaps
• Understand market trends

• Write up business idea
• Develop value proposition
• Identify key customer
• Develop financial model
• Finalize plan

• Secure project funding
• Develop investment plan

• Obtain relevant Govt. license
• Develop systems processes
• Hire personnel
• Locate office space
• Develop marketing plan

• Identify business opportunities
• Identify growth options

• Execution plan
• Regular site visits
• Conditions implemented
• Advisory role
• Coordination with different departments

• Govt. Procurement Prog.
• Marketing

Project Management Unit

• Entrepreneur Relations
• Incubation Center

Development Advisors
Capability Building
Funding
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Assessment Framework Parameters
MBRE Funding Program

• The framework captures all facets of operational,
  market and financial risk within the 4 broad
  parameters
• Entrepreneur
• Industry
• Project specific
• Financials

Financial Risk
Market Risk
Entrepreneur Industry Project Financials
Operational Risk
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MBRE Future Directions and Initiatives

• SME Definition
• SME Policy Development Framework
• SME Statistical Framework
• SME 5-Year Plan
• SME Capability Development Initiatives

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Entrepreneur Business Village (EBV) - The
Entrepreneurial Capital of the Region
MBRE Future Direction and Initiatives

• A Collaborative Ecosystem dedicated to Value
  Creation through a single point of contact with
  potential high growth Business Opportunities
• Economic Development
• Investment Opportunities
• Knowledge Technology Transfer

• The largest Business Incubator in the region
• Located near the Clock Tower round about
• Focus on IP, Innovation and Creative-based
  businesses
• 1 million sqf of office and retail space
• One stop shop (Licensing, Labor, Immigration,
  Banks, ..etc)
• Ready in June 2009

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"Everyone dreams, but only the leader can change
dreams into reality"
His Highness Sheikh Mohammed Bin Rashid Al
MaktoumVice President, Prime Minister of United
Arab Emirates and Ruler of Dubai.
Thank You