SMEs key to knowledge-based economy

January 19, 2013 - 4:44:18 am

Entrepreneurs display their wares at the Made in Qatar Exhibition in Doha Exhibition Center.  Pics: Shaival Dalal & Kammutty VP


Several government and private entities have taken a host of initiatives to diversify Qatar’s economy. The contribution of the non-oil sector to the Gross Domestic Product (GDP) has witnessed remarkable progress over the past few years, but the challenges faced by Small and Medium-sized Enterprises (SMEs) suggest a lot of obstacles remain in transforming the energy-rich country into a diversified, knowledge-based economy.   

Much has been said and written about SME-specific schemes launched by public and private organisations to facilitate growth and development of these small and medium-sized businesses, but the truth is they face many difficulties. At public forums, meetings and conferences, entrepreneurs often complain about finance-related problems and, of course, about the prolonged and time-consuming licensing process.

As part of Qatar National Vision 2030, Qatar Development Bank (QDB), a fully-owned government entity, was set up by an Emiri decree to invest in and develop local industries by supporting SMEs. For this purpose, QDB launched Al Dhameen (guarantee), a scheme to provide financial assistance to SMEs and issue guarantee letters to lenders on their behalf, but entrepreneurs complain about lack of transparency, indefinite delays in processing of loans and the absence of a clear definition of SMEs.

In addition, private businesses complain about the problem of collateral to get their projects financed, as lenders do not consider the land allotted to them by the government as collateral for mortgage.  

“Things are not very clear. The processes involved are still bureaucratic and time-consuming.  Having waited for over one year, our ambitious project could not receive any financial assistance from any bank. Finally, we had to find and rely on other sources of financing for a chemical factory with an estimated cost of QR10m”, said Mahmoud Younes, Chairman of Qatari Engineering Business Co (QEC).

He said his company submitted a detailed feasibility study, including all documents required for the project’s financing, to the bank, with which QEC has more than 10 years of business ties, but the latter declined to give any loan for the project.

Younes added: “Despite all the impediments, we decided to go ahead with the project, and now all the stakeholders are struggling to complete it.”

The construction of QEC’s chemical factory, named Overseas Chemicals, is in full swing in the Industrial Area. Once completed, the facility, spread over 3,700 square metres, will produce additives and other chemicals for the domestic market as well as for export. 

Asked what reason was given by the bank for denying QEC a loan, he said: “Lack of collateral. Generally, banks do not consider the land allotted to businesses by the government as collateral against project financing.”

Under Al Dhameen, QDB does not directly finance SMEs, but instead offers the business owner facilities to get funding by issuing guarantees for 85 percent of the value of the project, not exceeding QR15m.

The scheme does not cover projects related to agriculture, fishing and livestock, non-oil mining and quarrying, wholesale and retail trade, finance, insurance and real estate.

Most banks and other lending institutions cite the absence of a clear definition of SMEs as the main cause of delay in project financing. 

Recently, during the launch of Aamaly, a scheme for SMEs from Qatar Islamic Bank, the head of its business banking division, Basem Shahrouri, said: “Unfortunately, we still do not have a clear-cut definition of SMEs here. Usually we follow general definitions. Any firm with annual turnover of up to QR25m comes under (the category of) small enterprises, while businesses with an annual turnover of up to QR100m are categorised as medium enterprises.” 

According to QDB, any project in Qatar – by SMEs or joint ventures (including those with foreign investors) — whose annual turnover does not exceed QR30m can apply for financing by banks under Al Dhameen. A project can receive more than one facility under the scheme, since a letter of guarantee is issued for each facility. The total guarantees sought for a project should not exceed QR15m. 

Under Al Dhameen, existing companies are eligible to get guarantees for up to 75 percent of the unsecured outstanding principal, with a financing limit of QR15m. Although QDB gives guarantees to the partner bank for the loan, the business owners are liable to repay the full loan amount.

Start-ups — private sector companies that are less than three years old and 51 percent Qatari-owned — are eligible for guarantees of up to 85 percent of the loan amount, which is limited to QR15m.

Al Dhameen loans can be either in the form of project financing for manufacturing, where the maximum tenure is eight years, including a two-year grace period, or financing for services, which has a maximum tenure of five years, including a one-year grace period.