Are Fintechs Bridging the UAE’s SME Finance Gap?

In the Arab world, SMEs make up a large portion of businesses, employ a considerable percentage of the workforce, and contribute significantly to GDP. However, they often struggle to secure financing. Fortunately, Fintech companies are stepping in to fill this gap and support the growth of SMEs in the region. Let’s get straight to the details.

What’s the Financial Status of SMEs in the UAE?

In the Arab world, small and medium-sized enterprises (SMEs) have a large funding gap and receive limited access to bank credit. According to IMF research, SMEs account for 97 per cent of businesses in the Arab world, employ half of the labour force, account for 40 per cent of the GDP, and can generate 8 million jobs by 2025.

These numbers prove that access to financial services can significantly support the growth and development of SMEs. However, many financial service providers may not prioritise serving SMEs due to a lack of information about them and perceived high costs. According to the IMF research cited earlier, SMEs in the Arab world face the greatest financing gap and receive the least amount of bank credit. Information asymmetries, perceived bankability issues, and high service costs have often motivated financial service providers to focus on other client segments.

In this context, there is an additional factor to consider: Even though most people in the UAE have smartphones to make digital payments, cash is still used frequently for retail transactions. In fact, electronic payments only account for about 30% of transactions. This may be because only some consumers and merchants have bank accounts, and digital payment infrastructure is not as advanced.
It is essential for these small businesses to have access to the necessary financial support to thrive and contribute to economic growth.

The SME Finance Forum estimates a financing gap of $123 billion for small and medium-sized enterprises in the region. Filling this gap could lead to job creation and allow these businesses to reach their full potential.

Experts believe that Fintech companies can play a role in bridging this gap. In that case, how will it happen?

Are Fintechs Poised to Overtake Traditional Financial Institutions?

The non-banking sector is gaining a larger share of the payments market in the Middle East thanks to regulatory changes and competition from tech and telecommunications companies. These companies can quickly adapt and improve their offerings, posing a threat to traditional banks.

In this scenario, merchants starting an e-commerce business will likely partner with marketplaces and specialised fintechs rather than traditional banks, local acquirers, or e-wallet providers. Interestingly, even the banks themselves believed they needed to be in a better position to succeed in this field. Merchants, particularly small and medium-sized enterprises, seem to want more than just payment solutions.

How are fintechs able to fund SMEs? Firstly, fintech companies offer various options, including working capital loans, invoice financing, and crowdfunding. These solutions may receive funding from both traditional lenders and individual investors.

Secondly, fintechs offer payment and digital solutions to help small businesses grow and go digital. These solutions streamline processes such as:

  • Record tracking and maintenance
  • Inventory management
  • Human Resource Management
  • Finance and Accounting
  • Online customer services

In short, these fintech solutions make running a small business easier and more efficient.

Thirdly, Fintech companies offer solutions to help SMEs enhance their sales and payment processes. These solutions include:

  • Secure online payment options for e-commerce stores
  • Improved point-of-sale technology
  • Data analytics for sales performance
  • Customer loyalty.

By improving the digital infrastructure of SMEs, these fintech solutions pave the way for more accurate credit scoring in the future.

Also Read: Financing a Small Business With Equity & Debt Financing

Are SMEs Paving Opportunities for Fintechs & Other Banking Institutions?

In the payments market, fintech, telecom companies, and others can enter as regulations change. These companies are expected to assist with the digitisation goals set by governments and regulators. They obtain payment service licenses and open-banking regulations. To achieve ambitious digitisation goals, such as Saudi Arabia’s 70 per cent digital payments goal by 2030, regulators and governments in the region are turning to these companies for licensing and regulations.

Overall, these changes present exciting business opportunities for these industries.

However, there is much work ahead for these payment providers. To succeed, they must tailor their value propositions and customer experiences to each specific target segment, such as B2B payments, peer-to-peer, and merchants, all of which have different needs and characteristics. Building trust in their services and addressing individual pain points within these segments will be the biggest challenges.

Are Fintechs Strong Enough to Help SMEs in the UAE?

Before we conclude, it is vital to understand the reality of the situation. Fintechs alone cannot help SMEs because many of them are SMEs themselves.

In the Arab world, fintechs are often small and young companies with similar challenges to their clients. Without adequate financial and digital infrastructure, these fintechs cannot reach their full potential and effectively address the financing gap for small and medium-sized businesses.

This issue is particularly relevant in the UAE, Saudi Arabia, and Egypt, where most fintech companies are concentrated. In order to improve access to financial services for SMEs and their customers, there needs to be an increase in:

Ultimately, financial resources and skilled individuals are necessary for these fintechs to grow and successfully serve their audience.

Wrapping Up

The COVID-19 pandemic has highlighted the ability of Arab fintech companies to support small and medium-sized enterprises (SMEs). It is essential for financial service providers, regulators, and other industry players to prioritise efforts to assist SMEs in surviving and thriving during challenging times.

MSMEBlog offers insights into the Govt. Schemes available for MSMEs. Learn more about government MSME schemes by visiting

Leave a Reply

Your email address will not be published. Required fields are marked *