Small and medium enterprises (SMEs) and entrepreneurship have long been suggested as an opportune area of growth for the industry. Heeding the call, many Islamic finance institutions last year from different regions have jumped on the bandwagon lending assistance and support to the advancement of this market segment. NABILAH ANNUAR skims through the efforts that have been implemented for the sector over the past year.
In Egypt, the Social Fund for Development and The United Bank are coming up with a EGP50 million (US$6.97 million) Shariah compliant financing contract to be channelled towards supporting SMEs.
Maybank Islamic last December provided Bumiputera Agenda Steering Unit (Teraju) with RM600 million (US$168.16 million) in funding to be allocated to high-performing Bumiputera (the Malay race and other indigenous peoples) SMEs for working capital and expansion purposes. Maybank Islamic joins three other financiers, namely, SME Bank, Malaysian Industrial Development Finance and RHB Islamic Bank in partnering with Teraju for the trust, which has reached RM2.2 billion (US$616.58 million) in value. OCBC Al-Amin, and Malaysia-based Credit Guarantee Corp (CGC) contracted a five-year deal to launch a new product called Wholesale Guarantee, which is designed to improve the access of Malaysian SMEs to financing by allowing financial institutions to share the risk for existing funding with CGC, giving the financial institutions more leeway to subsequently provide financing to SMEs.
UK’s independent Islamic financial services provider Portillion Capital, investment and mentoring specialist Seed Mentors and Islamic finance consultancy Islamic Finance Advisory & Assurance Services (IFAAS) introduced the Portillion Capital Shariah Compliant SEIS Fund, the country’s first Islamic Seed Enterprise Investment Scheme (SEIS) fund. SEIS was launched by the UK government in 2011 as part of its efforts to bolster economic growth through the promotion of new enterprises and entrepreneurships by assisting small, early-stage companies to raise equity finance, where a range of tax reliefs is offered to individual investors who purchase new shares in the SEIS funds investing in those companies. Bank of London and The Middle East last August contributed a GBP35 million (US$53.25 million) financing line to a newly-established leasing company, Renaissance Asset Finance which was launched to provide asset financing services to SMEs, as well as high net worth individuals (HNWIs). Renaissance helps businesses and individuals release capital tied up in their assets through a range of flexible products and services including hire purchase, lease purchase, finance lease, sale and leaseback. This financing is aimed at helping companies grow and fund a range of assets from vehicle fleets and equipment in addition to freeing capital for HNWIs.
An important development in the region is the introduction of Federal Law No. 2 of 2014, a piece of legislation enacted to regulate the relationship between government institutions and SMEs. The new law introduces a raft of new incentives designed to create jobs, encourage entrepreneurship and improve access to financing.
The rule outlines a National Program for SMEs including the creation of a dedicated SME Council offering finance, marketing and promotional support as well as the provision for technical, administrative and training assistance. Ten percent of government contracts must now be directed towards SMEs, and 5% of contracts from entities in which the government holds a stake of 25% or more.
The legislation further exempts SMEs from customs tax for importing equipment, raw materials and goods, and the SME Council will coordinate with the Ministry of Labor to exempt them from bank guarantees that companies are required to pay for each new worker. It also offers land grants for industrial and agricultural purposes and supports marketing initiatives at international exhibitions and events, as well as providing benefits for investors, patent owners and R&D investment. Institutions in the emirate that lent support to the country’s SME sector include most recently the Gulf Finance Corporation, a subsidiary of SHUAA Capital and Aseel Islamic Finance.
In Bahrain, the Islamic Corporation for the Development of the Private Sector is considering setting up an SME Fund with the Bahrain Economic Development Board. The Bahrain Bourse is also looking to introduce the Bahrain Investment Market, an initiative targeted at companies, more particularly SMEs, looking for growth finance and allows firms to list on the bourse without having to float an IPO. Moving to Oman, Bank Muscat’s Islamic banking window, Meethaq, signed an MoU with Zubair Small Enterprises Center which enables both parties to jointly support entrepreneurs and small business owners while maximizing successful entrepreneurial platforms in the sultanate.