Williams Role of Government

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Role of Government in Enabling an

SME-Friendly Environment

Presented By:

Alexandar WilliamsDirector, 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

Foster the development of a

flourishing entrepreneurial

culture and a competitive SMEs

sector to support Dubais

economic development goals.

Vision

Dubai as a Global Magnet for

Innovative SMEs and

Intellectual Property -based

Businesses

Mission

SMEs Development

(Groom Dubais Top 500

SMEs)

Entrepreneurship

Development

MBRE Roles

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

Entrepreneurs

Knowledge &

Skills

Funding

Resources

Markets

SMEs Strategy & Policy

Industry/sector

focus

Advocacy

Management

Funding

Markets Know-how

Innovative SMEs

(SME 500)

Focus on Intellectual Property (IP)Creation, Attraction, Ownership, Protection, Commercial exploitation

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SME-friendly Ecosystem

Organize the market for

SME resources; enable

support for SME

professionalization and

& capability

development

Create the demandconditions for

Entrepreneurs and

SMEs to access

markets

Supply Demand

Role of Government

Creating a stable and friendly ecosystem for Entrepreneurs & SMEs tothrive and compete in the global economy

[e.g., SME-friendly resources such as

assess to finance, management

consultancy services, specialized

services (IP, branding, IT), Training &

Capability development ]

(e.g. set-asides for government

procurement, lobby other governments

for cross-border trade & investment,

provide market information and

facilitate business matching deals) 5


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Enterprise Life Cycle Needs as Starting Point forGovernment Intervention

Managers Licenses

Financing

Market

Opportunities

Training &

Development

Test Bedding

IP

Mentorship

Growth MaturityStartup

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 R&D

Extensive Global

Presence

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Role of Government


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SME Financing Needs

Star-

Up

Growt

h

International

-ization

Time

y Capital expenditure

y Working capital


y Working capital

y R&D


y Working capitaly Trade financing

y Establishing networks in

foreign markets

Growth

Start-up

Growth

Internationalisation

Financing NeedsLife Cycle Stage

Government intervention is relevant in all stages, but the degree, tools

and business models differ. Best to use a combination of governmentand market-based solutions

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State of SME Financing in Dubai

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

SME Financing Needs

* Source: D&B 2009 8


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Window of

Opportunity

to Transit

and Prepare

for Upturn

Dubais Economic Growth path

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

Capital & Labor-

Driven Phase

Innovation*-

Driven Phase

2009

Growth

Time

SME Financing Needs

9

2015

(*Defined as application of knowledge in a novel way, mainly for economic benefit)


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Implications on Access to Finance

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.

SME Financing Needs

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Start up

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

Why the region needs VC ?

SME Financing Needs

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In Summary Access to finance is not the major issue,the issues are:

Finding good innovative and commercializable R&D-

based/technology-based business models to fund

Fostering a new mindset and instinct towards supportingIP and technology-based businesses (As opposed totrading and real estate business models)

Developing & bringing the right financial and businesscapabilities here to fund high-tech, creative basedbusiness ideas (e.g., skill sets in IP valuation,commercializing new inventions, technology brokers)

SME Financing Needs

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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 theirbusiness.

Provides access to capital through banks at

preferential terms.

Funding through commercial banks.

MBRE Funding Program

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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 % ofthe project total cost.

Terms & Conditions


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MBRE Funding Program - Process

Business

Idea

Develop

Business

Plan

Funding

(capitalize

project)

Set upCompany

Project

Mngmtunit

Key Steps

Developcreative,

innovative,business ideas

Decide to startbusiness

Identify marketgaps

Understand

market trends

W

rite upbusiness idea

Develop valueproposition

Identify keycustomer

Developfinancial model

Finalize plan

Secure projectfunding

Developinvestment

plan

O

btain relevantGovt. license

Developsystems &

processes

Hire personnel

Locate officespace

Develop

marketing plan

Identifybusiness

opportunities

Identify growth

options

Development

Advisors

Grow

Business

Execution plan Regular site

visits

Conditionsimplemented

Advisory role

Coordinationwith different

departments

Capability

Building

FundingEntrepreneur

Relations

Incubation Center

Project

Management

Unit

Govt.

Procurement

Prog.

Marketing

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Assessment Framework Parameters

Entrepreneur

Industry

Project

Financials

Operational

Risk

Financial

Risk

Market Risk

The framework captures

all facets of operational,

market and financial riskwithin the 4 broad

parameters:

Entrepreneur

Industry

Project specific

Financials


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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

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

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

MBRE Future Direction and Initiatives

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"Everyone dreams, but only the leader can change dreams into reality"

His Highness Sheikh Mohammed Bin Rashid Al Maktoum

Vice President, Prime Minister ofUnited Arab Emirates and Ruler of Dubai.

Thank You

Williams Role of Government

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