The Role Of Digital Banking In Bolstering The UAE's SMEs

It not only enables banks to offer the quick, convenient banking that SMEs are looking for, but also for them to provide support and guide on more than just financial matters, but also HR, legal and other areas.

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Across the GCC, there are an estimated 1.5 million small- and medium-sized enterprises (SMEs), accounting for around 22 million jobs. In the UAE, there are approximately 350,000 businesses with a headcount of less than 250 and turnover of less than AED250 million, making up over 90% of the total number of registered companies in the country, and employing over 80% of the nation's private sector workforce.


Playing such a significant role in the economy, it comes as no surprise that the UAE government sees SMEs operating across all key industry sectors as an engine of economic diversification and long-term growth, as well as helping to build national human resources. Official support for SMEs as they start up and grow is provided through a variety of initiatives, including the National SME Programme, the UAE SME Council, Operation 300bn, Emirates Development Bank, the UAE's industrial strategy, Khalifa Fund, Dubai SME, and many others.

When it comes to finance, SMEs face their own set of challenges and risks. Initially SME owners start and run the business with their own funds. At times, due to cost constraints, they have to manage with smaller number of staff- to deal with finance matters, SMEs firstly need to be able to set up bank accounts quickly and efficiently. At this stage, there is a careful balance to be managed between satisfying the due diligence requirements of their chosen bank, and keeping documentation to a minimum. With smaller balance sheets to fall back on than a large company, SMEs will be looking for transparent, reasonable fees for operating their accounts day-to-day, and if they are doing business internationally, they will be looking to exchange currency at favorable rates as well as support with export financing.

A big risk for SMEs at any phase of their growth is over-extending their borrowing. To mitigate this risk, their bank will need to work with them to help them borrow -for example, to finance projects- at a competitive rate of interest, and over an appropriate term, to ensure that repayments do not become too onerous. In addition, with less layers between management and staff, another key concern for SMEs is ensuring that payroll is a smooth and reliable process each month. In fact, in the early phase of the life of an SME, it may be the first time management have had to deal with human resources at all. This is another area where their bank may be able to provide guidance.

Related: Future Foresight: How Disruptive Businesses Can Take Advantage Of The Middle East's Ongoing Digital Transformation

Often too busy to visit their branch during the day, or carry out day to day banking on paper, SMEs will be looking for user-friendly digital and mobile banking with a set of features relevant to businesses of their size and requirements. Digitization is critical to the development of a vibrant SME sector- and this has a number of implications when it comes to SME finances. Banks need to provide digital and mobile banking tailored to SMEs, but also support SMEs as they go digital, as they enter into e-commerce, for example, or introduce digital payments. For instance, at my enterprise, National Bank of Fujairah (NBF), we developed NBF Connect, which is a unique digital platform with a host of features aimed solely at SMEs, enabling them to connect, share insights, exchange ideas and discover avenues of growth.

There is a danger of "over-digitalization," however. Banks need to be conscious of balancing digital solutions with continuing human interaction. Digitalization can certainly drive value and efficiency when applied back office– for example data analysis can be used to better understand how SMEs are using their banks, and develop new features, or modify existing ones. But over-application of digital solutions to customer-facing functions may negatively impact on SMEs perception of and trust in their bank, however- SMEs value the human touch of knowledgeable and trustworthy financial advisors.

As digitalization advances, data security becomes an increasingly critical concern for all customers of banks- SMEs among them. SMEs need to be confident that their bank is investing in data and identity protection, as well as instilling a culture where employees and customers are aware of -and equipped to deal with- cybersecurity threats. Digital banking platforms also enable banks to share knowledge (e.g. SME news, business trends, and events) with SMEs, and for SMEs to share knowledge amongst themselves. It can be a lonely place being the boss of a startup– this type of online community can help improve that.

In conclusion then, the digital transformation of banking is, on balance, beneficial for SMEs. It not only enables banks to offer the quick, convenient banking that SMEs are looking for, but also for them to provide support and guide on more than just financial matters, but also HR, legal and other areas. To do this to best effect though, banks must maintain the human touch where relevant, and continue their vigilance on and technological innovation to improve cybersecurity.

Related: How Digital Payments Can Enable SMEs To Become More Competitive In The Post-Pandemic Era