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In MENA, Banks Have an Opportunity to Support a Critical Economic Sector

How digital transformation can help lending to small and mid-size firms

There is significant opportunity to increase Small and Medium Enterprise (SME) access to financing in the Middle East and North Africa, and now is the time for banks to take action. In a time of global economic upheaval, serving the complex needs of SMEs sends an encouraging message: SMEs should focus on running their businesses and banking services should be seamless for them.

A recent International Monetary Fund (IMF) report highlighted that SME financial inclusion is essential for economic diversification, growth, and job creation in the Middle East. The IMF figures show the following:


Nicole Tovstiga

SMEs represent about 96% of all registered businesses in MENA
SMEs employ 48% of the labour force
Average share of SMEs in total bank lending in MENA countries is about 7%, the lowest in the world

The trade finance gap for SMEs, due to a number of causes such as limited access to finance and credit risk, is in the hands of the region’s banks. SME banking is largely serviced by ENBD, FAB, ADCB and Mashreq Bank. Apart from two digital banks Liv (ENBD) and NEOBiz (Mashreq), other players are traditional, branch-driven banks trying to be digital. There’s limited competition, too – new age banks like Revolut have not been allowed access over the last two years.

The total number of SMEs in Dubai has more than doubled in the past 11 years (151,875 in 2019 as compared with 72,695 in 2008), according to a report by Dubai SME, an agency of Dubai Economy. But this critical cornerstone of MENA economies has suffered since the 2014-16 collapse in oil prices when banks grew more cautious about lending to SMEs. Now the COVID-19 crisis has accelerated the opportunity for MENA banks to implement positive change through digital transformation. This will enable them to stand out from the competition in a crowded banking sector, support the vital SME economy and align services for SMEs with new government regulation.

Being digital

To address changing needs of SMEs and achieve regulatory compliance, banks are recognising that going digital enables them to offer better and more cost-effective options to serve their business customers.

In order to do this, their strategy should consider:

Graphic describing steps banks need to take to become digital (customer focus, open APIs, cloud, data)

Banks that implement a digital strategy can give SMEs the option to request finance, increase their credit line, renew accounts online or get reminders for banking/regulation/compliance activities they need. On top of it, banks can improve analytics/risk/fraud capabilities to deliver faster onboarding, verification and credit checks.

The road to being digital is promising but not without challenges. A significant proportion of banks have not been ready for a massive shift to digital. Legacy architectures and operating models, lack of adequate skills and a scarcity of capital have made it difficult to make this transformation quickly.


Embrace an end-to-end transformation

The UAE government has recognised the importance of supporting digital transformation for SME banking, and is intervening to stimulate change through Ghadan 21, the Abu Dhabi government accelerator programme, launched to transform the economy, knowledge ecosystem and community, and broaden the base of the UAE economy. Initiatives for businesses include energy discounts, easier access to bank loans and a new Dh4 billion research and development fund. Recent examples of steps towards digitizing banking for SMEs include ENBD’s launch of E20, a UAE-based digital business bank for entrepreneurs and SME businesses. FAB announced a collaboration with Etisalat Digital to launch a fully contactless digital invoicing solution for SME merchants. While these efforts are promising, it is still slow going.

Graphic that describes evolve, jump, attack framework for banking

Publicis Sapient’s portfolio offering includes a proven and repeatable approach to building digital banks through its Evolve, Jump, Attack model. In the Attack phase, we can create brand-new digital entities to either generate new forms of revenue for existing banks or target specific customers, such as in the case of AGTB with SME trade financing.

In order to stand out from the competition in a crowded banking sector and align services with new government regulation, traditional bank incumbents in UAE need to embrace a full end-to-end digital business transformation that will really make a difference.

Events of the past few months have forced people – consumers as well as businesses – to do things differently. Banks in MENA have a tremendous opportunity to rethink their strategy, fine-tune their response and take bold steps to support the wider economy, by providing seamless and flexible services to achieve operational and customer leadership.

David Murphy
David Murphy
Head of Financial Services, EMEA & APAC

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