Dubai SME Payment Acceleration Expected To Encourage Investors
The government of Dubai recently announced plans to expedite payments to small and medium-sized enterprises in the Emirate.
Announcing this through the state-run media agency, WAM, the government pointed out that the move is to ensure steady cash flow for SMEs and to help boost the economy in general.
Below are some ways SMEs could benefit from this new policy:
Decreased Payment Period for Projects Executed By SMEs
According to the news report, the government has plans to shorten the payment period for contracts executed by SMEs, from the current 90 days period to 30 days. This measure is expected to generate about $435 million (AED 1.6 billion) additional liquidity for SMEs.
The report also stated that the government plans to decrease the cost of insurance for SMEs to the range of 1-3 percent; this will help more SMEs to be eligible for government tenders. Before now, the insurance cost eligibility requirement for government tenders stood at 2-5 percent, making it impossible for many SMEs to bid for government contracts.
More Government Contracts for SMEs
In addition, the news agency announced that the government also have plans to allocate $270 million (AED 1 billion) worth of projects to joint ventures between public and private sectors, with 5 percent of government capital projects worth up to $109 million (AED400 million) expected to be awarded to SMEs.
Improved Lending to SMEs
A combination of these incentives is expected to have a positive impact on SMEs and the entire economy.
SMEs account for over 94 percent of the total businesses in the UAE, providing employment to more than 86 percent of the private sector's workforce, and contributing about 40 percent to the nation's GDP.
However, despite its potential, the private sector continues to grapple with low lending rates from the financial sector. This according to banking experts is as a result of bank's loss rates to SMEs.
Bankers and industry experts believe that expedited payment to SMEs will improve cash flow, making it possible for small and medium enterprises to do more business transaction with the same capital base.
This move is also expected to make SMEs that qualify for government tenders more attractive to the banking sector and will consequently increase lending for SMEs on the part of banks.
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