Value of SMPs in Enhancing the Financial Inclusion of Small and Medium Enterprises: The UAE as a Case Study

Bassel NADIM

CEO, UAE Association of Accountants and Auditors (AAA). He is also an advisor to the Board of Tanmia Capital Limited, a London based consulting firm. 


Economic authorities in the United Arab Emirates (UAE) have focused attention and planning on the development of Small and Medium Enterprises (SMEs) with a view towards improving employment and boosting economic activity throughout the country.  In seeking to support and promote SMEs, their counterparts in the accountancy profession - Small and Medium Audit Practitioners (SMPs) play a critical role in supporting SME financial reporting, enabling SMEs access to finance and improving financial inclusion within economy.

SMEs Significant Role in the UAE Economy

The contribution of SMEs to the UAE Gross Domestic Product (GDP) is roughly 60%, which is well-above the global benchmark of SME economic contribution (45%). As can be seen in the graph to the right, Emirati SME contribution to national employment also rates much higher than regional and global averages with Emirati SMEs contributing roughly 84% to national employment. Within the UAE, a significant portion of SME activity is centralized in the country’s business capital of Dubai (45%) with almost 75% of SME businesses being active in trade and retail services1. The new UAE Federal Law 2/2014 is highly expected to enhance the position and contribution of the SME sector to economic prosperity given the structural alignments envisioned through this law. According to the law, the Ministry of Economy will establish and chair a national SME Council. This council holds as its future mandate to collaborate with public and private shareholders in the development of a national SME program. This program shall perform activities in relation to capacity building, conducting needed research and coordination of local SME development programs and schemes nationwide.

SMEs’ Financial Inclusion

The ability to access financial services is defined as financial inclusion2. Obtaining financing facilities is of particular importance for all businesses - SMEs are not an exception.  The aforementioned Federal Law has addressed that issue through two initiatives: market access and banking access. On the market access side, this legislation sets minimum levels designated for small business contractor. Specifically the federal government and those corporations in which the federal government owns more than  25%  of their total capital, are obliged to direct 10% and 5% respectively of their budget towards procurement from SME companies. On the banking access side, the Federal Law has improved this aspect by requesting Emirates Development Bank (EDB) to allocate 10% of its financing exposure toward SME financing. However, other banks and financing companies (e.g., commercial banks) are still free to construct their lending portfolios as they deem fit. The ultimate objective of this initiative is to elevate SMEs financial inclusion in the country. Loans to SMEs in UAE were recorded at the level of US$ 4 billion by 2013 which constitutes only 4.5% of the entire lending. Recent reports from the World Bank3 suggest that the required funding needed for SMEs in UAE is roughly US$ 25 billion. This is almost 6 times the amount of the existing SME lending portfolio - a proposition that currently signifies a low financial inclusion ratio for the SME sector.

SMPs as a Catalyst for Financial Inclusion

In most cases, SMEs look for financial advice and professional support from SMPs as trusted advisors who can offer accommodative professional fees and who operate within a more SME-tailored framework when compared to larger audit and strategy firms. To be most effective in their role in advising SMEs and facilitating their access to finance, SMPs must develop a set of services and products to address the challenges faced in SME access to finance. Examination of the reasons for rejecting SMEs lending applications may provide some strategic direction. The matrix below identifies some of the key reasons for lending application rejection and suggest products and services that an SMP may offer. In addition to tailoring and enhancing SMP provision of specific business lines as highlighted above; general strengthening of SMP firms, the professional accounting organizations (PAOs) which support and oversee them and the legal and regulatory framework in which they operate – can all be seen as integral pre-requisites in furthering SME financial inclusion. The better equipped and more recognized the SMP, the greater the strength of its reports and the more positive response from lenders. 

It is a common occurrence that banks shortlist larger audit firms as approved auditors and business advisors. With exception of a few select SMPs, the majority of these firms are not shortlisted by banks despite the fact that they are licensed as chartered accountants. This may be due in part to the lack of proper internal review systems and international systems of quality control established within some SMPs.

UAE Accounting and Auditing Association (AAA) –Supporting and Strengthening Local Emirati SMPs

Recent data from the Ministry of Economy states that there are 105 chartered accounting firms in the UAE. Considering global and regional rankings, SMPs comprise the vast majority of these firms in operation within the UAE.  Although there are strong numbers of SMP firms, the aforementioned challenges hinder SMPs competitiveness in the market and may limit SMEs’ choices, and possibly result in SME growth stagnation. In recognition of these challenges facing SMPs and SMEs, the AAA has designed and drafted a high-level SME model which appropriately captures the inter-relationship between SMEs and SMPs in the UAE. This model demonstrates the position of SMPs at the heart of SME business advisory needs and access to finance. Additionally, in June 2014, alongside the World Bank Exchange 2014 Conference, the AAA in partnership with the International Federation of Accountants (IFAC) and World Bank conducted a capacity building workshop aimed at transferring knowledge and good practices in the SMP sector so as to better enable local Emirati audit firms to reach their potential in providing high quality services to their SME clients. Finally, in recognition of the need for a system of Audit Quality Assurance to promote internal systems of quality control and high quality services amongst all audit firms; the AAA has held dialogue with the World Bank and IFAC regarding the nature of such systems, their components and their objectives.


1. Dubai SME, The State of Small and Medium Enterprises (SMEs) in Dubai, 2013. Small and Medium-Sized Enterprises in the EU, 2011/12 (Ecorys)

2 The Global Findex Database

3 The Status of Bank Lending to SMEs  in the Middle East and North Africa Region: Results of a Joint Survey of the Union of Arab Bank and the World Bank 2011



Strategic Directions for SMPs offers


Reasons for rejecting a financing application from an SME

What services an SMP can provide

Clarity of the project details and its cash flow projections*

Co-developing proper business case

More than usual risk in the operation of the applicant*

Co-developing a business plan, with focus on achievements, stress scenarios and risk development framework.

The submitted file is incomplete*

Filling guidance and administrating

Poor technical competence in addressing the lender’s questions*

Financial advice

Providing financial management on outsourcing bases

Loan- collateralization ratio is not well established*

Assets and business valuation.

Structuring a financing scheme to meet the collaterals status. 

Confidence in the applicant business profile*

Operational excellence programs

Quality assurance systems

Accounting and auditing

Technical competence in fulfilling the regulatory requirements**

Investing in knowledge of certain industries and regulatory framework. Showcase thought leaderships



* D&B Business Insight Series – SME Lending in UAE, 2008.

**SMP Development in UAE and the work of the Accountants & Auditors Association (AAA) – Bassel Nadim

*** Conflict of interest rules shall be observed