My recent article in the World Bank magazine, Connecting Voices, addressing a unique angle in financial inclusion which is the role of small and medium practitioners "SMP" in enhancing the financial inclusion of small and Medium Businesses SMEs

1. United Arab Emirates 80
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 boost-ing
economic activity throughout the coun-try.
In seeking to support and promote
SMEs, their counterparts in the accountancy
profession - Small and Medium Audit Practi-tioners
(SMPs) play a critical role in support-ing
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. With-in
the UAE, a significant portion of SME ac-tivity
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 Econ-omy
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 im-portance
for all businesses - SMEs are not an
exception. The aforementioned Federal Law
has addressed that issue through two initia-tives:
market access and banking access. On
the market access side, this legislation sets
minimum levels designated for small busi-ness
contractor. Specifically the federal gov-ernment
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 expo-sure
toward SME financing. However, other
banks and financing companies (e.g., com-mercial
banks) are still free to construct
their lending portfolios as they deem fit. The
ultimate objective of this initiative is to ele-vate
SMEs financial inclusion in the country.
Loans to SMEs in UAE were recorded at the
level of US$ 4 billion by 2013 which consti-tutes
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 cur-rently
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 accommoda-tive
professional fees and who operate with-in
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 applica-tions
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 en-hancing
SMP provision of specific business
lines as highlighted above; general strength-ening
of SMP firms, the professional ac-counting
organizations (PAOs) which sup-port
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 bet-ter
equipped and more recognized the SMP,
the greater the strength of its reports and
the more positive response from lenders.

2. 81
It is a common occurrence that banks
shortlist larger audit firms as approved audi-tors
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 account-ing
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 num-bers
of SMP firms, the aforementioned chal-lenges
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 draft-ed
a high-level SME model which appropri-ately
captures the inter-relationship be-tween
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 Ac-countants
(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 po-tential
in providing high quality services to
their SME clients. Finally, in recognition of
the need for a system of Audit Quality As-surance
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 re-garding
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
Connecting Voices - THE BLOG - October 2014