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GCC Businesses Searching for Alternative Financing

Access to financing is hurting businesses within the Gulf Cooperation Council (GCC). According to credit insurer Coface, financial conditions across the GCC are tighter now than before 2015, and bank credit conditions are forcing companies to look elsewhere for financing.

Bank credit conditions in the Middle East and North Africa tightened during the first quarter of 2019, yet conditions were eased in other portions of the emerging world. Credit growth is expected in the GCC in the future thanks in part to the Federal Reserve's policies.

Oil price recovery has also helped. "Bank operating conditions seem to have stabilized, yet there are some potential risks. The level of oil prices is a major factor that weighs heavily on the banking outlook," states the Coface report.

Declines in real estate, equity prices and domestic liquidity growth were leading factors in tighter financial conditions, states Coface citing the International Monetary Fund (IMF). Trade finance is one of the options businesses are turning to as banks tighten their lending practices. Trade finance grew by more than 6% in Saudi Arabia in 2018 to $5.2 billion.

"Trade finance is a particularly attractive option for SMEs, as they face several challenges when applying for bank loans: Banks require a lot of information regarding documents such as balance sheets, income statements, products, etc. that not all SMEs are able to provide," according to Coface.

GCC banks focusing on larger companies makes trade financing a likely alternative for small- and medium-sized enterprises. Banks tend to reject loan requests from SMEs—the United Arab Emirates sees 70% of SME loans rejected compared to only 20% in the U.K, concludes Coface.

-Michael Miller, managing editor

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Monday, 14 October 2019