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Dubai SMEs turn to banks as VC funding declines

Dubai VC funding SMEs Creative Commons
Emirates NBD says its funding for SMEs is up 34% year on year
  • ‘Big positive’ for entrepreneurs
  • Funding down 73% from 2022
  • Logistics attracts most capital

Small businesses in Dubai are turning to traditional banks for financing as the global slowdown in venture capital funding continues.

Emirates NBD, Dubai’s largest bank by assets, reported that it funded 34 percent more small and medium-sized enterprises (SMEs) over the opening seven months of 2023 compared to the same period last year.

Lucy Chow, general partner at the WBAF Angel Investment Fund, said the news was “a big positive” for entrepreneurs.

“Founders do not need to give away equity if they don’t need to,” she told AGBI.

Startups in the Middle East and North Africa (Mena) region raised $101 million across 26 deals in August, a 6 percent increase month on month in terms of deal value, according to the latest data from Wamda. 

Year on year, however, the funding amount suffered a steeper 73 percent decline.

Ryan Sharif, general manager at Flat6Labs UAE, said: “Certain SMEs that are struggling to raise venture capital are instead turning to banks.”

He explained that banks are more likely to provide loans to SMEs with good credit histories and strong business plans.

However, he added: “Banks are also more cautious than VC firms, and they may require SMEs to provide more collateral or have a higher interest rate on their loans.”

UAE startups attracted $44 million spread over nine deals last month, the Wamda data showed.

In terms of sector funding across the Mena region, logistics bagged the most capital with $36 million, thanks to Riyadh-based technology startup Rewaa’s $27 million Series A round. This was followed by traveltech, healthtech and Web3.

“We’re in the midst of a difficult time for early stage startup VC investments overall,” Robert Kupstas, founder of agtech startups Pure Harvest and Ocean Harvest, recently told AGBI.

In May, e& enterprise, part of UAE technology group e&, acquired a majority stake in Beehive – which leads the crowdfunding platform space in the UAE and also has operations in Saudi Arabia and Oman – to tap into opportunities in the SME lending market.

It connects creditworthy SMEs with investors and announced it had facilitated more than AED1.5 billion ($400 million) of loans.

“I do believe the SME lending landscape is changing, or must change. Digital offerings through fintechs are leading the change by delivering alternative lending solutions,” Chow said. 

“Incumbent lenders need to invest in redesigning their IT to take advantage of benefits that come with a fully digital lending platform.”