RAKBank reveals 10% attrition rate for SMEs

Alamy via Reuters

• RAKBank supports 50,000 SMEs
• Attrition rate of 10%
• SMEs are 60% of GDP

Ras Al Khaimah’s RAKBank has revealed a 10 percent annual churn rate of startups funded in the UAE – an amount it says is well below the global average.

The lender has almost 50,000 small and medium-sized enterprises on its books and last year handed out AED2.5 billion ($680 million) worth of loans to more than 3,000 companies

Dhiraj Kunwar, managing director of business banking at RAKBank, said 18,000 of the bank’s customers had been with them for more than 10 years, while the overall exposure to the SME sector is close to AED10 billion.

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“The natural attrition is something around 10 percent,” he said. “And it can be for a variety of reasons – change in plan, driving to new industries, setting up a different job or winding up of operations.”

Kunwar said the global industry average attrition rate was around 50 percent.

SMEs make up 94 percent of companies operating in the UAE and contribute more than 60 percent to the country’s GDP.

“It’s possible the sheer volume of new companies setting up are cancelling out those that are failing,” said Lucy Chow, general partner at the WBAF Angel Investment Fund.

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A report by startup data company Magnitt revealed that overall funding in the UAE last year declined by 46 percent compared with 2022, but the Gulf state retained its title as the most active region by deal count.

Ryaan Sharif, general manager of Flat6Labs UAE said that, at pre-seed and seed stage, you can expect at least 90 percent of startups to fail.

“A lot of people want to become startup founders today,” he said. “A lot of people probably shouldn’t. They’d be better off either doing a more conventional business or actually staying in the workplace and continuing doing their jobs rather than trying to build a product that nobody’s going to use.”

The inaugural RAKBank SME Confidence Index revealed two-thirds of respondents surveyed had a positive view of the future business environment in the country.

The UAE’s non-oil GDP is forecast to grow by over 4 percent this year, with GDP to increase 5.7 percent.

The construction and manufacturing sector had a confidence index score of 62 and had the highest revenue increase over the last two years, according to the report.

Rupert Tait, co-founder of property technology company Procurified, secured $1.1 million in seed funding in late 2022.

“In terms of small business, there probably hasn’t been a better time to start a business or to build one. I think the sentiment is very positive,” he said, although he cautioned that there still existed too much red tape and bureaucracy when it comes to approaching banks for funding.

Tait said he “wouldn’t even bother looking at a bank,” preferring instead the peer-to-peer lending platform Beehive.

In January, Sheikh Hamdan, Dubai’s Crown Prince. launched the Dubai International Growth Initiative, allocating AED500 million to accelerate the expansion of SMEs set up in Dubai into global markets.