Skip to content Skip to Search
Skip navigation

Unlocking SME potential through improved access to credit

Open banking will reduce hurdles to loans for small companies

Computer, Computer Hardware, Computer Keyboard Unsplash/Firosnv photography
Open banking can make it easier for small businesses to apply for a loan

Small and medium-sized enterprises (SMEs) often face challenges in obtaining financing from banks. This is a global issue compounded by the conventional methods used by banks to mitigate the risk of lending to smaller companies seeking growth.

A new wave of open banking is set to alleviate these challenges by revolutionising the way SMEs access funding for their businesses.

Open banking is a catch-all term referring to the practice of enabling secure interoperability in the banking industry, allowing third party payment service and other financial service providers to access banking transactions and other relevant financial data.

One of the main obstacles for SMEs seeking financing from banks is the requirement to provide a significant amount of financial data about their business for due diligence purposes.

Banks want to see evidence of the SMEs’ financial transactions in order to assess their creditworthiness and ability to repay the loan.

However, many SMEs may not have this information readily available or may be caught up with other responsibilities at hand.

The emergence and advancement of open banking and fintechs using it has made the collation and sharing of financial data with lenders much simpler. 

As most SME transactions are already done online or moving towards digital platforms, open banking can automatically gather and share this data, with the SMEs consent, with lending institutions.

This allows lenders to assess and qualify applicants for commercial loans more efficiently and accurately.

Open banking has been live in Bahrain since 2019 and in Saudi Arabia since November 2022, and is set to go live in the UAE this year.

As Mena’s markets adopt open banking, so the numbers accessing it will grow, providing more information that provides vital feedback to developers. 

New services such as lending at point-of-sale – or “embedded finance” – will become available and we will eventually see taxes collected using similar systems.

Open banking not only changes the protocols for obtaining business finance but also makes it significantly faster, with almost immediate account aggregation, credit risk assessment, and faster customer onboarding.

In Europe there are already examples of online companies which offer small or modest business loans and provide fast quotes. This enables SMEs to access business finance in minutes rather than weeks or months.

In a cash-dominant society, such as Mena, SMEs may also struggle to gather financial data required by banks to fulfil their protocols.

Some may not even yet have a bank account but hope to move to that stage in their development. That’s where many face a Catch-22 where they cannot easily open an account, cannot obtain a loan, and therefore continue working only in cash and without a bank.

However, there are some positive developments taking place, such as the announcement made in 2021 by Saudi Arabia’s Ministry of Commerce that SMEs will be exempt from registration fees.

The kingdom has also committed to increasing the percentage of loans allocated to SMEs by financial institutions to 20 percent.

These steps are seen as a move in the right direction to unlocking the potential of SMEs in the region.

Saudi Arabia has also announced the Kafalah Initiative, established by the Ministry of Finance, which provides access to financing, including Shariah-compliant loans, for small and medium-sized enterprises. What’s more, Saudi Aramco recently launched an $800 million dollar fund for an SME support programme.

Thanks to the growing adoption of open banking in Mena, these services are about to become more mainstream in a region where SME finance services are often sorely underrepresented. This development will help to boost regional inclusion.

By using open banking solutions and, consequently, direct bank payments, SMEs can evade costly payment gateways for transactions.

Open banking also allows smaller companies to directly debit authorised payments from customers’ accounts – replacing costly manual procedures that tend to delay cash flows.

The old days of institutional barriers to SMEs obtaining finance could soon become a thing of the past – and it will be Mena’s open banking revolution that will have delivered the change. 

Nino Ocampo is chief product officer at Tarabut Gateway 

Latest articles

The UAE's minister of industry and advanced technology, Sultan Al Jaber, left, met Karl Nehammer, Chancellor of Austria, for talks on trade

Austrian finance unicorn to open in UAE

Austria’s first unicorn has announced plans to set up in Dubai, as officials from the UAE hold top-level talks in Vienna to build on a 22 percent increase in bilateral trade last year A unicorn is a startup company valued at more than $1 billion that is privately owned and not listed on a share […]

Mads Bo Larsen, vice-president of Novo Nordisk UAE, says a local plant 'will not solve anything' in the face of the country's Ozempic shortage Video length: 3:39

UAE diabetics face Ozempic shortage due to weight-loss users

The manufacturer of Ozempic is “troubled” by the fact the drug, which was designed to help people with diabetes, is in short supply in the UAE because of the high number of consumers using it for its weight loss side-effects. Danish pharmaceutical company Novo Nordisk introduced Wegovy, a drug meant to specifically tackle obesity, to […]

A market in Cairo. The meeting of the central bank’s MPC was its first since Egypt secured $8 billion in financial support from the IMF in March

Egypt holds interest rate hike despite slowdown

The Central Bank of Egypt has kept its key interest rates unchanged despite a slowdown in economic growth. The monetary policy committee (MPC) left the lending rate unchanged at 28.25 percent and the deposit rate at 27.25 percent. Inflation has eased since the annual headline and core inflation peaked at 38 percent in September 2023 […]

The number of electric vehicles in Dubai passed 30,000 by the end of April 2024

Parkin to roll out more green EV chargers across Dubai

Dubai is expanding its network of electric vehicle (EV) chargers as part of the emirate’s push to accelerate smart and green mobility. Parkin, the state-backed parking management company, has signed an agreement with the Dubai Electricity and Water Authority (Dewa) to increase the number of EV green charger stations at prime locations across the emirate. Parkin […]