BAB: Empowering SMEs through Innovative Financing Strategies!

The Bahrain Association of Banks (BAB) unveiled its vision to offer sustainable and convenient financing options for small and medium enterprises (SMEs) in the Kingdom of Bahrain, allowing them to address their operational needs with direct access to streamlined and swift financing solutions. The organization emphasized that it is committed to ensuring that this vision is comprehensive and all-encompassing, extending beyond just the financial aspects of these entities. It should encompass all relevant aspects in alignment with the government’s objectives and the 2022-2026 financial services sector development strategy. This strategy aims to gradually increase the share of SME financing to 20% of the domestic financing portfolio of retail banks by the end of 2025.

BAB presented this vision during a recent meeting, which was attended by a number of its members and representatives from the Ministry of Industry and Trade, SMEs Development Council, Export Bahrain, the Labour Fund “Tamkeen,” the Bahrain Insurance Society, and other stakeholders. The participants engaged in discussions on ways to facilitate the operations of these institutions, contributing to their progress, stability, and growth, and ultimately enhancing their capacity to generate employment opportunities, diversify revenue sources, and bolster the GDP.

During the meeting titled “Recommendations to bridge the gap in financing SMEs,” Dr. Waheed Al Qassim, the Chief Executive Officer of the Association, presented a vision encompassing ten key points. Foremost among these was the proposal for the Central Bank of Bahrain to continue its support to banks, enhancing their capacity to offer soft loans to small and medium enterprises.

Other suggestions included the establishment of a credit rating system for SMEs by BENEFIT, covering micro, small, and medium enterprises. Additionally, there was a proposal for insurance companies, in collaboration with Tamkeen, to introduce a portfolio ensuring compensation for affected parties, including banks, in case of defaults. This proposal drew on the relevant experience of the United Arab Emirates.

Furthermore, the recommendations involved revising Article IV of the Labour Fund Law “Tamkeen” No. 57 of 2006. The revision aimed to expand the fund’s financing scope from Islamic banks to include all Bahraini banks. Additionally, it suggested redefining SMEs by removing the criterion of “number of employees” and instead focusing on factors such as annual revenues, business performance indicators, and other relevant metrics.

Dr. Al Qassim presented several proposals during the meeting. These included initiating a classification process for audit reports, starting with small-scale and one-person establishments. The aim was to create simplified reports, enabling project leaders to grasp accounting methods and differentiate personal accounts from institutional ones. The plan was to refine these auditing techniques according to the institution’s size. Additionally, there was a focus on establishing specialized units within banks, trained to assess and execute Small and Medium Enterprises (SME) financing applications.

Furthermore, Dr. Al Qassim advocated for the creation of a dedicated academy to train individuals managing small and medium enterprises. Lastly, he emphasized the need for stricter regulations and laws safeguarding the rights of banks and financial institutions supporting SMEs. These measures were intended to incentivize banks to extend more financial support to these enterprises.

Dr. Al Qassim clarified that these ideas were outlined in a working paper open for discussion and enhancement among various stakeholders from government and private sectors invested in SME development. He highlighted the pivotal role of concessional financing for SMEs. Additionally, he announced that the Bahrain Association of Banks would convene another meeting shortly with partners. The purpose was to explore the transformation of these suggestions into a national action plan. This initiative was part of the collective commitment to enhance small and medium enterprises, enabling them to fulfill their role effectively in the Kingdom of Bahrain.

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