National Bank of Oman has gained reputation as the premier banking solutions provider for SMEs in the Sultanate because of our willingness to go the extra mile to support this sector. Total dedication; thorough expertise in the SME sector as well as a strong background in mentoring are among the factors that contribute to the success of NBO’s Tijarati Banking.
NBO’s initiatives for developing the SME sector, under the ‘Tijarati’ umbrella were inspired by His Majesty Sultan Qaboos bin Said’s Royal Directive in 2013, announcing full-fledged support, not only for government initiatives aimed at developing SMEs, but also towards the establishment of schemes within the private sector to support SMEs. As a result of this announcement, the first SME Development Symposium was held at Saih Al Shamekhat in Bahla in 2013, which lead to the issuance of 14 royal decrees in support of SMEs.
In line with His Majesty’s directives, forty SMEs were incubated by ten major private sector organisations, including NBO. In addition, NBO was tasked with the responsibility to supervise the entire programme.
Through the year, NBO selected a number of SMEs representing different sectors for the mentorship programme, and delivered complimentary five-day training workshops in finance and accounting at NBO’s Academy of Excellence, the training arm of the Bank.
The objective of these sessions was to support these SMEs with their new projects, ideas and initiatives as well as help them understand their strengths and weaknesses. We helped inculcate in these companies the habit of independent thinking, as well as, motivated and supported them with reality tips in an interactive manner, rather than dictating to them. The sessions were held in cooperation with the Riyada. After completion of the program, we measured the SME programme with the help of Riyada, based on three key objectives.
Omanisation was a key objective. It included assessing the ability and success of the entrepreneurs to create job opportunities for locals which is one of the key aspects of His Majesty’s vision. The second objective was streamlining and improving operational efficiency to optimize income and profit . The third objective was improvement in the structural model of business. This meant determining whether the model was the right one and if they were experiencing changes after one year and how it was different. The analysis focused on what factors restricted performance and also aimed to help the entrepreneur understand his strengths and weaknesses. After completion of the programme, participants were interviewed about their experience at the mentoring sessions and they replied that they benefitted tremendously.
Importance of Knowledge
While studying SMEs, we found that the key difficulty faced by them was lack of knowledge. We identified that SMEs faced three distinct challenges. Some of them had a basic idea about their venture but did not know where to begin. They did not know how to structure the company or raise funds. Another group had started their venture but had difficulty finding the right resources or the right component in the overall cycle of the business, and were unable to take their venture forward. The third group had started and had functioned for at least a year with great difficulty. This group needed to develop a vision and the right strategy for the future. They also need guidance on next steps.
In general, we realised that all groups lacked knowledge. Everyone needed money but did not know how to begin and develop their business properly. In summary, the core needs of SMEs had to be identified and they needed mentoring.
While dealing with SMEs, we realised the need to go the extra mile. Even if SMEs looked at us as a financial provider, we had to go beyond that role to make them succeed. We needed to be their advisor to help them identify their real needs. This combination of mentoring and guidance is the essence of the support provided by NBO’s Tijarati Banking to SMEs.
SME Clinics
As part of our commitment to SMEs and the business community in the Sultanate, NBO plans to introduce a novel concept ‘SME Clinics’. It would involve an arrangement similar to a clinic where an SME expert would provide needy entrepreneurs consultation at no charge. This initiative is still in planning stage.
Products
One of the key difficulties faced by SMEs is that they cannot provide the required security or guarantee while applying for loans. Often banks are not keen on financing SME customers. Realising this, we have designed a full suite of customized finance products which may or may not require security.
We have five different products for SMEs which cater to their different needs. Our Working Capital Loans provides financial aid by taking security from customers. They may have part of it, but are not sure of the success of their venture. In such cases, we have to take security.
We also provide working capital loans without security. In this case, the stock has to be registered jointly in the name of the customer and the bank and the receivables that come from the business are to be deposited in NBO.
Our professional loans are specially designed products which do not need collateral security for professionally qualified Omanis. The limit for the loan is fixed based on the cash flow of practicing professionals for at least six months. Based on the cash flow, if we see business there, we will fix the loan limit. We will take as security the asset bought using the loan.
Our contracting loan product which doesn’t need security is aimed at SMEs that receive contracts directly from the Government or receive sub-contracts for government work from A-category contractors. This contracting product was specially created in 2014 after the government, conforming to the Vision of His Majesty to promote SMEs, announced a ten per cent quota for SMEs in the contracts approved by the Tender Board. All SMEs carrying out Government or private contracts are eligible for this product. (Almost fifty per cent of our customers comprise this category). The contract has to be submitted to the bank and loan will be issued for the project against assignment of receivables in favour of the bank.
Our construction loans are available to those firms that undertake Government, own or third party projects. A loan is issued against the project and an assignment of receivables.
Our fifth product for SMEs is asset finance. Anybody who needs asset finance, whether machinery, vehicles, or any other assets, can approach us. They don’t need to have collateral. We give them 80 to 90 per cent finance. The asset itself will be held as the security which will be jointly owned by the bank
and customer.
In addition, we have been helping SMEs to get publicity free of cost in addition to providing financial assistance. Whenever we sponsor an event or take part in an exhibition related to business, we include a few SMEs onboard in our booth, thus providing them an opportunity to promote their business, at no cost. Between 2013 and 2014, we helped 12 companies gain publicity in this manner.
SME Souq
Our SME Souq programme has been among the most successful initiatives for SMEs. To date, we have organised five souqs across Oman, spreading awareness to untapped SMEs who needed assistance. At the souq, we offered customers the service of experts in feasibility studies and consultancy, at no charge. We hope to continue this programme as the feedback has been exceptional.
Future Plans
We plan to create a permanent SME clinic, to create an independent standalone Tijarati SME branch as well as ten different hubs in six regions across Oman. We have already initiated plans to launch these hubs shortly. During 2015, we will open four full-fledged key hubs which will facilitate meetings, advise customers, process requests, approve and disburse loans, provide offers and serve SMEs on an ongoing basis. In 2015, we will also introduce a dedicated team across each region in Oman, who will help entrepreneurs across the country in their day-to-day operations. We will have between one and five people in each region as brand ambassadors.
Importance of Start-ups
Developing the start-up sector is the key to SME development. Start-ups need more help and initiatives such as the Raffd Fund from the Government. This will be a key driver, as majority of banks are ready to help SMEs who are already in the business but not start-ups. Start-ups need full support and exceptional services. SMEs in general are owned by people whose day to day lives depend on it. If they don’t get payment on time and enough number of opportunities, it will restrict their growth. SMEs are key contributors to the national economy in other parts of the world, and we envisage this for Oman as well.
Providing loans to start-ups is risky but we have created special products to eliminate risks. At NBO, we not just provide funds to SMEs, but also monitor their operations so that they become more secure. By always lend a helping hand, we treat them not just as a customer who has taken a loan, but as our partners.
Central Bank of Oman (CBO) Directive on SME Loans
The directive of CBO that banks should provide five per cent of their total credit to SMEs does not seem feasible. CBO has extended the time limit set for achieving the target to December 2015. However, our advice on this issue is that this target should be implemented in phases.
Future of SMEs in Oman
SMEs are a critical segment and a key contributor to Oman’s national economy. This sector is responsible for job creation as well as income generation, among entrepreneurs and individuals.