Oman needs to develop a mature venture capital market and set up manufacturing and technology hubs for expediting the growth of small and medium enterprises (SMEs). The country also needs to create an atmosphere that encourages creativity, says Aftab Patel, CEO of Al Omaniya Financial Services.
Oman’s strategy for the development of SME sector needs to focus on developing a mature venture capital market and suitable legal financial structures for its smooth operation, said Aftab Patel, CEO of Al Omaniya Financial Services.
Answering questions on the SME sector in Oman, Aftab Patel, who is the CEO of the largest NBFC in Oman and one of the biggest lenders to the SME sector in the country, added that the Sultanate also needs to set up manufacturing and technology hubs around which SMEs grow, if the country wants to make a quantum leap. Emphasising the role of innovation in developing SMEs he said, “We need to create an environment that encourages creativity and experimentation and remove bottlenecks that hamper creativity for the development of SME sector.”
SME financing
Commenting on the often repeated grievance of SMEs in Oman that financé is hard to come by, Patel agreed that by definition SMEs are a high risk start up business and therefore traditional finance companies are not very comfortable with financing them. “As SMEs are owned by budding entrepreneurs with untested ideas not backed either by large capital or established entrepreneurs, they find it difficult to get conventional financing. The relevance of venture capital companies which provide financial capital to high potential but developing companies comes in this context,” said Patel.
But then the question arises as to how to develop venture capital companies in Oman? Answering this Patel said, “We need to create an environment, a legal infrastructure where venture capital can thrive. The country needs laws that allow multiple use of financial instruments to manage specific needs of SMEs. For example, venture capital funds like to fund but need to have the flexibility to convert loans to equity. Government can also provide some tax exemptions or some fiscal incentives to these organisations,” he said.
Commenting on the current state of affairs in the SME sector, Patel said that the SME sector in Oman is still at the beginning of the growth curve despite government of Oman extending liberal help to the sector. The contribution of SMEs to Oman’s GDP is significantly low. Employment provided by SMEs could go up.
Looking at the reasons for the slow pace of development of SME sector in Oman, Patel said Oman needs to have manufacturing and technology hubs which facilitate growth of SMEs as ancillary industries around hubs. Such hubs manufacturing innovative products and providing superior services aimed at export market needs to come up.
“We need to encourage industries from around the world to come to our hubs by providing them incentives,” he said. Existing incentives are not attracting talent that is required. Industries need not necessarily be technology intense. They can be more effort or skill intense, said Patel. “We must market these new hubs into the emerging markets like South Asia and South East Asia also and not only into developed market. as it would be difficult to attract SMEs from developed markets where they have established hubs,” said Patel.
According to Patel it is better to have private institutions handle SME financing. The private sector can do it in a more professional and commercial manner. The government can provide incentives to the private sector to encourage them, he said. What is required is more fiscal incentives to encourage to lend more. Fiscal incentives can be in the form of higher tax allowance for loan losses, low tax and subsidised funding.
Invest in R&D
Elaborating the concept of innovation, Patel said it is essential for getting a foothold in the export market. The country needs to aim at export market because of the small domestic market. This means Oman has to make significant investments in research and development which it does not adequately make currently. Oman has not produced any new technology or innovation in the recent times. That is why development of Oman’s SME sector is not on par with the massive effort being undertaken, pointed out Patel.
Providing suggestions as to how to support SMEs achieve their full potential, Patel said the country needed to take a holistic view. Strategic decisions need to be taken to invest more into research and development and Science and Technology. Higher institutions of learning including universities both in government and private sectors and the existing manufacturing and services sector have to invest more into R&D. For example, banks could set up research centres in economics, or fiscal policies and big government sector companies could set up research centres in their areas, said Patel.
Initiatives of Al Omaniya Financial Services
Al Omaniya Financial Services (AOFS) is the largest financial institution in the country and the biggest financiers of the SME sector, said Patel. “As much as 70 per cent of AOFS’ financing is into SME sector and we finance core SMEs. We have developed many SMEs by advice, monitoring, finance, and many that we have nurtured have become large SMEs. We have experience, skills and ability. Our ability to manage SME is better because we are structured to do it,” said Patel.
Answering questions as to what needed to be done by SMEs who needed loans, Patel said the first thing they should do is stringent business planning. Half-baked business plans won’t do. Dreams are to be supported by solid work, research and dedication. Regarding finance, they should raise part of finance themselves. One needs to believe in one’s idea, said Patel.
Patel pointed out that many SMEs fail because entrepreneurs think some idea will work but it may not. “If we find that their planning process is faulty we ask them to rework. We ask SMEs to scale the business gradually and not to invest huge sums on infrastructure fancy office, transport etc,” said Patel.
Not many SMEs in Oman are based on innovative ideas and a majority of them are service providers to existing large contractors, especially in infrastructure side where one doesn’t need innovations.
When asked about the future plans of AOFS, Patel said, “We are basically a SME financing company and all efforts are focused on SMEs. We will continue to invest in terms of capital, geographical diversification, additional manpower and training.”