Not about the Money

Financing SMEs

The struggles that SMEs face in Oman are no different from those in any other country. The majority of startups fail due to limited capital, unsatisfactory planning, or sometimes just […]

The struggles that SMEs face in Oman are no different from those in any other country. The majority of startups fail due to limited capital, unsatisfactory planning, or sometimes just bad luck. In a country where the public sector provides attractive employment alternatives, many potential entrepreneurs are understandably discouraged. Oman has the money, the institutions, and the drive to provide for SMEs, but the strategic support and consultancy has thus far been somewhat limited. New legal requirements for the banking sector now give more coverage to local startups; however, the launch of the Al Raff’d Fund in 2013 has allowed for SMEs to receive the support they require, both financially and strategically.

His Majesty Sultan Qaboos has always tried to implement a strong SME culture among his people, and his royal decree to establish the Al Raff’d Fund in 2013 demonstrates that this dedication has continued. The Al Raff’d Fund differs from other institutions due to the fact that its business is totally geared toward SME financing and development. While the banking sector is now mandated to dedicate 5% of its business to SMEs, the Al Raff’d Fund dedicates 100%. Four different SME products are offered by the Fund, catering to a broad demographic of entrepreneurs. Most importantly, perhaps, its support is ongoing; after funding for three years, the Fund pledges to check up on its beneficiaries every three months to ensure that necessary progress is continuing to be made. Initial support and funding for SMEs is all very well, but long-term devotion can be the difference between success and failure.

That is not to say that the banks have trivialized the SME aspect of their business. Despite the mandate, many banks have realized that it suits them more to support a healthy private sector. For Oman Arab Bank their focus has been on customer relationships in order to build trust and composure among their SME clients. The bank’s CEO, Amin Al Husseini, spoke to TBY on this matter, highlighting that compassion and sensitivity are critical; “All Oman Arab Bank staff are local to the region. Our staff call clients by their first names, and the branch feels like an extension of home. Often, as part of our social responsibility, we become financial advisers.“ The advisory side is a positive manifestation of the government mandate for banks to support SMEs. However, Al Husseini also emphasized the long-term and civic impact of the bank’s support for SMEs: “Instead of focusing on profitability, we try to see, through these companies, what is best for the local community long term.“
However well SMEs may be supported, increased government attention has put pressure on smaller financiers. Oman Orix Leasing Company, one of Oman’s oldest finance companies, has historically prioritized its SME business. Speaking to TBY, Oman Orix’s CEO, Shahin Ahmed Mohammed Al Balushi, outlined his concerns for the smaller financiers, highlighting that competition has threatened their market share: “Competition is based on rates today and the interest rates from banks are lower than finance companies.“ Al Balushi was able to celebrate that smaller financiers have greater flexibility, but nonetheless described the past 12 months as “a tough year.“

Better coordination within the financial sector would certainly benefit SMEs in the long term. Smaller financing companies have an uphill struggle to remain competitve, and if the Central Bank does not take steps to provide more opportunities for these institutions, their lifespan may be limited if they do not take the opportunity to innovate.

The implementation of new regulations has been very beneficial for SMEs, not only opening up new options for a nascent sector, but also encouraging greater and more detailed support through the provision of advisory services for which the Al Raff’d Fund can certainly take some credit. While the SME sector is still in its infancy, the financial sector has upped its game substantially to support its next steps.

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