Markaz issues a special report titled “Kuwait SMEs post COVID-19: Current Situation”

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Markaz issues a special report titled “Kuwait SMEs post COVID-19: Current Situation” 19 - Jul - 2020

Kuwait Financial Centre ‘Markaz’ issued a special report titled “Kuwait SMEs post COVID-19: Current Situation”, which sheds light on the importance of the SMEs sector on Kuwait economy. It also depicts the financing challenges faced by SMEs in relation to the banking sector and the National Fund for SME Development (The SME Fund), in the midst of the COVID-19 outbreak, government actions taken throughout this period and last but not least, possible ways to mitigate the impact of the pandemic.

The report highlighted the role played by the SMEs sector in the Kuwaiti economy, where it contributes around 3% of the GDP, with the gross value added by the SMEs of KD 1,216 million (2019). Moreover, it stated that there are approximately 25,000 to 30,000 SMEs in Kuwait, representing about 90% of the total number of companies, with 40% of these companies in the wholesale/retail trade and hotels and restaurants, whereas 33% are in the construction and industry sectors.
 
The economic impact and financial challenges faced by SMEs were also addressed in the report, where the pandemic caused disruption across various business activities in this sector. It showed that most of the small enterprises have limited cash reserves, and labor shortage, due to restrictions on movement, which resulted in major challenges leading to the loss of revenue, and temporary business closure, impacting the sector’s cash flow. In turn, this will essentially affect SMEs ability to resume work.
 
The report also shed light on the series of actions taken by the Kuwait government and how efficient they were in support of SMEs, where it included the provision of soft loans based on the Council of Ministers’ decision No. 455 issued in 31/3/2020. The primary objective of the funding is to fund cash flow pertaining to payment of rents, salaries and payments to suppliers. However; the decision No. 455/2020 did not encourage banks to provide loans to SMEs, and consequently, a new law, which still requires parliament approval, was proposed guaranteeing 80% of the loan by the government, and presents SMEs with the opportunity to apply for a loan with a maximum loan value of KD 250,000 mainly to pay for salaries and rent.
 
Accordingly, the Central Bank of Kuwait (CBK) has extended incentives to banks to lend to SMEs by reducing the risk weights for SME loans and putting in context a series of conditions, whereby loans are granted only to existing clients of banks and the SME business should be in a value-adding sector to the national economy. The SME business should also be capable of creating national employment. In addition, the business should have been profitable pre-COVID-19 and should not have defaulted on any of its loan obligations. The business should also belong to a sector that has been affected by lack of mobility due to COVID-19, and the SME borrower should also not distribute any profits as dividends during the period of loan. All these conditions are designed to safeguard the lender from credit default risk; however, they risk turning away majority of prospective borrowers due to these conditions. That said; coordination between related authorities is still anticipated.
 
In an effort to mitigate the overall impact of the pandemic on this sector, Markaz report suggested the enforcement of the procurement law, to meet the needs of SMEs in terms of contracts and procurement. It also suggested empowering the SME Fund to delegate its operations to the private sector and position the fund only as a regulator, while supporting with capital to grow the SME sector.
 
The “Kuwait SMEs post COVID-19: Current Situation” report comes as one of a series of reports issued by Markaz and falls in line with the company’s commitment to providing studies and analysis on the performance of various sectors that contribute to the advancement of Kuwait’s growth, and keeping up with the nations endeavors that support the overall prosperity of its economy.
 
“Kuwait SMEs post COVID-19: Current Situation” report