Banks cite high risks, weak data for reluctance to fund certain sectors

• At least five banks offer a minimum financing limit of 50,000 dinars for entrepreneurs, with a maximum of 100,000 dinars, while five banks provide loans up to 500,000 dinars, and three banks offer more than half a million dinars.

• Oil and gas, tenders, and consumer products are favored by banks, while restaurants, retail, and real estate are neutral; weak guarantees and experience limit credit appetite.

A survey by the Central Bank of Kuwait found eighteen sectors, including small and new projects, administrative services, and exchange companies, are least favored for financing by banks, while seventeen sectors are preferred and five are neutral, according to Al Rai newspaper.

Preferred financing sectors

Banks reported in a survey by the Central Bank of Kuwait that preferred financing sectors include oil and gas, state tenders, consumer products, food and educational services, environmental, social, and governance contracts, infrastructure-related activities, public services, industry, production, communications, medical care, manufacturing, technology, innovation, renewable energy, sustainable resource management, health clubs, and sectors such as maintenance, cleaning, accounting, marketing, and children’s entertainment.

Non-preferred sectors for financing include micro-enterprises, contracting, consulting, small shops, transportation and storage, administrative services, support services, heavy and light equipment, car offices, architectural finishing works (subcontracting), commission insurance companies, brokerage offices, and recruitment of domestic workers.

Banks cited high credit risks, limited available guarantees, weak financial data, lack of experience, intense competition, and difficulty in collecting funds as reasons for their reluctance to finance some sectors. Additionally, there are five sectors classified as neutral, including restaurants, retail, tourism and travel, and real estate and investment activities.

According to informed sources, at least five banks offer a minimum financing limit of 50,000 dinars for entrepreneurs, with a maximum of 100,000 dinars, while five banks provide loans up to 500,000 dinars, and three banks offer more than half a million dinars.

Weak demand for financing

Banks identified twenty factors contributing to their weak demand for financing small and medium enterprises:

1. Legal or regulatory obstacles.
2. Difficulty in evaluating company performance.
3. Administrative costs associated with small and medium loans.
4. Lack of guarantees or limited availability.
5. Credit risk.
6. Insufficient experience and knowledge in managing the company/project.
7. Weak understanding of financial statements, cash flow management, and their impact on the banking relationship.
8. Lack of financial management.
9. Inadequate financial study of the submitted application and its suitability to the company’s activity and request.
10. Weak financial data relative to the submitted application.
11. Difficulty in assessing the performance and capacity of relatively new projects to fulfill commitments.
12. Limited opportunities in the labor market for small and medium-sized enterprises.
13. Intense competition from larger and established companies in various sectors.
14. High cost of financing instruments.
15. High rental value for project sites.
16. Scarcity and lack of availability of industrial land for industrial and craft activities.
17. Accounting firms providing false or exaggerated project data during loan applications or incurring severe losses when requesting postponement or settlement.
18. Contractors or suppliers manipulating project costs and quotations when seeking financing.
19. Difficulty in reaching borrowers if a project closes, which complicates the renewal of requirements like KYC forms, civil cards, licenses, and insurance, exposing banks to regulatory violations and potential account freezes.
20. Absence of a credit quality evaluation system for companies similar to that for individual customers.

Addressing the challenges

Regarding overcoming the challenges of financing small and medium enterprises, banks have offered various opinions, which can be grouped as follows:

1. Holding training and consulting courses by responsible authorities such as the Central Bank of Kuwait, the Chamber of Commerce and Industry, the Ministry of Commerce and Industry, and the National Fund for the Care and Development of Small and Medium Enterprises, to enhance the efficiency of project managers.
2. Appointing financial and administrative specialists to manage the projects.
3. Providing acceptable guarantees to the bank.
4. Conducting a financial study and business plan that aligns with the company’s activity and the financing request.
5. Developing standards for companies or entities to guarantee loans/financings, especially for new projects, as approved and regulated by the Central Bank.
6. Partially financing the company by the bank, with additional contributions from the owners’ own funds.
7. Establishing necessary legal provisions for banks to liquidate guarantees or assets in case of company failure, and to streamline legal procedures for debt collection to avoid forming provisions.
8. Encouraging large companies to contract with smaller entities.
9. Improving the business environment by simplifying the documentation process.
10. Providing dedicated land with activities and licenses for small projects in industrial and residential areas, rather than focusing on high-cost commercial and service areas.
11. Developing financing products tailored to the needs of entrepreneurs.
12. Reducing the cost of financing provided to the sector.
13. Reinvesting cash flows into the project rather than withdrawing them, especially in the initial years or during expansion plans.

Oil and gas, tenders, consumer products, and food products are favored by bankers. In contrast, restaurants, retail, tourism, travel, real estate, and investment are considered neutral sectors. The lack of guarantees, experience, and intense competition weakens banks’ credit appetite.