The UAE: MENA’s Entrepreneurial Hub Tested by Financial Challenges

By Nadine El Shiaty
Published:
May 15, 2020
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In the UAE, the powerful entrepreneurial hub dubbed as the ‘Silicon Valley of the Middle East’, 65% of UAE entrepreneurs single out banking as their number one challenge.

While financial challenges vary across MENA and affect entrepreneurship differently from one country to another, financial accessibility, difficulties with opening a business account and lack of early-stage business support arose as the most pressing hurdles for startup founders in the UAE.  

A Flourishing Startup Ecosystem Interrupted by Access to Finance and Banking 

The UAE ranks number 11 on the World Bank’s 2019 Ease of Doing Business List, for boasting a flourishing startup landscape, a thriving investment community, and resources including workshops, incubators, mentors, and co-working spaces. 

The country birthed full-fledged unicorns like Uber-acquired ride-hailing app, Careem and Amazon-acquired e-commerce website, Souq.     

Reigning on top of emerging ecosystems, the Emirates secured 62% of the total funding in MENA in 2019, a 21% increase compared to 2018, according to recent stats by Magnitt. 

A study by Dubai Chamber and Roland Berger highlights that UAE-based entrepreneurs face three key challenges – two of them being the scout for affordable office spaces and navigating the funding ecosystem. But the most daunting endeavor for UAE startup founders, one that stands in the way of their entrepreneurial pursuit, is access to finance and banking.

Let's have a look at what startup founders experience when seeking financial services.  

1 - Opening a Business Bank Account is Nearly Impossible

For most startup founders in the UAE, the key challenge when it comes to banking services is ironically the very first step: opening a bank account. Many entrepreneurs claim it takes up to to open a business bank account in the Emirates—even longer in some cases. And that’s if the account is approved at all. According to Garant Business Consultancy, 50% of companies are denied corporate bank accounts in the Emirates.

For UAE-based entrepreneur Islam Hussein, opening a bank acount took three weeks of daunting and time-consuming paperwork. Having a bank account for his car subscription startup, Invygo, was a complex process that required a great deal of time and effort chasing requirements, from documentation and identification to presenting how many shareholders are in the holding company and how many shares each person owns.

“Most banks here will ask for a physical address. But we work in an open space and banks will say ‘we don’t do open spaces’,” he said. 

According to Islam, some founders find workarounds like creating a shell company that owns the local company, but this process, from a banking perspective, can also become a nightmare.

“Every time you want to open an account, [banks] will ask you to attest all the documents from the mother company which is super expensive and very time-consuming.” 

Opening and maintaining a business account can also require huge deposits, as UAE banks impose a minimum balance for business accounts. The minimum balance varies between AED 15,000 and 50,000 ($4,000 USD to $13,600 USD), which, for many startups, is needed for investing in the business itself.  

For UAE startups to get approved by bigger banks they need to raise huge capital. “We couldn’t get into [prominent banks] until we raised our last investment round of $1M,” Islam said.  

For other founders, opening a new business bank account for their rebranded startup is a huge hassle. According to Marc Farhat, COO of behavioral marketing agency startup, Solouq, even when founders spend years with the same bank under a specific startup name, banks believe that any name change in that startup means a start from scratch. 

“We couldn’t change [our former company’s] account because it was linked to a trade license and even if we wanted to open a new account, it has to be with a bank we have history with,” Marc told us, adding that Solouq is still operating under the old bank account. 

Other obstacles faced by UAE founders attempting to open a bank account include: a lack of simple step-by-step guidance, repeat requests for additional documents or verification, lack of transparency and consistency around approval requirements. 

But the worst part, for many startup founders, is having no control over the duration of the approval process – a problem that induces stress levels for cash-strapped entrepreneurs who want to immediately kickstart their business accounts. With no access to bank accounts or business debit cards, and an unlikely approval for business credit cards, entrepreneurs have no other choice but use their personal low-limit cards for their business expenses, which makes reimbursing work expenses painful.   

2 - Banks Have a Limited Appetite to Lend to Startups

Bank loans are out of reach for startup founders in the UAE in their first few years of existence –unless they have an established company track record of 3 years.

According to the Dubai Chamber study, UAE banks were burned by non-performing SME loans in the past. They consider entrepreneurs ‘a flight risk’ that could leave the country at any moment.

I don’t think any banks offer anything for startups. They offer for SMEs, but I have never heard a bank that offers anything for startups,” Islam said. 

Additionally, banks in the UAE do not have the required know-how to run due diligence, especially on early-stage startups. In short, startups are not as commercially attractive for banks as other customer segments.

 

3 - Non-Digitized Banking Experience

A time-consuming sign-up process further adds to the list of complexities for startup founders. Document verification requirements are slow and overwhelming, which can inundate entrepreneurs who are already extremely busy with growing their businesses.

“The most stressful thing in my life was this. Paperwork that adds no value to anyone,” Islam said, explaining how he actually had to redo the entire banking paperwork when his shares were transferred offshore from the local entity to the holding company.  

Additionally, credit card statements can only be accessed by the founder whose name is on the card, a major challenge for the rest of the startup team who don’t have access to the funds and have to pay off business expenses from their own credit cards.    

“Every time we have some business spending to do, we have to get the startup founder’s approval. If it’s an online transfer, he has to personally approve it or we take the credit card and pay if we have to,” Solouq Account Manager, Iti Armpalu told Tribal Credit.   

Battling odds like access to finance, and lengthy procedures are some of the rooted challenges for entrepreneurs based in the UAE. Startups and SMEs represent over 94% of companies across the UAE. They are playing a key role in driving new technology adoption, smarter solutions, economic diversification and job creation. 

Having an operational bank account is a prerequisite not only for running a business, paying suppliers and online subscriptions, but also for growing and scaling. 

Today, neobanks are disrupting the finance space with cutting-edge technologies that conduct effective risk-assessment for customers, deliver better client experience and detect fraudulent transactions. In other words, they are actively solving the banking barriers in developed markets. Unfortunately, the Middle East remains largely underserved.   

For entrepreneurs in emerging markets burdened by banking challenges, there’s Tribal. Built to serve the unique needs of startup founders in emerging markets, Tribal saves you the hassle it takes to get a business account and a corporate card. Tribal’s AI-driven approval process speeds up the due-diligence process and helps underwrite startups in minutes, with very few documents and no personal guarantees required. To sign up for Tribal waitlist, click here.