One of the unfortunate consequences of the recent fall in oil prices is a regional tightening of lending conditions for small and medium-sized enterprises (SMEs). The vulnerability of smaller firms to business interruptions means that lenders adopt a cautious stance, often demanding more collateral or stricter documentation standards, and offering shorter tenors. However, while Bahrain’s banking industry is not immune to this tendency, the importance of SMEs to the economy has prompted the government to nurture a vibrant ecosystem of training, services and financial institutions, to help grow the SME sector.
One challenge in tracking the progress of SMEs in the MENA region stems from the variety of definitions applied to them. In Bahrain the most commonly accepted definition is that formulated in 2006 by the Ministry of Industry and Commerce (MoIC), which categorises micro enterprises as those with less than 10 employees and annual turnover under BD100,000 ($263,000). Small businesses are defined as having between 11 and 50 employees (or up to 100 for the construction sector) and annual turnover of BD100,000-1m ($263,000-2.63m). Medium-sized businesses are considered to be those with 51-250 employees (up to 400 for construction sector) and annual turnover of BD1m-5m ($2.63m-13.2m).
Different criteria are applied to the manufacturing segment, where small companies are classified as those with a capital investment of BD20,000-500,000 ($52,700-1.3m), and medium companies as those with BD500,000-3m ($1.3m-7.9m). According to these criteria, micro businesses and SMEs represent nearly 90% of all firms operating in Bahrain, when branches of foreign companies are included, or around 97% of local businesses. According to the MoIC, SMEs account for almost 30% of GDP and provide jobs for 73% of private sector employees.
Due to their crucial economic role, the government has expended much effort on boosting SME activity, in doing so establishing Bahrain as a regional pioneer in SME policy. The Arab Regional Centre for Entrepreneurship and Investment Training has existed in Bahrain since 2001, set up by the UN Industrial Development Organisation (UNIDO) and an Indian government entrepreneurship organisation.
Over the past decade the MoIC has worked with other government bodies in a broad effort to improve the business environment for smaller companies, simplifying business set-up procedures, implementing effective and transparent regulations, building industrial infrastructure and parks, ensuring the availability of industrial land at a competitive price, and increasing market access through trade agreements.
Recently, more focused assistance for SMEs has come from Bahrain Chamber of Commerce and Industry (BCCI), which in 2013 launched its SME Development and Support Centre (SME DSC). Located in BCCI’s Manama headquarters, the SME DSC provides services to Bahraini SMEs in regulatory advice, export operations, business processes, access to funding, and establishing partnerships with regional and international SME organisations. The centre was established with the assistance of a number of institutions, including UNIDO, the MoCI, the Bahrain Development Bank (BDB) and Family Bank. The two lending institutions have allowed the SME DSC to offer a range of financial services to its clients, including micro-financing, SME financing and export guarantees.
The BDB has established a set of non-financial services in the form of its Entrepreneurship Orientation Programme and the Entrepreneurship Development Programme (EDP). The former is a five-day course covering the basics of entrepreneurship, open to all Bahrainis without a fee. The EDP admits 20 students for a four- to six-week course with modules in areas such as market analysis, financial administration and accounting; information on SME support schemes and institutions; legal processes, human resources, e-commerce and IT; how to create a business plan; and soft skills.
Tamkeen is another major pillar of SME development. Established in 2006 as part of a government economic reform effort, it is charged with two principal objectives: encouraging the creation of enterprises, and providing the support necessary to increase the productivity of existing firms. Its most significant contribution to the SME sphere is the finance scheme it has developed in cooperation with an array of Bahraini banks, by which SMEs are granted access to sharia-compliant facilities at a competitive profit rate. Tamkeen subsidises 50% of the annual profit rate, up to 8% on the reducing balance. Financing packages range from BD5000 ($13,200) to BD500,000 ($1.3m) with tenors extending to as long as 10 years, depending on the purpose of financing, and a grace period of one month to two years, subject to the bank’s policy. Participating banks include the BDB, Bahrain Islamic Bank, BMI Bank, Standard Chartered, Khaleeji Commercial Bank, Al Salaam Bank and Kuwait Finance House. As well as its central financing function, Tamkeen offers SMEs practical assistance through its Enterprise Support Programme, experience-building through international placements for employees and a wide range of support for start-ups.
Bahrain’s SME ecosystem, then, is one of depth and complexity, with a range of interlinked organisations offering funding and training solutions. New initiatives in recent years have increasingly sought to tap into the high level of internet connectivity displayed by Bahraini businesses.
In May 2015 the MoIC announced the launch of a new SME toolkit, formulated by the ministry in partnership with the International Finance Corporation (IFC), Tamkeen, the BDB and BCCI. The initiative is a standard IFC package found in many emerging markets, with local content applicable to the economy that includes guides on registering a new business, regulatory information, assistance schemes, investment opportunities, mentoring and export advice, business directories, market and trade statistics, tender information, and buy-sell bulletin boards.
Speaking at the launch of the toolkit, the undersecretary of industrial affairs at the MoIC, Osama Al Arrayedh, outlined the usefulness of an online system: “Today, we live in a technology era dominated by multimedia avenues which were not previously available. This offers us a new way to reach out and respond to our customers. We have a reasonable presumption that 80-90% of Bahraini SMEs already use some form of electronic data transmission. This online Bahrain SME Toolkit, with its technical content sourced from International Finance Corporation, would go a long way in meeting the information and self-learning needs of our SMEs.” Moreover, in keeping with the interconnected nature of Bahrain’s SME ecosystem, the toolkit will also channel clients to the BDB’s subsidised SME financing programme.
Another recent online initiative came courtesy of the Bahrain Small and Medium Enterprises Development Society. The non-profit organisation is licensed by the Ministry of Social Development to advance the cause of SMEs in accordance with Economic Vision 2030. In May 2015 it signed an agreement with 4Spots, a Bahraini website design outfit, to develop an SME online portal through which it will offer its members access to functions such as legal contract services and advice on administrative requirements.
Meanwhile, the multifarious organisations that service the SME segment have been listening to their clients, with a view to shaping government policy for the sector. An issue that emerged in 2015 came as the result of a colloquy between BCCI’s SME committee and Bahraini businesspeople, which revealed a desire for a specialised, round-the-clock dispute resolution court through which settlements could be fast-tracked. According to BCCI, the proposed body would obviate the need to engage in lengthy legal disputes for cases such as liquidation of assets, claims against employees or employers, salary issues, debts and bounced cheques.