The United Arab Emirates will allow small and medium-sized businesses to use assets including tools and raw materials as collateral to back loans, in order to encourage lending to them.
A federal law on “securing interest with movable property” expands the scope of previous legislation by including more assets that can be used as collateral and through other amendments that improve enforcement in case of defaults.
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SMEs often find securing finance challenging for a number of reasons, including their size and a lack of financial history on which banks could base lending decisions.
“This law enables companies operating in various business sectors, especially SMEs, to benefit from their movable properties to secure their bank and commercial loans,” Younis Haji Al Khoori, undersecretary at the UAE’s Ministry of Finance, said in a statement on Wednesday.
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The law will “support SMEs to easily obtain the necessary financing, by diversifying the financial assets that can be used, while ensuring the rights of creditors from banks and financing institutions,” Khoori added.
Read more: UAE Central Bank drafts rules pushing banks to lend to SMEs
It comes during an economic downturn, as vital sectors of the UAE’s economy -- such as retail, trade, and transportation -- have been suffering from coronavirus containment measures.
“This law will have a significant positive impact on the nation’s economy,” Khoori said.
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