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Oman’s banking regulator, the Central Bank of Oman (CBO) has been at the forefront of promoting policies which facilitate access to finance for the nascent SME sector in the country. Initiatives include a regulation mandating banks to allocate a minimum 5% of their total loan books to SMEs by the end of 2015.

This measure, introduced following a 2014 CBO report which recognised limited access to and the high cost of finance as an inhibiting factor for SME growth, has posed challenges for the banking sector. The small number of SMEs in the market combined with their relatively modest financing requirements, means that the larger banks in particular face difficulty building up sizable loan books in the segment.

A new definition of SME introduced in January 2016 which significantly increases the number of enterprises eligible for SME funding is expected to make it easier for banks to reach the 5% target. Essentially, larger enterprises (measured by the higher of turnover or staffing levels) will now be treated as SMEs. The decision classifies a micro enterprise as one with 1-5 employees and turnover of less than OMR100,000 (previously 1-4 employees and turnover of less than OMR25,000); a small enterprise has 6-25 employees and turnover of OMR100,000-499,999 (increased from 5-9 employees and turnover of OMR25,000-250,000); and a medium enterprise has 26-99 workers and turnover of OMR500,000- 2,999,999 (increased from 10-99 employees and turnover of OMR250,000-1,500,000).

According to industry experts, the measures taken by the banking regulator have led to plenty of liquidity in the market to finance smaller firms. The main challenges now for the sector are lack of innovation and entrepreneurial culture, business skills and proper auditing/accounting mechanisms for SMEs.

For further information, contact banking and finance team members, Marcus Pery or William Barrie.