Financing schemes to encourage and promote Entrepreneurship amongst UAE Nationals

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Financing schemes to encourage and promote Entrepreneurship amongst UAE Nationals

United Arab Emirates
Project Summary
Elevator Pitch

Concise Summary: Help us pitch this solution! Provide an explanation within 3-4 short sentences.

Khalifa Fund (KF) promotes an entrepreneurship culture amongst UAE Nationals,who desire to start SME businesses, with the necessary support and funding. The aim is to stimulate innovation, Industrial diversification, and increase employment. KF addresses the gap of financing start ups through soft loans, that Banks are usually reluctant to address.

About Project

Solution: What is the proposed solution? Please be specific!

Our loan schemes are unique as we provide an interest free loan with promoter's contribution of 10%, with 2 years grace period and a 5 year repayment period. Moreover, we provide a considerable loan amount that caters for startups (in Khutwa and Bedaya programs), and to facilitate the expansion of existing business (in Zeyada program). The schemes address a range of business activities, at various stages of the business life-cycle, start-ups to businesses aiming for expansion. Our schemes serve a large range of UAE citizens, with the aim to achieve socio-economic growth: • Khutwa program : a micro financing program that targets women, heritage revival businesses and disadvantaged groups (prison inmates, rehabilitation centers inmates, individuals with special needs…etc), to enable them to be self-sufficient. • Bedaya program: serves business start-up owners who are facing challenges in obtaining necessary funds to start their own businesses, especially that banks are usually reluctant to provide them with loans due to high risk associated with start ups. • Zeyada program: provides funding to existing SMEs that need to expand and cannot obtain the appropriate funding. Khalifa Fund recognises that in order to ensure success of the financed entrepreneurs, it provides them with all skills necessary to build their business successfully, through a comprehensive support system that includes idea generation, training and counseling, pre and post establishment support in terms of licensing, acquiring office/factory space, marketing, letters of recommendations, waiver of fees/bonds, and other necessary details.
Impact: How does it Work

Example: Walk us through a specific example(s) of how this solution makes a difference; include its primary activities.

As reflected above, the Khutwa, (micro financing program,) and the Sougha programs are two programs geared towards micro businesses, home based handicrafts, and developing women especially in the western region (rural area) of Abu Dhabi. Those programs have a had a big impact on the women’s lives especially in the western region, the idea of program is to empower women by providing them with all of the skills necessary to start their businesses so that they become productive within their communities. Till today, over 60 women have benefited from the Sougha program. Here are some statements from women who participated in the program and believed that it changed their lives: "When we were young we had to weave, because it was a part of life, who was selling at one of the booths, said yesterday. Now though, when I see the finished product I am so proud, and money that comes from my own handiwork has a different taste to it.” ,Salma Ahmed al Mansouri “My mother taught me to weave when I was young, I stopped for a bit but still had ideas of patterns in my mind. This is the legacy of our ancestors and we should not stop.” “I have only one hand (meaning she alone is responsible for her five sons and one daughter) and I have seen how people on TV have hobbies and they turn them into a business and make an income. I hope it will be the same for me. I am very happy when people buy my products.” Bakhita Please refer to the attached article THE WEAVERS’ EXPLORATION IN ABU-DHABI’S WESTERN REGION, published by UNESCO OBSERVATORY, FACULTY OF ARCHITECTURE, BUILDING AND PLANNING, THE UNIVERSITY OF MELBOURNE REFEREED E-JOURNAL, VOL 1. ISSUE 5. APRIL 2010
About You
Organization:
Khalifa Fund for Enterprise Development
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About You
First Name

Khalifa Fund for Enterprise Development

Last Name

KF

Your Organization
Country

, AZ

About Your Organization
Organization Name

Khalifa Fund for Enterprise Development

Organization Phone

Tel +971 2 696 0000

Organization Address

14th Floor, Al Khazna Tower, Al Najda St,

Organization Country

, AZ

Organization Type

Non-profit/NGO/Citizen-sector Organization

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Your solution
Country your work focuses on

, AZ

If multiple countries, please list them here. If your solution targets an entire region, please select it below
Region(s) your solution focuses on:

Middle East and North Africa.

Range of turnover in your target firms, in USD

$1-5 Million.

Average turnover in USD of your target firm
Number of employees in your target firms

5-24.

Average number of employees of your target firm

20 employees

Specify the size, average and range of expected loans or investments in each target firm

• Khutwa (First Step) Loans are up to $68,000, averaging $50,000.
• Bedaya (Beginning) Loans are up to $815,000, averaging $550,000.
• Zeyada (Growth) Loans are up to $1,360,000, averaging $600,000.

What stage is your solution in?

Operating for 1‐5 years

Innovation
How does your proposed innovation leverage public intervention in catalyzing private SME finance?

As per the Abu Dhabi Economic Vision 2030, SMEs are considered to be one of the principal driving forces in economic development. They will stimulate private ownership and entrepreneurship, generate employment, and help diversify the economic activity of the Emirate, in terms of non-oil activities. It is clear that promoting a viable SME sector is essential to our nation’s stride towards broadening the economic growth and sustaining the growth momentum, through diversification of the economy. Due to their economic importance and potential for flexibility and innovation, SMEs will serve as an excellent instrument for accelerating economic development in the UAE.

Khalifa Fund is recognized today as the primary entity in Abu Dhabi supporting entrepreneurs and SME development, therefore we will use this advantage in working with different government, public and private stakeholders in Abu Dhabi to pool all SME related initiatives and develop the SMEs sector. Our aim is to build the foundation and the infrastructure for business development in collaboration with all stakeholders, and support the SMEs in the early stages, with the hope that the private sector will follow our steps.

Khalifa Fund has also launched a Direct Investment Fund, which will take an equity stake in existing successful businesses, looking for the next round of funding. We also plan to launch an Industrial Fund to provide part finance for larger industrial projects. Both these funds will encourage other private financing entities to offer necessary funding support to the SMEs, which till date are considered as high-risk by them. KF will ultimately exit these investments, once they have reached a stage of business maturity, to receive support from private financing entities.

What barriers does your proposed solution address?

Lack of collateral, Lack of financial capacity, Lack of SME access to skills / knowledge / markets, Unavailability of financial products tailored to SME needs, Lack of financing to women entrepreneurs, Specific barriers to fragile and weak states.

If you checked any of these barriers, describe how your solution addresses them

The barriers that our solution address are as follows:

a) Lack of collateral: Most start-ups have difficulties in putting up the level of collateral that banks require against loans. This barrier is addressed by the Khalifa Fund financial schemes. These schemes were established to support SMEs that provide entrepreneurs with interest and collateral free loans to support them in starting up their businesses.

b) Lack of financial capacity: one of the main constraints that prevent SMEs from succeeding is the lack of financial capacity when needed, SMEs usually need financial support in the first 3 years of their lifecycle, and financial institutions are reluctant to provide businesses that do not have a proven financial track record with the necessary funds. Our financial solutions addresses this issue.

c) Lack of SME access to skills / knowledge / markets: Khalifa Fund recognizes that counseling, training, mentoring and implementation support are key components to supporting entrepreneurs We conduct specialized training courses to meet the entrepreneurs’ needs.We continuously update and improve our training curriculum to further develop our entrepreneurs and provide them with all of the tools necessary to succeed. In addition we provide marketing support, by providing introductions to government and private sector, for orders/waivers.

d) Unavailability of financial products tailored to SME needs:

SME start-ups and businesses in expansion phase face the challenge of getting appropriate financial products tailored to their requirements, at the right interest rates. KF lending schemes are tailored appropriately, as per the SMEs requirements. In addition, the promoter's contribution is only upto 10% and the loans are interest free. This allows the new SMEs to establish and build themselves for success.

e) Lack of financing to women entrepreneurs:
Although women entrepreneurs had support initiatives in Abu Dhabi (eg: Mobdeaa initiative by the AD Chamber of Commerce to support home based businesses, and Abu Dhabi Business women council), those were not financial programs.KF financial solutions (especially micro financing) filled this gap. We are working closely with our stakeholders to ensure that women entrepreneurs can benefit from all of the different support programs offered for them.
http://www.abp.unimelb.edu.au/unesco/ejournal/pdf/khalifa_paper.pdf

f) Specific barriers to fragile and weak states:

KF recognizes its socio economic role, of developing the rural areas within Abu Dhabi, through developing entrepreneurs in these areas (especially Western Region), to be self reliant, since there are limited employment opportunities, even for educated youth. .

KF tailored "Sougha" program to support the Khutwa funding scheme, which targets women in the Western Region, which is the rural region of the Emirate of Abu Dhabi. It is mostly desert, and accounts for 80% of the total land. Employment opportunities are very limited, even for the educated youth.

Impact
Provide empirical evidence of your proposed solution's success/impact at present. If your project is in the idea phase, please provide evidence that speaks to its potential impact

The Khalifa fund has approved over 225 projects since inception in July 2007, with loan value of US$ 107 Million:
• 70% of the approved projects are Bedaya projects, 12% are Zeyada and 18% are Khutwa projects
• 113 projects (~50%) are operational, and 101 businesses have started repaying their loans.
• 54% businesses are in the Services sector, 39% industrial and 7% agriculture.
• 77% approved applicants are male and 23% female ,

Case Study:
This is one of our entrepreneurs stories that was published in “The National” newspaper -"The foundations of a young plantation", by Matthew Brace:
“Something remarkable is happening on the edge of the desert beyond Abu Dhabi city. Unlike most other developments in the Emirate, it does not require massive earth movements, years of master-planning or the construction of steel monoliths.
It does not rely on billions of dollars, nor will it take five or 10 years to come to fruition. Yet its potential benefits for Abu Dhabi are significant.
The Tashjeer Nursery Gardens are the brainchild of Ahmed Jaber al Mansoori, one of a new wave of young entrepreneurs creating innovative businesses to help diversify the UAE economy.

Beautiful and peaceful it most certainly is but Tashjeer also represents the cutting edge of Abu Dhabi’s drive towards modern, economic diversity. Al Mansoori is creating an important, varied and disease-free horticultural foundation, both here at Bani Yas and at his other nurseries down at the Liwa oasis, on the edge of the Empty Quarter.

Al Mansoori’s dream has been realised with support from a new government initiative called the Khalifa Fund to Support and Develop Small and Medium Enterprises.
The Khalifa Fund is part of the drive of His Highness Sheikh Mohammed, Crown Prince of Abu Dhabi, to transform the Emirate of Abu Dhabi and diversify its economy.

“Before, I knew I had a good idea but I still felt weak and small. Now I have the backing of the Government, through the Khalifa Fund, I feel strong,” Al Mansoori said. “The Khalifa Fund support means what might have taken me five years to do before, I can now do in eight months.”

This assistance was instrumental in him winning his first Dh10m contract, to landscape a large accommodation camp at Rowais, a two-hour drive west along the coast from Abu Dhabi.
Al Mansoori’s Tashjeer Garden Management and Design Company also specialises in landscape design and construction.

Not only is al Mansoori developing an important horticultural resource to landscape for Abu Dhabi’s rapid growth but he has an eye for marketing and a sense of humour too.
If all the Khalifa Fund graduates turn out like him, then Abu Dhabi looks set to bloom.

How many firms do you expect to reach?

KF target is to fund around 60 projects annually . However, the focus is not on quantity, but the quality of businesses that will make an impact. KF is looking at "High Impact Entrepreneurs" who will be successful business people and act as role models for new entrepreneurs.

What is the volume of private SME finance you aim to catalyze?

KF have already funded SMEs with loans of US$ 107 Million. Our plan is to fund around 60 projects annually, with loans of US$ 24 Million for the next 5 years.
However, our funding amount could vary according to the entrepreneurs needs, quality and quantity of projects approved.

What time frame will be required to reach these targets?

KF is a non- profit Government organization that serve the UAE Nationals .Therefore there is no specific timeline for our services we will continue serving the National entrepreneurs through our financing and other support services to help develop the SME sector in the country.

Does your solution seek to have an impact on public policy?

Yes

What would prevent your solution from being a success?

The Khalifa Fund was established to cultivate entrepreneurship and catalyze the development of the UAE SMEs Sector. We realize that our schemes have partially solved the funding issue (especially for Emirati Entrepreneurs) in Abu Dhabi. However since inception we have faced some challenges that may prevent us from succeeding if they were not addressed at this point.Some of these issues are:


• Failure for approved applicants to start up the business, due to long time for licensing and other regulatory requirements
• Difficulty to secure office space/locations, at reasonable prices/rents
• Lack of accurate market information, which may not reflect the realities of the market, after the business is operational

Khalifa fund provides (in addition to our financial services) a set of support services that help in addressing the above mentioned issues. KF have concentrated on raising awareness amongst UAE citizens to promote the entrepreneurship culture. We have also started different initiatives with schools and universities to inject entrepreneurship in the educational system. In addition the Khalifa fund is currently providing specialized training courses on how to manage a business.
KF also provides pre and post establishment support that would help our applicants in the registration process and in securing locations for their businesses.

Sustainability
List all the funding sources that are required for the sustainability of this solution

Khalifa Fund is currently supported by the Government of Abu Dhabi. Its capital is US$ 275 Million (AED 1 billion). Khalifa Fund provides loans to its applicants at no interest charges. KF recovers the loans from its applicants, once their businesses are successful, and provide loans to other applicants. This model may not be completely self-sustainable, considering that some businesses may default, due to various reasons.

The Direct Investment Fund has been developed with the idea that it will take an equity stake in businesses, and exit them by generating returns at certain multiples. The Industrial Fund will also generate financial returns for KF, in terms of interest charged for loans to industrial businesses (but less that commercial banks). These schemes will generate funding, which in future is expected to reduce KF's requirement to go back to the Government for additional capital support.

Demonstrate how your proposed solution has the capacity to graduate from dependence on public finance. What is the time frame?

Khalifa Fund is an independent entity set up by the Government of Abu Dhabi to promote entrepreneurship amongst its citizens, by providing support in terms of training, counseling, finance, pre and post establishment support. Hence, even though sustainability is a priority, it is secondary to the development objectives.

The core lending activities are expected to remain cash negative, since not all funded SME businesses are expected to return back the loans. However, this is minimised, through active monitoring and support for all funded businesses.

The Direct Investment fund US$ 27 Million (AED 100 million) would target an IRR of around 10% (5 years), lower than regular Private Equity/Venture Capital benchmark of >20%. Since it is a new activity for Khalifa Fund, it may not generate significant interest from external private investors. Hence, KF will develop a network of Business Angels, and involve them as co-investors in the target investments. The Business angels will be involved in all activities of deal screening, deal evaluation, and on-going support in terms of mentoring or leveraging personal networks for the invested companies.

The Industrial Fund, for manufacturing businesses, is planned to support SME projects in downstream industrial sectors, aligned to the Abu Dhabi Economic Vision 2030. KF have identified a set of prioritised sectors for investments, along with other stakeholders in the Emirate, through a value chain study. The Industrial fund will target a net IRR of around 8%, with mix of equity and debt funding. It will involve joint / syndicated financing with other financial institutions, banks, government/private stakeholders, involved in Abu Dhabi's industrial development.

Inspite of the above new activities generating positive cash flow, in the next 5-7 years, the overall KF cashflow is expected to remain negative, due to its core lending activities at no interest rate, and will require injection of new funds from the government over time.

Demonstrate how your proposed solution will survive a potential loss of its largest private funding source

Khalifa Fund does not have any private funding at this stage. It is funded by the Government of Abu Dhabi to promote and develop an entrepreneurship culture. As demonstrated in question 2 above, there are identified schemes to minimise the reliance on government funding, but the overall operations will remain cash negative, requiring injection of funds from the government over time.

Funding support is expected to come from a network of Business Angels as co-investors for the Direct Investment fund and other institutions in the Industrial Fund.

Please tell us what kind of partnerships, if any, could be critical to the greater success and sustainability of your innovation

To improve sustainability of the funding programs, partnerships with other financial organisations will be helpful:

Banks/Private lending firms - Khalifa Fund can provide the guarantee for loans made by other institutions to its applicants, instead of providing direct funding. This way, the number of applicants that can be funded can be increased. However, the institutions need to take a risk by charging a lower rate of interest.

Business Angels - Need them to be co-investors in the Direct Investment fund, to take an equity participation with Khalifa Fund in new/potentially high growth organisations looking for growth finance.

Government/Private Enterprises - support development of SMEs in the identified sectors, to ensure their growth and success (some of them identified in #21 above)

Are there non-financial issues that could threaten the sustainability of your proposed solution?

Some of the non-financial issues threatening the KF's financial solutions sustainability are:
• Lack of Entrepreneurship skills amongst the Emiratis - KF is conducting awareness sessions at various locations in Abu Dhabi
• Lack of Entrepreneurship related curriculum in schools/colleges, to create an entrepreneurial mindset amongst young Emiratis, who may prefer a government job over becoming an entrepreneur - KF is working with Universities to develop the specific programs. We are also working on the changes in the education curriculum, which will be presented for approval to the Education authorities for implementation.
• Licencing issues - takes a long time to get licence to start a new business. KF has implemented a One-Stop Shop concept, to assist the applicants in all licensing/regulatory requirements
• Location issues - it is difficult to find suitable places for new businesses, at reasonable costs. KF is in discussions with the authorities for land allotment for KF applicants. We are also planning to set up a mixed-use incubator facility.
• Product quality - the products may not achieve consistent quality for larger production quantities, especially for micro businesses. KF provides monitoring and counseling services, so high quality standards can be maintained.
• Lack of Government/private enterprises support for SMEs to get products/services from them, considering they are new in market, with relatively less experience. KF provides introduction letters for its applicants in the government entities. In addition, it is also proposing for reservation of certain procurement quota from SMEs
• Large enterprises having forward/backward integration activities, which could potentially be outsourced to SMEs. KF is working with the larger entities to identify SME opportunities in their industry

Please tell us if your proposed solution aims to scale up through a high growth sector, expand immediately to multiple sectors, and/or scale up geographically

In the last 3 years, since inception, Khalifa Fund did not prioritise or focus on any particular sector/industry, since it wanted to encourage entrepreneurship amongst Nationals who may come up with any business idea. However, this led to monotonous business ideas, with little innovation/differences.

The Abu Dhabi Economic Vision 2030 identified 14 sectors to diversify the Emirate's economy, through the growth of non-oil sectors. Khalifa Fund's management took a decision that it wanted its applicants to contribute to this vision. Hence, it recently completed a study to identify and prioritise sectors for focus. 6 sectors were prioritized - Metals, Plastics, Engineering & Construction, Food & Beverages, ICT and Tourism. A detailed value chain study was undertaken for each of the 6 sectors, to identify around 120 sub-sectors. From these, 25 sub-sectors were identified for focus in the next 2-3 years.

Project ideas and detailed profiles are being developed among the 25 prioritised sub-sectors. These will be promoted actively through various communication channels and new applicants coming to Khalifa Fund.

The above will enable Khalifa Fund projects to make an active contribution to the economic growth of the Emirate. A new industrial loan scheme for manufacturing activities, with a higher loan amount of upto USD 2.75 Million (AED 10 million) has been formulated, to support manufacturing projects requiring higher levels of investment.

Khalifa Fund is also collaborating and working closely with the key stakeholders/champions in each of these industry sectors in Abu Dhabi, to get active support for its funded SMEs in these sectors. Some of these are:

Metals & Plastics: Abu Dhabi Basic Industries Corporation (ADBIC)
Food & Beverages: AGTHIA Group
Tourism: Abu Dhabi Tourism Authority (ADTA); Abu Dhabi National Hotels (ADNH)
ICT: Abu Dhabi Systems & Information Centre (ADSIC); Advanced Technology Investment Company (ATIC)