VZCZCXYZ0000
RR RUEHWEB

DE RUEHMS #0463/01 1691220
ZNR UUUUU ZZH
R 171220Z JUN 08
FM AMEMBASSY MUSCAT
TO RUEHC/SECSTATE WASHDC 9724
INFO RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS MUSCAT 000463 
 
SENSITIVE 
SIPDIS 
 
STATE FOR NEA/ARP, NEA/PI, EEB/CBA 
COMMERCE FOR ITA THOFFMAN 
 
E.O. 12958: N/A 
TAGS: ECON BEXP KMPI PREL MU
SUBJECT: OMAN'S SME SECTOR TO BENEFIT FROM MEPI ASSISTANCE 
 
This cable contains sensitive business information.  Please 
protect accordingly. 
 
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Summary 
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¶1. (U) With funding from the Middle East Partnership 
Initiative (MEPI), a consulting team from Booz Allen Hamilton 
is advising the Ministry of Commerce and Industry's 
Directorate General of Small and Medium-sized Enterprises 
(SME) on both developing an internal organizational workplan 
for the office and defining its role in promoting SME growth 
in Oman.  Meetings with Omani government and private sector 
officials revealed substantial interest in supporting 
entrepreneurs through a strengthened SME Directorate General 
and looked to the office to provide leadership in promoting 
SME-friendly policies.  The consultants presented their 
preliminary findings to the Ministry's Under Secretary on 
June 11 and will return in August to conduct follow-up 
meetings with relevant stakeholders.  End Summary. 
 
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SME Support Programs 
-------------------- 
 
¶2. (U) A number of programs are already available in Oman to 
encourage SME growth.  Abdullah al-Jufaili, Director of 
Intilaaqah ("take-off"), remarked that his program's mission 
was to train a cadre of young Omani entrepreneurs to operate 
microbusinesses that had been previously run by expatriates. 
Intilaaqah, part of Shell Oman's social investment program, 
has graduated 5,424 entrepreneurs.  Sixty-five percent of the 
graduates are female, and 37% of all participants still run 
their own businesses.  Reflecting on the role of the SME 
Directorate, Jufaili highlighted the need for the 
organization to improve the SME environment and identify 
relevant sectors ripe for SME development. 
 
¶3. (U) Complementing Intilaaqah's efforts is the recently 
established GroFin project, a $10 million enterprise fund 
sponsored by the Shell Representative Office in Oman to 
provide financing to those Omani entrepreneurs unable to 
obtain bank financing on the account of lack of collateral. 
Niel Brand, Investment Manager for GroFin, stated that the 
company, now lends to approximately 11 clients per year, with 
an average loan size of 240,000 Omani rials (RO).  GroFin 
helps clients develop their business plans, but Brand 
explained that budding entrepreneurs generally require 
further assistance in running their businesses. 
 
¶4. (U) In addition to Shell's efforts, the government, 
through the Ministry of Manpower, assists aspiring Omanis 
through the "Sanad" program.  Samir bin Ahmed al-Nabhani, 
Sanad Executive Director, noted that since its establishment 
in 2001, Sanad has loaned out 5 million RO to microbusinesses 
in 22 sectors, including cell phone repair, cybercafes, and 
beauty parlors.  With Sanad's low interest rate of 2% and 
generous repayment terms, Nabhani estimated that there were 
1,500 active loans, with a ceiling of 5,000 RO per loan. 
Successful applicants receive their Sanad loans through the 
Oman Development Bank, and also are able to benefit from the 
program's business counseling initiatives.  Going forward, 
the Executive Director is looking to create a formal business 
development center and sponsor a college incubator with 
specialization in biotechnology, engineering, and 
information, communications, technology.  With regard to the 
SME Directorate, Nabhani recommended that the office push for 
legislative changes favoring SME development; however, he 
cautioned against offering loans and consultative services, 
which would replicate ongoing efforts. 
 
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Banking Sector Interested 
------------------------- 
 
¶5. (SBU) The banking sector, in general, is showing greater 
interest in SME lending.  Malik Mahrooqi, Business 
Development Manager for the Central Bank of Oman, stated that 
the time was ripe for the government to encourage SME lending 
as a way for banks to diversify their portfolios.  He called 
on commercial banks to move from their current focus on 
profitable personal loans to developing their productive loan 
portfolios.  Banks have already begun to look closer at the 
sector, according to Mahrooqi, but that entrepreneurs need to 
"know their businesses better" in order to take advantage of 
these initiatives. 
 
¶6. (SBU) Samir Saied, General Manager of government-owned 
Oman Development Bank (ODB), commented that his bank's 
primary purpose was to support SME development.  With a total 
capital base of 40 million RO and an average loan size of 
100,000-200,000 RO, ODB currently has 11,000 active loans, 
80% of which are concentrated in companies with less than 
$5,000 in capital.  Saied estimated that 60% of the bank's 
loan portfolio goes to existing businesses, while the 
remaining 40% goes to start-ups.  The bank, which offers 3% 
interest rates, works with entrepreneurs to develop feasible 
cash flow projections to facilitate start-ups.  Saied, who 
called on entrepreneurs to do "a better job" on developing 
their business plans, commented that the bank is looking to 
reduce its non-performing loan rate from 25% to 15%. 
 
¶7. (SBU) From a commercial banking perspective, Abdulnasir 
al-Raisi, Head of SME Lending for Bank Muscat, commented that 
the bank offers a full-service department for SME financing 
under the "al-Wathbah" banner.  Under this program, Bank 
Muscat provides six main financing products for 
entrepreneurs, including contracts, equipment, imports, 
receivables, and capital financing.  In addition, the bank 
offers counseling to prospective clients in developing 
business plans, as well as a training center, where the it 
brings in experts to advise clients on best practices. 
 
¶8. (SBU) Raisi cautioned that Bank Muscat, prior to its 
launching of al-Wathbah, was "burned" by the SME sector.  To 
ensure better quality SME loans, he explained that the bank 
had created a scoring system to evaluate loan applications. 
With these efforts, the bank now has 1,800 clients and an SME 
capital base of 80 million RO in 2008.  The loan portfolio is 
shared equally between medium and small businesses, and Raisi 
noted that the bank is willing to lend to fresh start-ups, so 
long as they have a sound business plan. 
 
¶9. (SBU) On the potential role of the SME Directorate, Raisi 
stated that it should primarily advise the government on 
SME-friendly policies and assist businesses in locating 
capital.  He also believed that the directorate could develop 
SMEs through government contracting set-asides, and that his 
bank would be interested in working with the directorate in 
establishing incubators for SMEs.  Finally, Raisi advocated 
for the government's establishment of a loan guarantee 
program, similar to the one that the Bank of Beirut employs 
with assistance from the Lebanese government. 
 
¶10. (SBU) Qamar Saleem, Senior Manager for Business Banking 
at HSBC, agreed that the SME sector was ready for expansion, 
and that his bank had rolled out a number of products to 
attract clients.  Building on its 2,000 SME client base would 
be important for the bank's growth, according to Saleem, 
since he projected that there were 20,000 bankable SME 
accounts in Oman.  Saleem differentiated HSBC from ODB in 
terms of loan turn-around time, product offerings, 
international reach, and assistance in managing business 
activities such as accounts receivable.  To assist in 
fostering SME growth in Oman, he recommended that the 
government not only work to establish a forum for discussing 
SME issues, but also to promote the establishment of a credit 
bureau as well as credit loan guarantee authority.  (Note: 
HSBC only lends to existing companies.  End Note.) 
 
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Preliminary Findings 
-------------------- 
 
¶11. (SBU) Based on the discussions with Oman's SME 
stakeholders, BAH Project Manager John Mennel reported to 
Ministry of Commerce and Industry Under Secretary for 
Administrative, Financial, and Regional Affairs Ahmed 
Sulaiman Saleh al-Maimani on June 11 that in order to achieve 
the government's desired outcome in terms of SMEs generating 
greater employment opportunities, it needed to clearly define 
what constitutes a SME in Oman, create a more comprehensive 
database regarding the prevalence of SMEs in the market, 
promote SME development beyond the boundaries of Muscat, and 
sharpen the focus of both the SME directorate in the Ministry 
and the SME advisory committee. Maimani appreciated these 
initial findings, stating that SME development, particularly 
in the industrial sector, was a "top priority" for the 
Ministry.  He added that the SME Directorate would play an 
essential role in changing embedded cultural expectations, so 
that more Omanis would become "job providers, not job 
seekers." 
 
¶12. (SBU) To this end, Mennel previewed the three roles that 
the SME Directorate could play in fostering sector growth. 
Most importantly, the BAH consultant highlighted the 
directorate's role as an "agenda setter," where the office 
could establish a uniform definition of an SME, develop data 
points for reporting the state of SMEs, advocate for 
SME-friendly regulations, and lead government-wide SME 
efforts through an already established advisory committee. 
With additional resources, Mennel stated that the SME 
Directorate could become a "cluster developer" by providing 
SMEs with information on subcontracting opportunities, as 
well as pushing for SME subcontractors in large government 
tenders.  Finally, Mennel previewed the potential of the 
office providing training and consultancy services to 
interested stakeholders. 
 
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Comment 
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¶13. (SBU) The MEPI-funded team was well-received by the 
Ministry of Commerce and Industry, as well as by other SME 
stakeholders.  Through this initiative, the SME Directorate, 
which is relatively new, should be able to find its place 
among Oman's various SME programs.  Of primary importance 
will be the ability of the directorate to claim a leadership 
position in advocating for SME-friendly regulations and 
coordinating SME activities in Oman.  However, the office 
will need the Minister of Commerce and Industry's assistance 
in gaining legitimacy on the inter-ministerial level. 
Furthermore, growing SMEs in Oman will depend upon how well 
the Directorate can promote a shift in the cultural 
perspectives of Omanis, as well encourage Oman's large 
trading houses to subcontract with SMEs.  End Comment. 
FONTENEAU