SMEs are considered the backbone of many nations, generating job employment, contributing to industrial as well as economic development, etc. For many years, the Oman Development Bank (ODB) has been helping SMEs to thrive. It is the only Government-owned development bank that promotes SME development by providing subsidized term-loans with fixed interest rates and longer moratorium and repayment term. As government-institution, ODB lend only to sectors specified by the government. ODB is providing loan of up to 56% of the total project cost subject to a ceiling of RO 1 million (USD2.58 million).
To be more of help to SMEs, ODB has implemented the Loan Guarantee Program (LGP), which was conceived and developed under the aegis of the Directorate of SME Development (currently the Public Authority for SME Development) in the Ministry of Commerce & Industry, Sultanate of Oman. The LGP is the customized version of the 7A program implemented by the Small Business Administration, (SBA) United States of America. Under the LGP, enrolled commercial banks are encouraged to provide financial assistance of up to RO250,000 (USD650,000) to SMEs eligible under the program. Eligible small business applicants must: 1) be organized for profit; 2) be owned by an Omani Citizen; 3) be located in Oman; 4) be a small/medium enterprise (as defined by MOCI/ODB); and 5) demonstrate a need for the desired credit.
As the lead agency in implementing the program in Oman, ODB developed the Standard Operating Procedure (SOP) documents which would provide the necessary guidelines, templates and forms for the smooth implementation of the project. Commercial banks empanelled in the program were designated as lenders while ODB guarantees of up to 50% of such loans provided by commercial banks to SMEs. ODB’s guarantee reduces the requirement of collateral security by lenders, a boon to SME customers, especially to the first generation entrepreneurs. The program is attractive to commercial banks as ODB guarantees 50% of the loan and thus reduces their risk, so to with SMEs as they get loans without providing much of the securities.
The program has already resulted in the provision of financial assistance to about 76 SME business ventures in Oman. ODB and commercial banks enrolled in the program worked as a team in implementing the project where the commercial banks have already loaned the amount of RO 8.4 million (USD21.8 million) to SME projects, while ODB had already provided guarantees worth RO 4 million (USD10.4 million). These SME projects involved in the program were mostly owned by young entrepreneurs, including women.
ODB’s “Implementation of Loan Guarantee Program” was given a Merit Award in the 2015 ADFIAP Outstanding Development Project) under the SME Development category.