Bahrain has taken good initiatives to support SMEs to boost the economy.
The last such initiative was the allocation of a fixed percentage in relation to government tenders and procurements for SMEs.
This new policy will give this important sector great push forward, as they will be away from any competition from big companies and powerful corporations.
The reservation of a closed fixed percentage in government tenders will take SMEs to a complete new era, wherein they will be participating in all government projects.
No doubt, based on this boost, their scope and area of activities will spread tremendously.
A new active world has opened up for SMEs, promising them a better future.
However, to enable such step to be of real material value, there is a need to open the door for financing SMEs and give them special credit lines form banks and financial institutions.
A practical problem could arise here, as banks and financial institutions are legally required to take sufficient acceptable guarantees for any loans or facilities they give to any entity.
Herein, SMEs may lack such requirement for different reasons, the foremost being the absence of acceptable guarantees to cover loans and facilities.
In many countries, this problem of financing SMEs was solved by thinking ‘out of the box’.
One of the ways was establishing an insurance scheme agency for SMEs.
The insurance comes through an official body established solely for the purpose of guaranteeing loans and facilities given to SMEs, if they fail to pay the loans on time.
The main purpose of the insurance scheme is to stand by and give support whenever a shield of insurance cover is needed by financing entities.
Based on this, loans are to be given to SMEs as required and approved, under the insurance scheme cover, which applies whenever there is a real need.
The insurance scheme is to act as guarantor for SMEs. More importantly, this guarantee will give SMEs the necessary eligibility to obtain finance and thereafter, to cover the loan in case of failure to repay.
Sure, many SMEs will be able by themselves to cover their loans and to look for more business and activities.
Through this insurance scheme, the role and movement of SMEs will expand successfully for the betterment of the national economy.
The author is a legal consultant