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Home > Financial Risk Management Best Practice > Small and Medium-Sized Enterprises and Risk in the Gulf Cooperation Council Countries: Managing Risk and Boosting Profit

Financial Risk Management Best Practice

Small and Medium-Sized Enterprises and Risk in the Gulf Cooperation Council Countries: Managing Risk and Boosting Profit

by Omar Fisher

Executive Summary

  • Small and medium-sized enterprises (SMEs) are a major pillar of the market economy and an essential building block of economic development in the Gulf Cooperation Council (GCC) region.

  • Banks in the GCC region are reluctant to lend to SMEs due to higher risk and applicants’ failure to meet loan conditions, meaning that 55% of SMEs do not have credit available to them.

  • Effective risk management enables the avoidance of losses and maximization of the potential of opportunities. Both business and nonbusiness risks can be protected against by insurance.

  • In order to assess the effect of the risks impacting your business, an internal risk audit can be performed. The benefits of this are increasing revenue, saving time, improving safety, and protecting company value.

  • Risk management can be a business enabler and aid business value creation by delivering more stable earnings, resources during an emergency, and a tighter grip on the value drivers of your business.

  • Implementation of these practices by SMEs will impress bankers, demonstrating a reduced risk profile, and can result in wider access to capital and/or lower cost of funds.


Small and medium-sized businesses (SMEs) across the Gulf Cooperation Council (GCC) region, many of which are family-owned enterprises, bear the same risks as Fortune 1000 companies. A common definition of a SME is a business with fewer than 250 employees and revenues below US$68 million (Dhs 250 million), whereas the real difference lies in scale and complexity. We have found in working with many types of business that most business owners in the Middle East do not fully comprehend insurance and the importance of risk management. Yet, every day, these business owners confront risk—both business risk and nonbusiness risk. This article explores what, in the SME context risk is and some methods to better manage nonbusiness risks to yield sustained cash flows and boost SME profitability.

Profile of SMEs in the GCC

It is well accepted that SMEs generally are a major pillar of the market economy and supply the following:

  • a source of vitality and innovation;

  • a pool of skilled and semi-skilled workers;

  • a driver for job creation;

  • promotion of economic stability as a complement to large corporations;

  • a broadening and diversification of the basis of competition within the economy.

A recent research report confirms that SMEs in the GCC region are an essential building block for economic development. “Both in the European Union and the Gulf region, small and medium-sized enterprises (SMEs) are the main drivers of job creation, growth and economic diversification.”1

Official data suggest that some 40,000 SMEs operate in Bahrain, 85,000 in Dubai/United Arab Emirates (UAE), and 700,000+ in the Kingdom of Saudi Arabia. On average, SMEs employ between 10 and 50 workers, so their impact on employment across the GCC is above 8.5 million jobs. Table 1 summarizes the size and scope of SMEs in the GCC countries.

Table 1. Size and scope of SMEs in GCC countries. (Sources: Hertog (2010) and research by the author)

Micro-enterprise Small enterprise Medium enterprise
Employment Up to 10 Up to 50 Up to 150
Assets BD20,000 (US$53,000) BD20,000–500,000 (≤ US$1.3 million) BD500,000–2,000,000 (≤ US$5.3 million)
Saudi Arabia
Employment n/a Fewer than 60 Fewer than 100
Revenue/turnover Less than SR20 million (US$5.3 million)
Assets n/a Less than SR5 million (US$1.3 million) SR5–20 million (≤ US$5.3 million)
Employment Fewer than 9 Fewer than 35 Fewer than 75
Revenue/turnover Less than Dhs9 million (US$2.5 million) Less than Dhs50 million (US$13.7 million) Less than Dhs250 million (US$68.5 million)
Employment Fewer than 20 Fewer than 100 Fewer than 250
Revenue/turnover Less than Dhs10 million (US$2.7 million) Less than Dhs100 million (US$27.4 million) Less than Dhs250 million (US$68.5 million)
Employment Fewer than 20 Fewer than 100 Fewer than 250
Revenue/turnover Less than Dhs3 million (US$0.82 million) Less than Dhs25 million (US$6.8 million) Less than Dhs150 million (US$41 million)
EU definitions of SME
Employment Fewer than 10 Fewer than 50 Fewer than 250
Annual sales/revenue Less than US$3 million Less than US$13 million Less than US$67 million

* Estimate by Muhammed bin Rashid for SME development.

Currencies: Dh, United Arab Emirates dirham; BD, Bahraini dinar; SR, Saudi Arabian riyal.

As reported by David Morgan in Arab–British Business (April 2010), across the GCC region “47% of SMEs are engaged in commercial, trading and hotel businesses, 27% in construction, 12% in industry/manufacturing, 6% in social services and 8% in sundry other sectors.”

The top three challenges facing SMEs in the GCC area are: (1) administrative hurdles and lack of enabling regulations; (2) limited or scarce financing; and (3) weak corporate governance and poor bookkeeping and accounting practices. Points 2 and 3 are related and, when combined, explain why banks in the Gulf region are generally reluctant to lend to SMEs. According to a study by Dun and Bradstreet, banks in the UAE in 2008 rejected 50–70% of credit applications from SMEs due to the higher risk and applicants’ failure to meet basic loan conditions.2 Because most SMEs in GCC countries have been in business for less than seven years, and many cannot muster credible financial statements for at least three years, bank loans and lines of credit are unavailable for more than 55% of SMEs.

Although the limited access to financing constrains SME growth, it also causes heightened emphasis on the cash flows that are generated and the necessity to reinvest these earnings to bolster growth. Therefore, any interruption of expected earnings and, of course, any disaster or unforeseen circumstance will seriously impact a SME’s situation as a going concern. This is precisely where risk management comes in.

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Further reading


  • Pickford, James (ed). Mastering Risk: Volume 1—Concepts. Harlow, UK: Pearson Education, 2001.


  • Deloitte. “Guide to risk: Intelligent governance.” 2009.
  • European Agency for Safety and Health at Work. “Risk management basics for SMEs.” UK and Finland report. 2010.
  • Hertog, Steffen. “Benchmarking SME policies in the GCC.” European Union–Gulf Cooperation Council Chamber Forum, April 2010.
  • IBM Global Business Services. “Risk management.” 2007.
  • Khan, Zarina. “Risky business: Contingency planning in the Gulf.” Gulf, December 2009.
  • Massachusetts Division of Insurance. “Small business guide to commercial insurance.” 2009.
  • Small Business Centre, Government of Australia. “Small business bizguide.” 2010.

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