SME Sector in Oman - Paper

Central Bank of Oman Occasional Paper: 1 August 2014
Towards a Growing,
Competitive and Dynamic Small
and Medium-Sized Enterprises
Sector in Oman:
Strategy and Policies
Khalfan Mohamed Al Barwani*

Mohammed Rashid Al Jahwari*
Abdallah Said Al Saidi*
Fatma Salim Al Mahrouqi*
Central Bank of Oman

Economic Research and Statistics Department
Website: http//www.cbo.gov.om
Email: ersd@cbo.gov.om
*The views reported in this study are those of the authors and do not represent and should not be reported
as those of the Central Bank of Oman.
Foreword
Growing and dynamic Small and Medium-Sized Enterprises (SMEs) are critical for the
development and sustainability of any economy, particularly given their flexibility to adapt to
changing economic dynamics, among other reasons.
Data from emerging and developed economies, as discussed in this study, point to a significant
contribution of SMEs in terms of job creation and value addition to the economy. Equally important
is the fact that SMEs in these economies hire more people than larger firms or the public sector.
Among the European Union (EU) member states, SMEs employed 68 percent of the workforce and
their value addition to the economy was about 58 percent in 2012. In the United States of America
(USA), SMEs account for about 50 percent of the workforce with value addition to the economy
estimated at about 51 percent. While these data may vary from year to year, they have, for many
years, continued to indicate the key role played by SMEs in the EU and US economies. In Oman,
latest data indicate that 40 percent of the workforce is employed in SME firms with less than 5
percent consisting of Omanis while the contribution to the GDP ranges between 15 percent and 20
percent.
Given the two key statistics cited above, namely contribution to employment and value addition to
the economy, besides the proven critical role played by SMES in emerging and developed
economies, it is clear that while this sector is still at its infancy in the Sultanate of Oman, it holds
significant potential for growth and more so if supported by relevant infrastructure and accessibility
to financing in addition to the development of required skills and promotion of entrepreneurship
culture to name a few. Accordingly, the government of Oman along with the Central Bank of Oman
have recently introduced a number of initiatives, all aimed at supporting and promoting the SME
sector in the country.
To that effect, this study provides a comprehensive picture of the current state of the SME sector in
Oman through multiple questionnaire surveys that targeted key stakeholders. Moreover, following
the analyses of these surveys and learning from experiences of other countries, the study provides
an inclusive strategy that accounts for key major stakeholders as well as a list of policy
recommendations which I hope interested parties could benefit from.
Hamood Sangour Al-Zadjali

The Executive President
Central Bank of Oman
PUBLIC
III
Table of Contents
1. Introduction ................................................................................................................................................... 1
2. Selected Studies on Small and Medium-Sized Enterprises ........................................................................... 4
2.1. Definition of SMEs................................................................................................................................... 4

2.2 Contribution of the SME sector to the larger economy .......................................................................... 5
2.3 Challenges in the SME sector ................................................................................................................... 6
2.4 Opportunities for the SME sector ............................................................................................................ 7
2.5 The role of governments in promoting the SME Sector .......................................................................... 9
3. Small and Medium-Sized Enterprises in Oman ........................................................................................... 11
3.1 Contribution of the SME sector to the Omani economy ....................................................................... 11

3.2 Challenges faced by the SME sector in Oman ....................................................................................... 12
3.3 Growth opportunity for the SME sector in Oman ................................................................................. 15
4. Data Collection and Methodology ............................................................................................................... 17
5. Findings and Data Analysis ........................................................................................................................... 18
5.1 Surveys on Small and Medium-Sized Enterprises in Oman ................................................................... 18

5.1.1 Selected SME descriptive statistics.................................................................................................. 18
5.1.2 Overall challenges faced by SMEs in Oman .................................................................................... 23
5.1.3 SME financing in Oman ................................................................................................................... 27
5.2 Survey on financial institutions and SME lending .................................................................................. 29
6. A Strategy for a Growing, Competitive, and Dynamic SME Sector in Oman ............................................... 36
6.1 Policy and institutional support ............................................................................................................. 38

6.2 Legal framework .................................................................................................................................... 39
6.3 Access to financing and opportunities ................................................................................................... 39
6.4 Infrastructure support ........................................................................................................................... 40
7. Policy Recommendations for Oman ............................................................................................................ 42
PUBLIC
IV
7.1 Policy and institutions ............................................................................................................................ 42
7.2 Legal basis .............................................................................................................................................. 43
7.3 Access to financing ................................................................................................................................. 44
7.4 Opportunities ......................................................................................................................................... 48
7.5 Infrastructure ......................................................................................................................................... 49
8. Concluding Remarks..................................................................................................................................... 52
Appendix 1: Aggregate Findings on SMEs Survey ............................................................................................ 53
Appendix 2: Aggregate Findings on Commercial Banks Survey ....................................................................... 60
Appendix 3: Selected Non-Banking SMEs Support Avenues in Oman ............................................................. 63
References ....................................................................................................................................................... 64
PUBLIC
V
1. Introduction
The growth and vibrancy of Small and Medium-Sized Enterprises (SMEs) are critical in the
development and sustainability of any economy. The SME sector constitutes a backbone for a
number of developed and emerging economies given the sector inherent flexibility to adapt to
changing economic dynamics and the vital role it plays in supporting and complementing larger
firms. More importantly, SMEs have significantly contributed to job creation in that for many
developed and emerging economies, more people are employed in these enterprises than in the
public sector or large firms. More jobs are also generated in this sector than in the rest of the sectors
among these economies. The importance of growing and vibrant SMEs has also been affirmed by
the value addition they create, their contribution to upward social mobility through reduction in
income disparity.
It is important to note that for the SME sector to grow and contribute meaningfully and effectively
to any economy; it requires appropriate physical, human, and institutional infrastructures not to
mention effective policies. The development of required and relevant infrastructure has allowed a
number of economies to unlock the potential of the SME sector, resulting in their overall
development and growing contribution to these economies. Effective infrastructure should be able
to address the challenges from the demand as well as the supply sides of the SME sector as well as
founded on sound policies.
With respect to Oman, the development of the SME sector is also of critical importance and
requires some expediency, in particular as the country faces challenges in the forms of limited
employment opportunities for citizens in the private sector and an economy that continues to rely
mostly on the hydrocarbon sector. Available data suggests that the SME sector in Oman is indeed at
its infancy and its potential for growth is impeded by many factors among which are bureaucracy,
scarce financing and other critical supports that otherwise have allowed this sector to prosper in
other countries. The current definition of SMEs should also be strengthened with additional clarity
in determining the criteria. In an effort to diversify the Sultanates economy and address some of the
challenges cited above, the government has recently introduced a number of initiatives aimed at
promoting the SME sector in the country.
Accordingly, the study sets out to analyze the SME sector in Oman and provide a strategy and
policy recommendations based on the findings of surveys conducted on selected stakeholders,
including SMEs owners and financing institutions. The purpose is to conduct this study by
analyzing the sector in a broader context as far as Oman is concerned. The expected outcome is to
identify both opportunities and challenges from different stakeholders and the goal is address policy
gaps through a more inclusive approach.
The study is based on the responses of a set of surveys sent to key stakeholders in the development
of the SME sector in Oman. The surveys designed for the study have a number of objectives such as
identifying the characteristics of the owners or entrepreneurs, the nature of challenges they face and
PUBLIC
1
the required infrastructure to facilitate the development of this sector. Another expected outcome
from the surveys is the identification of success cases and effective programs in Oman from which
lessons can be learnt and policy recommendations will be suggested. The study also draws from the
experiences of other countries from which the Sultanate can benefit. The surveys that target the
financial institutions in Oman also seek to identify existing challenges and opportunities from their
perspectives.
The findings from the survey questionnaires targeting Omani SME owners as a cohort and local
commercial banks as another cohort identified a number of characteristics related to the SME sector
in Oman as well challenges from the perspective of the two cohorts. As regards key characteristics
of the SME owners in Oman, a significant majority of these owners were of the age of 30 years or
above in addition to holding a high school diploma or higher degrees. The findings also showed that
most SME owners in Oman had prior work experience of at least one year while over 80 percent
never received a formal training related to SMEs. Other notable findings include the fact that at
least 55 percent of owners have full time jobs, over 55 percent relied on personal funds or family for
source of funding and more than 50 percent never received professional advice. Equally important
in the finding is the fact that over 50 percent of SMEs in Oman could be classified as micro based
on the criterion of the number of employees.
The survey also listed and identified a number of challenges faced by SMEs in Oman albeit at
various degrees. These challenges range from lacking of required knowledge of business, finding
customers, unfair competition, access to finance as well as high cost of finance, high cost of
production including labor and rent, availability of skilled staff or experienced managers,
regulations and administrative burdens. The findings also pointed to limited use of modern
technologies by SME owners in terms payment to suppliers in addition to prevalent practice of not
preparing financial statements to name a few.
The perspectives from the commercial banks have also provided valuable insights regarding the
SME sector in Oman. Commercial banks have various preferences on the type of SMEs to which
financing are channeled. According to the finding the most preferred types of SMEs to receive
financing from commercial banks are those owned by individuals and that are already established.
Responding to the question on reasons for limited lending to the SME sector in the country,
commercial banks identified lack of financial history or position through financial statements with a
rank of over 85 percent while high risk was ranked the lowest at about 29 percent. Given the
selected amount of lending in the questionnaires and depending on individual bank responses, the
amount of lending to SMEs ranged from RO 10,000 to RO 1,000,000. On measures to enhance
lending to SMEs, over 70 percent of commercial banks suggested that there was a need for a level
playing field insofar as competition with large firms was concerned. All commercial banks
surveyed ranked retail trade businesses as the largest recipients of financing from their lending
portfolio. The survey targeting commercial banks also asked for success rates based on the
repayment ability by SMEs in their lending and the finding in this case could be classified as
inconclusive given that Others as a success based on percentage range received the highest
response.
In response to the survey-based findings and experiences from other countries, the study devised a
strategy taking into account the specifics of Oman and aimed at promoting a growing, competitive,
and dynamic SME sector in the country. This strategy is supported by four main components
PUBLIC
2
consisting of policy and institutional supports, a legal framework to govern the sector, access to
financing and opportunities, and infrastructure support. Each of these four components is in turn
anchored on respective sub-components. Drawing from the strategy is a set of policy
recommendations that address challenges facing the SME sector in Oman as well as identifies
opportunities.
Against this background, section 2 of the study discusses selected studies on SMEs, section 3
elaborates on the prevailing state of the SME sector in Oman, section 4 explains the methodology
used in the study, section 5 discusses the result of the surveys, section 6 proposes a dynamic
strategy for Oman, section 7 lists a set policy recommendations and section 8 provides brief
concluding remarks.
PUBLIC
3
2. Selected Studies on Small and Medium-Sized Enterprises
The literature review section discusses various aspects of the SME sector, including its definition,
its importance to economic growth and development, challenges and opportunities, and the role of
governments and private sector.
2.1. Definition of SMEs
The definition of SMEs varies from country to country depending on the criteria selected. These
criteria reflect, among others, the structure and nature of the economy as well as the extent of
industrial development. The number of employees, the scope of financial assets, or the level of sales
turnover used to define SMEs are to a great extent a function of whether an economy is advanced,
emerging, or developing. In other words, the definition of an SME in the advanced economies
would consist of higher number of employees, larger financial assets or sales turnover than their
counterparts in developing economies. However, the number of employees constitutes the main
variation across national statistical systems (OECD, June 2000).
More importantly, it is worth noting that SME definitions based on prevailing conventions may still
be inadequate and may create distortions in terms of donations from advanced to developing
countries (Gibson and van der Vaart, 2008). It can also be noted that distortions may also occur
when it comes to devise domestic policies in the event SMEs are not adequately defined. The two
authors suggest that in general, the volume of business turnover represents a more appropriate
measure of an SME size than the number of employees or the value of assets. They also suggest that
using a single definition of SMEs for an array of countries in various stages of economic
development results to more distortions. A more universal definition, according to the authors who
have also been cited by Kushnir (2010) is that An SME is a formal enterprise with annual
turnover, in US dollar terms, of between 10 and 1000 times the mean per capita gross national
income, at purchasing power parity, of the country in which it operates. According to Kushnir,
while this definition appears sensible, the challenge for the developing economies is in obtaining
relevant statistics and in particular those data pertaining to annual turnovers for SMEs.
With respect to SME definitions and the criteria related to the number of employees, among the
European Union (EU) member states, the most frequent upper limit consists of 249 employees
while in the United States of America (USA) it 499 employees. Regarding the definitional aspect of
financial assets for the EU, SMEs are defined as those firms that have an annual turnover of EUR
40 million or less and/or a balance-sheet valuation at no more than EUR 27 million. In the United
States of America, the US Small Business Administration also takes into account the type of
industry in defining SMEs and delineates a firm size based on the sector. For instance, in
manufacture, small means less than 500 employees while in wholesale trade, small means less than
100 employees.
Beyond the EU and USA, the paper selects a few examples among Asian economies. Singapore
defines SMEs in terms of sales turnover or a number of employees. According to Spring Singapore,
PUBLIC
4
a government agency responsible for promoting economic growth and productivity, as of April
2011, SMEs were redefined as enterprises with annual sales turnover under $ 100 million, or as an
enterprise with an employment size below 200. The latest SMEs definition in Singapore is designed
to reflect the changing profile of the sector in the country from asset-based to sales turnover given
that a number of them have minimal assets nowadays. More importantly, the exclusion of assets in
the definition would ensure that small businesses qualify for government support, regardless of their
fixed assets. In response to changing economic structure and dynamic in the country, Malaysia
revised the definition of its SMEs. As of 2013, the definition of SMEs in Malaysia disaggregated
between manufacturing on one hand and services and other sectors on the other. Moreover,
flexibility has been maintained with respect to the number of workers. With respect to
manufacturing, SMEs are defined as enterprises with the sales turnover not exceeding RM 50
million (about US$ 160 million) or full-time employees not exceeding 200 workers while services
and other sectors consist of sales turnover not exceeding RM 20 million (about US$ 64 million) or
full-time employees not exceeding 75 workers (SME Corp. Malaysia, 2013).
On selected examples for the MENA and the GCC region, in Egypt, SME is defined according to
the usage of a firm, its activities, and government policy objectives based on which the assigned
criteria consist of the number of employees, size of capital, and the existence of some legal or
institutional conditions (The Egyptian Ministry of Foreign Trade, 2003). Another example insofar
as the definition is concerned is one from the Government of Dubai which defines SME as a firm
that has a turnover of less than 250 million dirhams (US $ 65 million) and employs less than 250
people (Dubai SME, 2011).
In Oman, SMEs used to be defined solely based on the number of employees but recently, the
Ministry of Commerce and Industry introduced new criteria that provided more nuanced definitions
that differentiate between micro, small and medium sized enterprises (Oman Daily Observer, June
20, 2012). The two key criteria are the number of employees and sales turnover. Micro-enterprises
in Oman are now defined as establishments that employ less than 5 workers and having annual sales
of less than RO 25,000 while firms with 5 to 9 workers with annual sales ranging between RO
25,000 and RO 250,000 are considered small. Medium enterprises consist of 10 to 99 workers with
annual sales ranging between RO 250,000 to RO 1.5 million. The revised definitions in Oman are
more in tune with the evolving characteristics of the sector in the country in that most these firms
are limited in terms of assets.
2.2 Contribution of the SME sector to the larger economy
Thriving SMEs have been instrumental in the economic growth of many countries at various stages
of their developments. They add value to economic activities, represent a major source of job
creation, promote financial inclusion, provide backward and forward linkage to larger industries,
constitute a backbone in supply chain and contribute to upward social mobility. Moreover, they
allow economies to perform efficiently, in particular given their inherent flexible nature in adapting
to changing economic conditions. It is worth noting that SMEs are found and operate in almost all
economic sectors from manufacturing to services, agriculture and others. SMEs can also be in
domestic markets, export-oriented, or both.
PUBLIC
5
In the developed and emerging countries where SME statistics are effectively collected, available
data corroborate the critical contribution of this sector in these economies. In the majority of OECD
countries, over 95 percent of enterprises are classified as SMEs and account for 60 percent to 70
percent of employment (OECD Policy Brief, November 2006). According to the same OECD Brief,
among the 27 European Union member states, SMEs represent 62 percent of workforce and 59
percent of value-added. According to Ecorys (2012), SMEs represented 68 percent of the workforce
and 58 percent of value addition among the 27 member states. In the United States of America,
SMEs employ over 50 percent of workforce, account for 98 percent of all enterprises and 51 percent
of valued-addition to the Gross Domestic Product (GDP). While these figures may vary from year
to year, they have yet to negate the critical importance and contribution of SMEs to these
economies. The Policy Brief also noted that productivity growth and by implication economic
growth, is significantly influenced by the competition that tends to be intrinsic to the creation and
demise, entry as well as exit of small firms.
The role of SMEs is significant in the emerging economies as well. Statistics from Singapore
indicate that 99 percent of all enterprises in that country are micro or SMEs that they employ 70
percent of the working force and contribute over 50 percent of value-added to the GDP (Spring
Singapore, October 2012). According to a 2012 McKinsey & Company report, in South Korea,
SMEs comprises 99.9 percent of all enterprises and employ 86.8 percent of the total workforce, or
12 million workers while in Morocco, SMEs account for 93 percent of registered businesses, 46
percent of the workforce, and 83 percent of GDP. In Dubai, SMEs account for 95 percent of
businesses, 42 percent of the workforce, and contribute 40 percent of value- added to the economy
(Dubai SME, 2011).
As illustrated by the selected aforementioned examples, the contribution the SME sector varies
from country to country, depending to some extent on the level of economic development and the
sophistication of the economy. Indeed, the significance of the SME sector increases with economic
development and that its contribution to employment as well as value addition to the GDP point to a
strong positive correlation with GDP per capita (Ayyagari, Beck, and Kunt 2005). In the case of the
manufacturing sector, the study shows that as countries become richer, more labor force is
employed by SMEs that specialize in this sector than in larger manufacturing enterprises with
similar specialization. Moreover, the study shows that countries become richer as SMEs make
larger contribution to GDP. In sum, statistics in many countries point to the key contribution of
SMEs in promoting economic growth and economic development in addition to accounting for a
major source of employment generation.
2.3 Challenges in the SME sector
The characteristics and extent of challenges faced by the SME sector vary from country to country.
However, generic challenges across countries range from scarce financing, limited abilities to
exploit technology, constrained managerial capabilities, excess regulations, and low productivity
(OECD Policy Brief, June 2000). Other challenges faced by SMEs that may be specific to some
countries as is the case for Singapore include rising competition, difficulty in hiring, developing and
retaining talented employees, limited access to business opportunities including new customers and
markets (Abraham, 2007). Similar challenges are also prevalent in other economies such as
Malaysia and Australia (Ahmad, 2009).
PUBLIC
6
Market power by large firms in some countries has also impeded the growth of SMEs and as such,
regulatory frameworks have been introduced to prevent predatory behavior, price fixing, exclusive
agreements and other forms of impediments. Japan has a regulatory framework for SMEs that
among other things provide all forms of support and level playing field in addition to protection
from unfair practices from other parties. The Competition and Consumer Act of 2010 for Australia
includes specific measures designed to address issues that affect small businesses (Schaper, 2012).
There is the Small Business Act for Europe adopted in 2008, which among other things, carves the
needs of SMEs in the forefront of the EUs policy. The Act aims at ameliorating the broad approach
to entrepreneurship by permanently incorporating what they term Think Small First principle in
policy making from regulation to public service. The Act also aims to support SMEs growth by
assisting them in overcoming outstanding problems which hinder their development. Recently, the
UAE approved a new SMEs law designed to support and develop the sector. The new law states
that government entities as well as related entities are required to allocate 5% of their budget for
goods and services provided by SMEs or entrepreneurs (Gulf Business, December 10, 2012).
As regards to SME financing, while it is considered to be one of the key challenges that affect
SMEs in advanced, emerging, as well as developing economies, it is more acute among the Least
Developed Economies (LDCs), in particular given the weak capacity of the regulatory and
supervisory bodies in these countries (IFC, 2011). In the case of OECD member states, the
challenges that SMEs face as they try to access financing range from incomplete financial products
and services to regulatory rigidities or gaps in the legal framework, and lack of information by both
the financing institutions such as banks as well SMEs themselves (OECD, Policy Brief, November
2006). Financing institutions such as banks require a reliable a credit assessment body or a credit
bureau that would allow them to assess the risk of the prospective borrowers who want to start a
business or those who want to expand existing ones. The objective is to narrow the information
asymmetry gap between lenders and borrowers.
2.4 Opportunities for the SME sector
With regard to opportunities, while SMEs have traditionally catered on domestic markets, prospects
also exist in the global or regional markets for those firms that are willing, capable and competitive
in the export market. Opportunities for the SME sector range from service sector to manufacturing,
and all other sectors that can be exploited either domestically, regionally, or globally. In cases
where SMEs enjoy technological capabilities, they can leverage advances in areas such as
renewable energy, biotechnology, and an array of high-growth global industries (Bartlett, March
2011). The SME sector can also find opportunities in innovation, in particular given its inherent
flexibility born out of smaller size when compared to large firms.
Based on the survey data conducted among the OECD countries, between 30% and 60% of SMEs
were classified as innovative in the broad sense, providing them with an edge over larger firms
when it comes to cost efficiency, expanding customer base, or create new markets, according to
Barlett (2011). Among the developing and emerging economies where the use of technologies in
SMEs is less prevalent, opportunities exist in trade, services, handicraft, agriculture, and a number
of areas that have yet to be exploited or are simply under-exploited. It is important to emphasize
that these opportunities can only be realized and add more value with appropriate infrastructure and
effective policies. Equally important is the role of innovation in promoting SMEs. While for the
PUBLIC
7
advanced economies and some emerging economies innovation can come from science-based
technological progress, for LDCs, innovation can simply mean the acquisition, adaptation, and
diffusion of existing technology (UNCTAD, 2011).
Opportunities could also be generated through business clusters or business incubators. Harvard
Business School defines business clusters as geographic concentrations of interconnected
companies, specialized suppliers, service providers, and associated institutions in a particular field
that are present in a nation or region1. Business clusters continue to have positive impact on
productivity and are sources of comparative advantage for the companies that are located within,
despite the era of global competition, rapid transport and high-speed telecommunications (Porter,
2009). More importantly, business clusters provide opportunities for market opening and cost
reduction of doing business, according to Harvard Business School.
Business clusters are found in many sectors from fishing to Information Technology (IT). One
notable example in seafood cluster is the Bergen Seafood Cluster in Norway. Norways policy of
harvesting on its fisheries natural resources has moved the country to the second largest seafood
exporter after China. The Bergen Seafood Cluster includes fisheries, aquaculture, finance and a
center for the worlds largest seafood companies namely, Lery Seafood Group, Marine Harvest,
Grieg Seafood, Austevoll Seafood, Salmon Group, EWOS, IntraFish Media. The Cluster has 1100
firms employing 4500 people with a turnover of $62 billion (Eurofish Magazine 6, 2012). It
includes support businesses such as fish ports, vaccines, feeds, finance and law services and media
and technology facilities for the industry. Additional components of the Cluster include a research
and innovation center specializing in fisheries management, seafood and health, marine technology
and marine biotechnology, as well as ocean and coastal environment.
Business Incubators have also assisted in the development of start-up firms and fledging companies
by providing entrepreneurs with an array of targeted resources and services. The American National
Business Incubation Association (NBIA) suggests that the services provided by incubators are often
developed or orchestrated by incubator management and offered both in the business incubator and
through its network of contacts.
In order for an incubator to be effective, its operating framework needs to be clearly mandated and
articulated by its management. Each incubator must include a clear definition of its target market,
admission and exit rules, and quality standards for client assistance and other elements of the
incubators operations, all of which employees must be well aware of to ensure total effectiveness
(EC, 2002).
1
The source of the definition is www.isc.hbs.edu/econ-clusters.htm
PUBLIC
8
Chart 2.3.1: Incubator Functions
Market Access
Industrial Linkages
Exhibitions and showcases
Access to Finance
Assistance to tenants
Grants
Networking and access to investors
Capacity Building
Management training
Technology transfer
Technical training
Innovation development
Promotion of New Incubation Sectors

Specialised incubators: - Women Incubators, IT incubators, Student Incubators,
Agricultural incubators...etc
Source: Concepts from National Incubator Network Association of Malaysia, 2009 and Chart by the Authors.
2.5 The role of governments in promoting the SME Sector
The successes of the SME sector in many economies have been driven by governments, in
partnership with the private sector. Governments can develop strategies and environment for the
SME sector to grow and play the role of catalysts towards its promotion. What governments should
not do is supporting the SME sector through ineffective and inefficient policies with detrimental
effects on competition and innovation. Governments have also the responsibility of checking
destructive market powers in certain instances where the growth of SMEs is impeded through
various monopolistic or oligopolistic behaviors by large firms. Cases of the government role and
public and private partnership in developing the SME sector are found in a number of advanced,
emerging as well as developing economies.
In effect, when the SME sector fails to grow, in particular where clear potential exists, this would be
considered as a market failure for which effective government intervention could improve the
market outcome. It is equally important to emphasize that government intervention, when initiated
in an ineffective manner, could also lead to failure, or more specifically government failure with
adverse outcome for SMEs. The objective is to have government intervention in the face of market
failure where good behaviors by the SMEs sector such as competitiveness and innovation are
PUBLIC
9
fostered rather than impeded and when destructive behaviors by larger firms are curtailed or
removed.
A World Bank Study (2006) noted that governments could play the role by taking actions to
mitigate market failure and eliminate policy biases. Among the number of recommendations
provided in this regard, governments could address market failures that result to cost disadvantages
for SMEs and limited access to markets. Governments could also ameliorate transactional efficiency
related to financial, product, and input markets that are relevant to SMEs through easy access to
information and develop mechanisms that would manage risks for SMEs. The World Bank study
also emphasized the importance of reconsidering public policies and regulations that perpetuate
discriminations against small firms.
Government policies could also be instrumental in promoting entrepreneurship, facilitating firm
start-up and expansion, and improving access to venture capital and other types of financing (OECD
Policy Brief, June 2000). Governments in OECD member states are now promoting the
development of secondary stock markets, easing taxes on capital gains and dividends and allowing
using of stock options as compensation for smaller firms, according to the Policy Brief. Moreover,
they are promoting networks between SMEs owners and investors to bridge the information gap
between them and facilitate cooperation.
PUBLIC
10
3. Small and Medium-Sized Enterprises in Oman
The prospect of the central role to be played by the SME sector in the development of Oman and its
potential to add value to the economy were first paved by the Royal Decree No 19/2007,
promulgated in March 2007 that established the Directorate General of the Development of Small
and Medium Enterprises, at the Ministry of Commerce and Industry. According to the Directorate,
the mission of the Ministry of Commerce of Industry through the established entity was to create
and enhance a private sector that may positively contribute to the development of the Omani
economy by availing of favorable environment.
Acknowledging the role of SMEs in the development of the Sultanate and establishing an institution
to support this sector were critical steps. In effect, the 2013 Royal Decree 36/2013 to establish the
Public Authority for Development of SMEs in Oman further indicated the growing importance
attached to SMEs. The ultimate success of the Public Authority for Development of SMEs would be
in its effectiveness to gradually help the sector becoming a major contribution to the national
economy. Failure to meet the objectives of the SME sector laid down in an approved strategy would
render this institution into another layer of bureaucracy, further burdening public finances.
3.1 Contribution of the SME sector to the Omani economy
Available statistics on SMEs in Oman point to a sector that has yet to grow and realize its potential
contribution to the national economy. According to Oxford Business Group report issued in April
2012, the SME sector in Oman accounts for 16 percent of GDP and 90 percent of economic
activities. A study conducted by the IMF and the WB in 2010 titled Financial Sector Assessment
Program: Sultanate of Oman, it indicated that the SME sector accounted for 20 percent of GDP and
40 percent of the total workforce in Oman. These figures are indicative of a sector with limited
contribution to the overall economy of the country.
Based on the IMF and the World Bank estimate of 40 percent workforce in the SMEs sector in
Oman, it is sensible to suggest that the proportion of the Omani workforce in this sector is much
smaller than that of the expatriate workforce, in line with the prevailing trend in the overall private
sector. Latest employment statistics show that about 10,000 nationals were working in the SME
sector compared to 200,000 in firms that are classified as first class (Oman Observer, March 11,
2013). The 10,000 national working in the SME sector amounts to 2 percent of the total workforce
and 3 percent of the total private sector in Oman which, when compared to figures in advanced or a
number of emerging economies where over 90 percent of the workforce participate in the SME
sector, amount to a negligible participation by the national workforce in the sector.
Another crucial question pertaining to Omani SMEs is the issue of ownership and its implication to
the national economy. Cases whereby nationals are registered as business owners exist whereas in
reality, these nationals are simply agents of expatriate owners. This loophole in the current system
amounts to rent-seeking behavior by some nationals and has a number of financial and economic
ramifications among which are rising remittances, pressure in the labor market among nationals,
PUBLIC
11
and incentives that are meant to assist nationals in their efforts to start or grow businesses being
channeled to expatriates instead. This reality on the hidden economy is counter to the policy of
promoting upward social mobility and entrepreneurship through starting a business or expanding an
existing one. In order for the SME sector to thrive in Oman and realize its potential economic and
social benefits, owners need to be fully invested in the startup as well as growth phases of the
business.
3.2 Challenges faced by the SME sector in Oman
The SME sector in Oman faces a number of challenges that can be classified in three major
categories, namely financial, institutional, and infrastructure. These challenges extend to both the
demand and supply sides of the sector. According to a study by the World Bank in 2006,
institutional constraints include incentive gaps for young nationals to work outside the public sector
or large private companies, labor regulations in hiring expatriate workforce, excess bureaucracy to
obtain permits, as well as poor business skills and education among prospective entrepreneurs.
On the financial side, both the IMF study and the World Bank study found that that the banking
sector in Oman faced a number of challenges from supply as wells as demand sides that limit the
expansion of its lending to SMEs. On the supply side, the challenges include limited competition
among banks as well as high margin required from lending to consumers which provides little
incentives for banks to lend to SMEs and more so given the inherent high risks associated with
these enterprises. Accordingly, banks in Oman have invested little resources required in the analysis
of SMEs credit risks and credit evaluation tools. On the demand side, according to the studies,
banks are presented with limited pool of viable projects. Moreover, there appears to be a lack of
transparency and management expertise in addition to prevailing poor financial infrastructure, all of
which provide little incentives for banks to lend to SMEs in Oman. As of December 2012, 2.8
percent of the total credit extended by banks was channeled to SMEs2.
A notable challenge to SME financing in Oman that takes place through various government
entities is on conditional lending that requires the beneficiaries of the loans to buy certain
equipment from a given agent or buy required supplies from pre-determined agents. It is one thing
to institute safety or reliability standards but another thing to impose vendors and suppliers to SME
owners or entrepreneurs. This practice is paradoxical to the concept of entrepreneurship and more
importantly, it prevents the beneficiaries of the loans to operate the business in a cost effective and
flexible manner due to these impositions. Within the parameters of required standards, SME owners
should be given the freedom to choose suppliers and vendors who are based in Oman or overseas.
Another challenge faced by a number of SMEs is in the management of their cash flows and the
ability to make scheduled payments of their loans to the banks. The challenge, in some instances,
stems from delayed payments these firms face in dealing with government agencies or large firms to
which the provide services through contractual agreements. This challenge, along with other
2
The data was sourced from CBO, Banking Development Department. It is assumed that the commercial banks
classify their SMEs lending based on the definition of SMEs in Oman. We are not aware of any mechanism that
validates or cross-check commercial banks lending and firms classifications.
PUBLIC
12
challenges related to the SME sector are elaborated in Box 3.2.1 in the form of a discussion with
one Senior banking official in Oman.
Box 3.2.1: A Discussion with a Senior Commercial Bank Official
Within the context of supporting the SME sector in Oman, the official suggested that the Central Bank of
Oman (CBO) could further enhance existing procedures insofar as lending to SMEs is concerned. As per the
current procedure, banks are asked to classify any business loan as a non-paid loan in the event the
business entity fails to service the loan for 90 days. It is therefore easy for banks to take non-payment cases
to the court and recover the amount lent, in particular that these types of loans are backed by valuable
collaterals such as lands, the business itself and retirement wages. Given the challenges faced by small
businesses, the official suggests that the non-payment classification should be extended to 180 days.
Failure to meet regular payment to the banks is in some cases due to the fact that even successful SMEs
face challenges with respect to cash flow. These small firms may be providing services to government
entities or large companies which some time do not honor their payment on time, and more often in the case
of government payments. This challenge usually translates into cash flow problem for SMEs and by default
affecting the scheduled loans payments to banks. In order to mitigate this challenge, one way is for the
Government to set up fast track payments systems for SMEs while encouraging large business to do the
same.
As an incentive for large businesses to expedite payments to SMEs, the Public Authority for Development of
SMEs or the Government Tenders Board could include in their annual reports public listed companies with
average period of payment to SMEs. The performance pertaining to progress made in shortening the time
period of payments could then be used as an indicator of support to the SME sector. While the Government
Tenders Board is setting up an initiative to support SMEs, the ability to foster and expedite payments to
SMEs should be a priority.
Other Challenges faced by SMEs in Oman include high costs of conducting professional feasibility
studies, lack of collaterals needed to receive a line of credit. These challenges left Oman
Development Bank (ODB) as the main lender in this sector. The business model of ODB is based
on low cost of funding (government equity) together with large interest rate subsidies applied to the
long-term loans that it extends3. The issue here, as correctly pointed by the IMF and the WB, is that
the prevalence of low interest rates from ODB crowd out long-term lending to SMEs from
commercial banks. At basic level the SMEs sector in Oman confronts challenges in the forms of
marketing, administrative, technical, organizational and regulatory limitations (Al Belushi et al,
2012). The details pertaining to the basic challenges faced by the SME sector in Oman as discussed
by Al Belushi et al are captured in Box 3.2.2 below.
3
The interest rate subsidies consist of 3 percent interest rates on loans together with a 6 percent subsidy.
PUBLIC
13
Box 3.2.2: Selected Challenges faced by SMEs in Oman
Marketing limitations
Scarce funding for SMEs has translated into marketing weaknesses and inefficiency, resulting in scant
information on local and foreign markets as well as on consumer tastes. The SME sector also lacks
marketing outlets for promotion to local and foreign consumers. Another challenges faced by the Sector is
the lack of sufficient incentives for local products when it comes to compete with imported products and
brand names. Increased costs of transportation, delayed payments by consumers, and lack of national
support for local products compound the marketing constraints faced by SMEs in Oman. Product marketing
outside local regions faces similar challenges in addition to the underlying myth that local and national
products are inferior to imported products.
Administrative limitations
Lack of modern managerial and administrative skills amounts to a serious challenge faced by SMEs owners
in Oman, in particular when it comes to the use of modern technology. In terms of management, SMEs
owners in Oman often act as a one man show, juggling the role of manager, head of finance, head of
marketing etc. The result is administrative shortcomings due to lack of area focus and job specialization.
SMEs in Oman also faces lack of functional organizational plans for projects or enterprises at hand, often
leading to inefficiency and high transaction cost given that decisions tend to be made on ad-hoc basis. There
is also limited knowledge by SMEs owners on how to deal with official parties as well as on regulations and
required bureaucracy, resulting in preventable delays. The absence of key and relevant information and
statistics for SMEs on competing firms, product information, work regulations, social insurance hinder the
ability of firms to effective decisions.
Technical limitations
Given that SMEs depend in most part on the abilities and the experiences of their owners, lacking or limited
knowledge on the product itself or in the ability to manage a project as is often the case among some Omani
owners, have led to failures. The raw materials and inputs used for production are not subjected to technical
standards, therefore depending on the knowledge, experiences and judgment of the owner, which in some
cases are limited or lacking.
Organizational and regulatory limitations

Multiple and sometime overlapping agencies have created redundancies and as such consuming time, effort,
and money from SMEs owners. The SME sector in Oman also faces bias in favor of larger organizations in
terms of tax breaks, incentives and rollover subsidies. Larger and established organizations are often given
concessions from the government such as no corporate taxes over five years that can be extended, leading
to unfair competitions for startup SMEs.
PUBLIC
14
3.3 Growth opportunity for the SME sector in Oman
The relatively underdeveloped SME sector in Oman provides significant potential, in particular
given the countrys economic growth witnessed over many years. More importantly, the outlays of
discretionary spending in the form of capital expenditure for major infrastructure projects provide
significant opportunities for the SME sector through various modes of supplies. Equally important
are the opportunities that could be generated in making SMEs as parts and parcels of the overall
industrial policy and Foreign Direct Investment (FDI) policies in the Sultanate with the aim of
promoting linkages and knowledge transfers from large and Transnational Companies (TNCs) to
smaller firms.
As part of an overall development strategy, policies makers in the Sultanate have identified the
logistic and transport sector as one of the sectors that would propel the countrys growth in the
future, in particular given the countrys geographical location and trade history in the Indian Ocean.
In a recent event titled Oman Business Road Show to the United States with the aim of promoting
trade and investment opportunities between the two countries, four sectors were listed as significant
business opportunities.
Among the sectors identified were transport and logistics, manufacturing, healthcare, and tourism.
Given the magnitude and variety of investments that are expected to take place to further develop
these sectors, a strategy and a road map to identify synergies between these projects with the SME
sector in Oman, both startups and existing firms are required. The strategy and road map should
include pre and post implementation opportunities that can be seized by the SME sector. Selected
large logistics and transport projects are discussed in Box 3.3.1.
Box 3.3.1: Selected Transport and Logistic Projects

Ports and Logistics
The Sultan Qaboos Port based in Muscat is going to be dedicated for cruise ships with containers activities
to be moved to Sohar Port where a logistic hub is also being developed. Another logistic and port hub is
Duqum where storages for juice, oil and grain are being built to serve both Africa and Asia. It takes two
weeks for containers to arrive at Duqum Port from the East coast of the United States and it takes three
weeks from the East coast. These containers are then moved to feeder boats to serve Africa which is
growing and opening fast as well as the Indian subcontinent. Duqum Port also accounts for lower shipping
insurance cost given that vessels do not have to travel all the way to the Gulf. Salalah Port is becoming one
of the top transshipment venues in the world servicing a number of major cities globally.
Railway and Airports

There is the upcoming railway project that would extend over the Gulf region from Kuwait to Salalah. The
plan is to have the railway project complementing the ports with respect to moving goods from inland in the
gulf region that are destined for export. Similarly, goods that are being imported into the gulf region through
ports would use the railway to move them to the inland regions of the Gulf. The railway project is to be
double track catering for both freight and passengers. Oman is also witnessing the expansion of both the
Muscat and Salalah airports with the former expected to have its capacity increasing to 7 million passengers
a year and the latter to 1 million passengers.
PUBLIC
15
The opportunity for SMEs growth can also be generated through clusters or business incubators in
Oman in order to promote entrepreneurship, knowledge and costs sharing, as well as benefits
realized through the economies of scale which tends to be an advantage enjoyed by large
companies. However, it is important that the resources that are allocated to develop SME clusters
have clear objectives that in turn should be linked to the goal of sustainable growth of the sector,
keeping in mind the structure of the Omani economy and its inherent comparative and competitive
advantages. Developing clusters by simply duplicating or emulating other countries models may
simply fail in promoting the SME sector in the Sultanate.
Another prospect for SME sector growth in the Sultanate is the involvement of large companies
through supply chains and linkages. A potent example in Oman is that of Petroleum Development
Oman (PDO) through its programs that support local firms in their field of operation or
development. This program provides contracts as well as technical consultation and financial advice
to local firms.
Given access to information, infrastructure, opportunities, financing, and a legal framework aimed
at leveling the playing field, the SME sector in Oman has potential to grow and add value to the
economy, in addition to increasing income and addressing the challenge of unemployment among
the youth. It is, however, important to emphasize that time alone cannot address the challenges of
the SME sector in Oman, what is of essence is the implementation of required building blocks to
support the sector.
PUBLIC
16
4. Data Collection and Methodology
The study collects primary data through three different surveys 4. The first survey targeted 120
SMEs in Oman and through an exhaustive 30 questions and sub-questions, data on various aspects
of the sector such as challenges, opportunities, classifications, demographics, and others have been
collected. The objective of this survey is to gauge the various aspects of relationships that exist
between these entities and their SME contractors. The second survey which consists of 12 main
questions targeted 7 commercial banks in Oman with the aim of assessing various financing aspects
of the SME sector in Oman. The third survey targeted 2 large hydrocarbon companies in Oman and
consists of 9 main questions and number of sub-questions. Distributions of the first and second
surveys were sent to large corporations and commercial banks accordingly, while the first survey
was distributed through three channels. The first channel consisted of a hand to hand distribution to
a number of SMEs in Oman through exhibitions. The second channel was through business
locations, and the third channel was through large corporations given an array of contractual
agreements between these corporations and their respective SME contractors. In order to avoid
skewed responses from SME owners based on regions, efforts were made to distribute the
questionnaires to businesses located in different regions of Oman.
It is important to point a priori that not all SME firms surveyed responded to all 30 questions or
subsequent sub-questions included in the survey. Accordingly the description and analysis of the
findings were based on questions that were answered. The surveys targeting the banking sector and
hydrocarbon companies in Oman were aimed at garnering other perspectives within the realm of
their respective activities as related to the SME sector. For instance, the focus of the survey
targeting financial institutions is primarily on financing SMEs while the survey on large
corporations gauged the extent of their linkages to the sector.
As regards, the methodology being used, the survey sample that targeted SMEs in Oman were first
recorded on singular basis then classified in aggregate manner. The classifications of Micro, Small,
and Medium enterprises in Oman were based on the three definitions by the Omani Ministry of
Commerce and Industry for each of these three categories.
4
Appendix 1 includes all three surveys conducted for this study.
PUBLIC
17
5. Findings and Data Analysis
Data analysis and findings are based on three surveys conducted for the study and are discussed in
subsequent three sections with sub-sections as required. Inference has been used in a number of
findings as part of qualitative analysis.
5.1 Surveys on Small and Medium-Sized Enterprises in Oman
The study uses a sample of 120 SME firms responding to a thirty-question survey5. It is important
to note at the outset that not all 120 firms respond to all 30 questions and sub-questions. Despite
these shortcomings, the various regions that have been covered and the different characteristics of
the firms that have responded to the survey provides the study with enough information to assess
the challenges faced by the SME firms in Oman as well as the various qualitative aspects of the
sector. Selected questions and their subsequent responses are analyzed below while aggregate data
on the responses to the questions can be viewed on Appendix 1 of the study.
5.1.1 Selected SME descriptive statistics
The age distribution of ownership of SMEs in Oman based on 120 firms that had been surveyed
showed that over 39 percent of these firms were of the age of over 40-year old while just over 4
percent were below 20-year old (Charts 5.1.1). The finding also indicates that around 38 percent
were between the age of 30 years and 39 years and about 18 percent were between 20 years and 29
years of age.
The data were collected at the given point of time without taking into account the life span of the
firms. The finding at this point of time suggests that a significant majority of SME owners in Oman
or 77.5 percent of those surveyed
Chart 5.1.1: Percenetage Breakdwon on Age
were over 30 years of age. The Ownership of SME s
findings on age ownership are 40 years old
validated by a Grant Thorntons 50.0 30 - 39 years and above ,
study on National Business Center old, 38.3 39.2
in Oman conducted in 2013, 40.0
indicating that a majority of those 30.0
self-employed ranged from 35 and Less than 20
54 years of age. 20.0 years old, 20 - 29 years
4.2 old, 18.3
10.0
On the question of academic
qualifications and ownership of 0.0
SMEs, the results of the survey 0 1 2 3 4 5
-10.0
indicated that about 33 percent held
5
Appendix 1 lists all the questions in the survey and responses from targeted firms.
PUBLIC
18
high school diploma, 19 percent
held two-year diploma while those Chart 5.1.2: Percentage SME Ownership Based on
who held undergraduate University Academic Qualification
degrees or higher accounted for 23 2.5 3.3 No academic
percent (Charts 5.1.2). Those with qualifications
no academic qualifications 18.3 Academic qualification

23.3
accounted for just over 3 percent. lower than high school
Together, those who held two-year diploma
High school Diploma
diploma or a higher university 19.2
degrees account for 42.5 percent, 33.3
suggesting a segment that is 2 year diploma
susceptible to advanced and
relevant training and potential Undergraduate degree
success insofar as managing SMEs or above
is concerned.
The study also identifies prior work

experience as an important asset for Chart 5.1.3: Percentage Breakdown of SME
entrepreneurs who want to build Ownweship Based on working Experience
businesses as wells as current SMEs
owners. The survey shows that No experience
over 34 percent had prior work 14.2

34.2 Less than 1 year
experience of more than ten years, 9.2
about 9 percent with work
18.3 From 1 year to 3 years
experience of less than one year
while those without any prior work 24.2
experience account for about 14 From 4 years to 10
years
percent (Charts 5.1.3). It is
important to point out that while More than 10 years
work experience may be an
important asset, there have been
cases of successful businesses built by entrepreneurs without significant work experience.
Similar to any business, SME firms

are in need of training that target 5.1.4: Percentage Ownership Based on Training
owners as well as employees in Received
those firms. The survey posed the
question to SME owners on training
received related to firms they own, 29.7
Yes
the findings indicate that over 70 No
percent did not receive any training
related to SMEs (Chart 5.1.4). The
70.3
results under this specific question
further point to the importance and
urgency of professional training
programs targeting SME owners in
various disciplines related to the sector as well as employees in this sector.
PUBLIC
19
Another important criterion used in
the survey pertains to the lifespan Chart 5.1.5: Percentage Breakdown SMEs Lifespan
of the firms for which 33 percent
had been in the market for over ten
years, 17 percent between three and Less than 1 year
five years and about 13 percent less
than one year (Chart 5.1.5). It is 12.7 From 1 year to 3 years
33.1
important to point out that the study 18.6
From 3 years to 5
does not look at the correlation years
factors linked to firms lifespan, but 18.6 16.9
From 5 years to 10
given that 50 percent of these firms years
have been in the market for over More than 10 years
three years is indicative of
potentials that could be further
explored. A follow-up analysis as to
the factors that have contributed to the sustainability of these firms could benefit policy makers in
devising relevant policies.
The survey listed 10 business

activities in addition to those 5.1.6. Percentage Breakdown Sectoral Distribution
classified as others in order to of SME Business Activities Retail trade
gauge sectorial distribution of the Manufacturing
SME firms in Oman. Given the Craft/ Artisan
sample surveyed, the finding Information and communication

17.4 20.1
indicates that 20 percent engage in technology
Construction
2.1 7.6
retail and trading activities, about 8 8.3 Agriculture and fishing
percent in manufacturing, 16 2.1 Mining, electricity, gas and
percent engaged in craft and other 0.0 11.1 16.0 water supply
11.8 Transportation and storage
artisan activities and 3.5 percent or 3.5
Accommodation and tourism
5 firms were in agriculture and
6
fishing businesses (Charts 5.1.6) . Food services
The findings suggest that the SME Others
sector in Oman is yet to engage in

the types of activities that add tangible value to the economy. In the case of agriculture and fisheries
sector for instance, activities are primarily centered on fishing and cultivation and subsequent
marketing of the raw products rather than on manufacturing in the related products for the sector.
6
Given that some firms are engaged in more than one sector, the number of responses on this particular survey question
was 144.
PUBLIC
20
The question on whether the firm is
the only source of income revealed Chart 5.1.7 : Percentage Breakdown of SME owners
that 52.5 percent of SME owners Sources of Income
identified their firms as the only
Pension/retirement
source of income. When the annuity
question is expanded to identify 5% 18%
18% Full time job
other sources of income, 59 percent
of those who were willing to identify 0%
Revenue from
other sources of income beyond investments
their firms identified their full time 59%
Revenue from other
jobs as an additional source of businesses
income while those who derived
Other (please specify)
their additional income from other
businesses and pension funds were
18 percent each (Chart 5.1.7). The
key observation from this finding is that almost 60 percent of SME owners in Oman who were
willing to respond to this specific question have full time jobs somewhere else, raising a number of
questions as to the dedication and actual ownership of the businesses. More importantly is the
question of real ownership given the prevalent practice in the country where the management of
small businesses is often abdicated to expatriates while nationals receive a fee or an agreed amount
as a reward of simply being an agent.
Access to professional consultancy

is part and parcel of doing business. Chart 5.1.8: Percentage of SME Owners Obtaining
Consultancy services can be ad-hoc Proffesional Advice
or continuous in nature depending of
the requirement and financial
resources of a firm. SME firms are Yes
not exempted from these services if 48.3 No
51.7
they have to grow and prosper. The
survey under this study aimed to
find out whether SME owners use
professional advices or not and the
results showed that about 52 percent
said they did while the remaining 48 percent said they did not (Chart 5.1.8).
On the question of sources of advice, 64 percent pointed to family, friends and relatives as their
sources of business advices, 15.6 percent identified the government, and 14.1 percent have used
professional advices while 4.7 percent identified Oman Development Bank (ODB) as a source of
advices. The fact that almost half of the respondents do not receive professional advice and more
than 60 percent resort to informal sources of advice such as families and friends, suggests that either
existing professional consultants are expensive or not reliable. Another likely explanation is that
SME owners or entrepreneurs do not deem existing professional consultancy, private or public,
relevant or necessary to run or start a business.
PUBLIC
21
On the employment front, the
finding from the survey showed that Chart 5.1.9: Percentage Break on Number of
51 percent of SMEs in Oman Employees
employ 1 to 4 workers while 12.5
percent employed more than 20 More than 20
staff. The finding also showed that employees
about 17 percent of SMEs employ 13%
between 10 and 20 workers while From 10
employees to From 1
those that employ between 5 and 9 20 employees
employee to 4
workers accounted for about 20 17% employees
percent of the sample (Chart 5.1.9). From 5 51%
Given the definition of SME in employees to
9 employees
Oman and in particular as it pertains
20%
to the criterion of number of
workers being employed, it is clear
by this survey that a significant
majority of SMEs in the country
consists of micro enterprises. The
key challenge in this case is to promote the sustainability and growth of these firms to larger firms
given that small and medium enterprises facing similar challenges.
More importantly, while micro firms may provide a mode of subsistence or modest income to the
owners, they do not constitute a source of employment with livable wages let alone avenues for
career growth. Using the definition of micro by the Ministry of Commerce and Industry of 1 to 4
employees, the results of the survey in this study suggest that the majority of SME firms in Oman
are micro with similar findings when using data from PASI albeit for the latter the majority is more
pronounced.
Another important and pertinent

question on the survey related to the Chart 5.1.10: Percentage Break of Number of
employment was on the number of Omani Employees in SMES
nationals working in the SME 2% None
sector. The finding revealed that 58
6% 21%
percent of SMEs in the country 12%
From 1 employee to 4
employed between 1 and 4 Omanis employees
against 2 percent that employed
From 5 employees to 9
over 20 Omanis (Chart 5.1.10). The employees
results also indicated that 12 58%
From 10 employees to
percent of the firms hired 5 to 9 20 employees
Omani employees and 2 percent
employed 10 to 20 Omanis.
Gauging the sector as a whole rather than analyzing the data based on whether a firm is micro,
small, or medium, the finding suggests that a significant majority of SME firms employs more
expatriates than nationals albeit the ratios micro, small and medium firms are not determined by this
study. Employment in the SME sector in Oman is beset by a number of challenges as alluded to in
the previous section of the study ranging from wages, benefits, working hours, and opportunity for
PUBLIC
22
advancement for its workers. Only a vibrant and growing SME sector has the potential to attract
Omani entrepreneurs and employees.
5.1.2 Overall challenges faced by SMEs in Oman

The survey also posed the question Lacking the required
to SME owners regarding the Chart 5.1.11 : Percentage Breakdown on knowledge
challenges they faced in starting or Sources of Challenges Finding customers
running businesses. Given the Competition
2%
selection of the challenges listed in
this specific question of the survey, 12% 6% 11% Access to finance
two areas, namely competition and 11% relatively high costs of
access to finance were ranked as 17% finance or loans
leading challenges with 17 percent 13% Costs of production or
labor or rent
of respondents identifying each of 11% 17% Availability of skilled staff
these challenges as the leading or experienced managers
challenge, albeit competition ranked Regulations and
administrative burdens
slightly higher. These two Others
challenges were followed by cost of
production that includes labor and
rent at 13 percent while challenges from regulation as well as administrative burdens came next at
12 percent (Charts 5.1.11). On the question of competition, the lack of level playing field was
viewed in the context of large businesses in Oman often extending to all supply chains in all key
sectors, leaving limited opportunities for the SME sector. Other challenges that ranked prominently
included cost of production such as labor and rent, regulation and administrative burdens as well as
high cost of financing.
On the challenge of data availability, a scale of 1 to 5 was devised whereby each number was
assigned a description as to the extent of the significance associated with availability of relevant
data related to the SME sector in Oman was devised for the study. The results indicated that 53
percent viewed the lack of required
data as not pressing while 13 percent Chart 5.1.12: Percentage Breakdown
believed that it was a pressing issue on the Lack of Required Data
(Chart 5.1.12). The interpretation of
this finding, in particular given the 13%
response of more than 50 percent of 13%
the respondents who were surveyed 8%
53%
viewed the lack of data as a major
13%
challenge reflects, to some extent, a
lack of business knowledge or
appreciation of relevant data in
business decision making. This 1 - Not pressing at all 2
observation is more prescient in the 3 4
case of Oman where there is scarcity 5 - Extremely pressing
of data related to the SME sector.
PUBLIC
23
The survey listed a number of challenging factors deemed relevant to the income generated by
SMEs in Oman. Questions based on qualitative assessments are listed under selected factors namely
turnover, labor costs, other costs, net interest expenses as well as profit margin7 (Table 5.1.1). It is
worth noting that profit, besides profit margin, remained unchanged or decreased for a significant
majority of the respondents (76 percent) in one year before the survey was conducted. The time
frame specified in the questions is one year and subsequent results reflected performances within
the specified time frame. On the question of turnover, 40 percent of respondents indicated that this
factor remained the same within the specified time, 32 percent said that it increased while 24
percent said that it decreased.
7
The results on Table 5.1.1 are parts of the complete survey in Appendix 1.
PUBLIC
24
Table 5.1.1: Assessment of SME Income Generation
Number Percentage
a) Turnover 111 100

Increased 36 32.43
Remained unchanged 44 39.64
Decreased 27 24.32
Not applicable 4 3.60
b) Labor cost (including social security contributions) 111 100
Increased 67 60.36
Decreased 7 6.31
c) Other cost (materials, energy, other) 108 100
Increased 72 66.67
Decreased 9 8.33
d) Net interest expenses [= interest expenses minus interest income =
what you pay in interest for your debt minus what you receive in 104 100
interest for your assets]
Increased 32 30.77
Decreased 11 10.58
e) Profit [= net income] 108 100
Increased 24 22.22
Decreased 42 38.89
f) Profit margin [= the difference between the selling price and the cost
102 100
price for each unit]
Increased 16 15.69
Decreased 35 34.31
PUBLIC
25
Regarding the effect of labor cost on income, 60 percent of respondents pointed to an increase in
one year, and 19 percent said it remained unchanged and 6 percent indicated a decrease. On the
question pertaining to other costs among which include materials and energy, 67 percent said there
had been an increase in one year, 19 percent indicated no increase while 8 percent of the
respondents pointed to a decrease in one year. As regards net interest expenses, 38 percent of
respondents indicated an increase, 20 percent indicated that it remained unchanged and 11 percent
said it decreased. The survival of any private business depends primarily on the profit that it
generates and according to the survey, 42 percent responded that profit margin had remained
unchanged in the course of one year up to the time survey was conducted, 34 percent said that it had
decreased and 16 percent said that it had increased.
Payment method is one of the key

indicators used to assess the Chart 5.1.13: Percentage Breakdown on Payment
efficiency as well as the Methods to Suppliers
modernization of a firm. For the
2% 1% Cash
purpose of this study, four
classifications were used in the 12%
survey in addition to other. With 56 Cheque
percent of respondents citing cash
29% 56% Direct transfers from a
payment as their method of payment
bank
to their suppliers, this method of
payment appears to be the dominant Payment/Debit/Credit
cards
one among SMEs owners in Oman,
followed by check payment with 29 Other (Please mention)
percent of respondents, direct
transfer from banks with 12 percent
and those using debit and credit cards accounted for 2 percent (Charts 5.1.13). Failure to resort to
modern technologies and existing facilities within financial institutions in Oman as avenues to
conduct financial transactions with suppliers amounts to additional transaction and administrative
costs that could be avoided by SMEs.
Preparing relevant financial

statements is an integral part of Chart 5.1.14: Preparation of Financial Statements
running a business including SME
businesses. The survey undertaken
for this study indicated that 58
percent of SMEs in Oman prepared Yes
relevant financial statements while 42%
the remaining 42 percent did not 58% No
(Chart 5.1.14). The findings on
payment methods by the SME
sector in Oman as well as on
preparing financial statements are
indicative of a sector that is
required to become more professional as well as being able to adapt to modern technologies in order
to minimize transaction costs.
PUBLIC
26
The question arising is as to why a number of SME owners in Oman are not managing their
businesses using professional tools and methods required to minimize costs, maximize profits, and
to keep financial records, all of which are critical in sustaining and growing a business. The answer,
as indicated by the findings, lies primarily in skills and knowledge gaps. More importantly, the
answer reflects the lack of awareness by some emerging entrepreneurs and SME owners as to the
importance of professionalism required to run successful businesses.
The survey also aimed to identify
the main sources of businesses for Chart 5.1.15: Percentage Breakdown Sources of
the SME sector in Oman. Business for SMEs
Accordingly, four criteria were Contracts (>1 year) with
listed as questions in the survey. large reputable
The results from the respondents 13% 25%
companies
indicate that 40 percent of SME Contracts/legal
firms depend on contract or legal 22% agreements with
customers
agreements with customers, 25
Established regular
percent on more than one-year 40% customers
contracts with large and reputable
companies, 22 percent on Never know where
established regular customers and customers will come
13 percent not aware where from
businesses would be generated from
(Charts 5.1.15).
5.1.3 SME financing in Oman
Access to financing is one of the

key challenges facing SMEs in Chart 5.1.16: Percentage Breakdown on
Oman. Accordingly, the survey Sources of Finance
posed this question to SME owners. Personal money from me
The finding pointed to modest and my family
activities insofar as funding for 1%
SMEs through financial institutions 3% 13%
Borrowed from
family/friends
in Oman was concerned. It is 7%
important to note that in some 56% Borrowed from Oman
cases, funding came from more 20%
Development Bank
than one source. According to the
Funded by SANAD
survey, 56 percent of firms were
self-funded - individually or jointly
by family, 20 percent borrowed Borrowed from
from friends, 18 percent borrowed banks/financial
institutions
from banks and financial
institutions, 10 percent from ODB and 4 percent from SANAD (Chart 5.1.16). The funding mirrors
the modest lending by commercial banks to the SME sector wherein about 2.5 percent of aggregate
lending by these banks has been channeled to SME according in 2013. The challenges with regards
PUBLIC
27
to SME financing in Oman can be found from lending institutions as well as SME owners and new
entrepreneurs as elaborated in relevant sections of this study.
Continuing with the financing

theme from the perspective of Chart 5.1.17: Duration of Loan Approval
business owners, the survey on
business loans approval for SMEs 5% 2%
in Oman pointed to a lack of Less than 6 months
expediency. According to the 9%
finding, a significant majority, or From 6 months to 12
84 percent of respondents indicated months
that it took about six months to From 1 year to 2 years
have a business loan approved by a 84%
financial institution while 2 percent More than 2 years
of the respondents indicated a time
frame of more than two years
(Chart 5.1.17). In view of the
finding on this question, it appears
that loan approval by the financial institutions to SME projects required some degree of time-
sensitivity. Another critical financing challenge for SMEs in Oman is the collateral often required
by financial institutions as a means to mitigate non-payment risks. The survey indicated that 88
percent used property or other types of collateral to secure required financing while over 11 percent
used equipment as collaterals.
The average rate of interest rate

repayment is another criterion used Chart 5.1.18: Percentage Breakdown Average
by the survey to assess the Interest Rate Payment
financing challenges faced by SME
owners or entrepreneurs in Oman. 7%
23% 37%
Those paying an average rate
between 0 percent and 3 percent
accounted for 37 percent of the 14%
respondents, 19 percent pay in the 19%
range of 3 percent to 5 percent, 14
percent between 5 percent and 7
percent, 23 percent between 7 0-3% 3%-5%
percent and 10 percent and 7 5%-7% 7%-10%
percent of the respondents pay More than 10%
more than 10 percent in interest
rate on business loans (Chart 5.1.18). The survey also looked at the repayment period with regard to
SME financing in Oman where 10 percent of the respondents indicated 1 to 2 years, 36 percent
between 2 and 5 years, 27 percent between 5 and 8 years and another 27 percent 8 years and above.
PUBLIC
28
5.2 Survey on financial institutions and SME lending
The survey conducted on the financial institutions in Oman consisted of 12 questions pertaining to
activities directly or indirectly linked to the financing of the SME sector in the country8. A total of
seven domestic banks responded to the survey questionnaire whose aggregate findings are shown
and analyzed in this section9.
The findings from the question on lending preference by the banks that was based on ownership
structures of SMEs, ranked individual businesses as the most preferred entity given the replies from
6 banks out of 7 or around 86 percent, followed by non-family partnership businesses and family
businesses (Chart 5.2.1)10. The simplicity of dealing with an individual SME owner rather than
other types of ownership structure appeared to be the driving incentive for the majority of banks
surveyed in prioritizing their lending. Individual businesses were followed by non-family
partnership businesses and then family businesses.
Chart 5.2.1: Ownership Structure and Lending Preference

90% 85.71% 7
80% 71.43% 6
70%
57.14% 5
60%
50% 6 42.86% 4
5
40% 3
4
30%
2
20% 3
10% 1
0% 0
Family businesses Individual Businesses Non-family Others and please
partnership specify below
% Number businesses
Analyzing the findings on the question of stages of SMEs and lending preference, the result from
the survey indicated that financial institutions ranked firms that were already established as their
preferred lending recipients given the responses from 86 percent of the surveyed banks (Chart
5.2.2). Both firms that were in a stage of signing contracts with larger firms or the government and
established firms that were already in contract with larger firms or the government came second
with 57 percent providing the same ranking. It is assumed here that firms that are about to sign
contract with larger firms or the government are either established or start-ups. As for start-up firms
with no contract at hand, they ranked last in terms of lending preference by the banks, using stage as
a criterion. The results are indicative of a lending preference by the banks that is based on track
record or lifespan of SMEs or their ability to service prospective loans.
8
Appendix 2 listed the aggregate findings on the 12 survey questions that targeted the financial sector in Oman.
9
The seven banks include Bank Dhofar, Standard Charted Bank, Bank of Baroda, Oman Arab Bank, Bank Muscat,
State Bank of India, and National Bank of Oman
10
The Surveyed banks did not provide answers or specification on part 4 of question 1.
PUBLIC
29
Chart 5.2.2: Preferred Stages of Lending
85.71% % Number
90% 7
80% 6
70%
57.14% 57.14% 5
60%
50% 42.86% 4
40% 6 3
30%
4 4 2
20% 3
10% 1
0% 0
Start-up firms Established firms Firms that are about to Firms that are already in
sign contracts with larger contract with larger
firms/gov firms/gov
On the question of limited lending to SMEs in Oman, the highest ranking rationale, as indicated by
the survey targeting the banks was the lack of financial history or position through financial
statements given the replies from 86 percent of the respondents, followed by limited or lack of
required skills by owners with just over 71 percent of the respondents (Chart 5.2.3). The lowest
ranked rationale with just over 28 percent pertained to high risk often associated with SMEs. While
this response might appear counter-intuitive, it can be explained by a system of high collateral value
or salaries being used as securities by the banks in a number of lending cases. It is also important to
note that unenthusiastic SME owners provide little confidence to bankers when it comes to
financing, indicating another reason of the wide bridge that exists between SMEs and Banks.
Chart 5.2.3: Reasons for Limited Lending

90% 85.71% 7
80% 6
71.43%
70%
57.14% 57.14% 57.14% 5
60%
50% 42.86% 4
40% 6 3
28.57%
30% 5
4 4 4 2
20% 3
10% 2 1
0% 0
Lack of High risk High failure rate Limited or lack Small or limited Lack or poor Lack of financial
collateral of required skills market for feasibility history or
by owners growth studies position
% through
Number financial
statements
PUBLIC
30
The survey also gauged the maximum amount the banks would be willing to lend to SMEs in
Oman. The findings point to non-skewed results with just over 28 percent of banks preferring to
lend between RO 10,000 and RO 50,000. Another similar percentage ranked the amount of between
RO 250,000 and RO 1,000,000 (Chart 5.2.4).
Chart 5.2.4: Maximum Amount of Lending

30% 2.5
28.57% 28.57% 28.57%
25% 2
20%
1.5
15% 14.29%
2 2 2 1
10%
5% 1 0.5
0% 0
RO 10,000 - RO 50,000 RO 50,000 RO RO 250,000 RO Others and please
250,000 1,000,000 specify the amount
% Number below
The surveyed banks have also been asked as to what needs to be done in order to enhance SME
financing in Oman. Out of the five criteria listed under this question, improving infrastructure for
SMEs in Oman ranked the highest with about 86 percent responding similarly, followed by the
criterion that suggests a presence of a legal framework that level the playing field in terms of
competing with large firms (Chart 5.2.5). The third ranked criterion was on the need for financial
institutions to invest required resources in analyzing and assessing opportunities in the SME sector
with over 57 percent, followed by other criteria that were not specified by the lending institutions
with 43 percent and last, a binding regulatory requirement by CBO mandating a share of lending
portfolio to SMEs with 23 percent.
PUBLIC
31
Chart 5.2.5: Recommendations on Enhancing SMEs Lending
90% 85.71% 7
80%
71.43% 6
70%
57.14% 5
60%
50% 42.86% 4
40% 6 3
28.57% 5
30%
4 2
20% 3
2 1
10%
0% 0
A binding Improve Level the plane field Financial Others and please
administrative infrastructure when it comes to institutions to specify below
requirement from support for MSMEs completion with invest resources in
CBO a given Large firms through analyzing and
Percentage of the a legal framework Assessing %
total lending opportunities in Number
portfolio MSME sector
The response to the survey also indicated that just over 28 percent wanted CBO to impose an
administrative binding rule on the percentage of lending portfolio to be allocated to SMEs. The
response to this question testifies to the discussion in the previous section of this study as to the
importance of developing effective infrastructure to support the SME sector as well as the need to
devise a legal framework to protect the sector from unhealthy competition. The response also
indicates the lack of enthusiasm by the commercial banks to have CBO introducing binding rules
pertaining to SME lending. In other words, an effective infrastructure that supports the SME sector
in Oman as well as a legal framework that promotes fair competition would go a long way in
providing incentives to the banks to lend to SMEs albeit that 57 percent of banks surveyed also
acknowledged the importance of developing their own resources insofar that SME financing is
concerned.
Another critical question on the survey was on whether the banks allocated or dedicated a certain
amount of lending portfolio for SME in Oman. The criteria range from RO 5 million to RO 20
million and others. On this particular question 14 percent of the banks sampled indicated a portfolio
of RO 5 million while 43 percent indicated others without specifying the amount. The conclusion
drawn from the responses under this question is indicative of the marginal interest or incentives for
the commercial banks in Oman to finance SMEs under the prevailing environment.
The follow-up question to the financial sector with regard to lending is on expected annual growth
of the loan portfolio targeting SMEs in Oman. The response in this case pointed to some signs of
optimism given that 57 percent of banks surveyed expected some growth without specifying the
rate, 14 percent expected 5 percent to 8 percent growth while 29 percent pointed to 8 percent and 10
percent growth (Chart 5.2.6). One could not point out the exact rationale behind the positive
findings on this question, but an educated guess would suggest the recent initiatives by the
government to promote the sector as well the CBOs recent circular to encourage and incentivize
PUBLIC
32
SME financing could be the
reasons. While the projections Chart 5.2.6: Projected Annual Lending Growth to
appear optimistic, latest data in SMEs 57.14%
60% 4.5
2014 suggests that even the 50
4
percent target would be difficult to 50%
3.5
achieve. 40% 3
28.57% 2.5
The survey also ranked SME 30% 4 2
financing by the commercial banks 20% 14.29% 1.5
with respect to sector. All 7 banks 2 1
ranked retail trade as the largest 10% 1 0.5
recipient of SME financing in 0% 0
Oman, followed by construction as 1% -3% 3%-5% 5%-8% 8%-10% Others and
well as transportation and storage please
(Chart 5.2.7). The third place was specify the
% Number rate below
food services sector while the
fourth place was by manufacturing, agriculture and fishing as well as real estate. The findings under
this question are commensurate to some extent with sectoral investments being initiated by the
government in areas of logistics and transportation and by default construction as elaborated in Box
3.3.1 in section 3 of this study. The challenge is to devise a strategy that would optimize the synergy
and linkages between these projects and the SME sector pre and post implementation.
8 120%
7 5.2.7: Sectorwise Lending to SMEs
7
6 6 100%
6 5
4 4 80%
5 4
4 3 3 60%
100%
3
86%
86%
2 2 40%
71%
57%
57%
57%
2
1
43%
43%
20%
29%
29%
1
14%
0 0%
Craft/ Artisan
Construction
Retail trade
Manufacturing
Food services
Agriculture and fishing
Accommodation and
Real estate
Other service activities

Mining, electricity, gas and
communication technology
Transportation and storage
(please specify)
Information and
tourism
water supply
Number %
PUBLIC
33
The study, through its survey on financial institutions, found it useful to pose the question on the
rate of success of SME financing as a whole in the last five years by these institutions as well as
disaggregate the same question with respect to medium, small and micro enterprises. As regards the
success rate for the SME sector as a whole, the results indicate that 29 percent pointed to a success
financing rate of between 10 percent and 20 percent and 14 percent pointed to a success rate of 50
percent to 70 percent (Table 5.1.2). The findings in this case could be viewed as a proxy for the rate
of success of SMEs in Oman within a life span of five years, which based on the results appear to be
low.
The rate of financing success for medium enterprises in the last five years points to some similarity
with the overall success rate for the SME sector. From the banks that responded to this question, 2
indicated that the rate of financing success for medium enterprises in Oman ranged between 10
percent and 20 percent while 4 banks pointed to other rates of success without providing
specification11. The findings for small enterprises with respect to the rate of financing success
pointed to a rate of between 10 percent and 20 percent from 43 percent of the banks surveyed while
another 43 percent pointed to other rates of success without providing specifications 12. On micro
enterprises, 29 percent of banks indicated a success rate of between 10 percent and 20 percent while
43 banks indicated other rates of success13.
Given the results of the survey targeting the banking sector on the lending success from banks to
SMEs, it is clear that SMEs in Oman have not been generally very successful in their ability to
service their loans and pay the interest to commercial banks. The findings complement other
findings in the study where on one side a number of potential entrepreneurs and SMEs Owners are
not well equipped to run businesses professionally and on the other side the limited investments by
the commercial banks in building capacity that would carter to SMEs. The way forward is to bridge
the wide gap that currently exists between potentials in the SME sector and capacities in the
banking sector to identify these potentials.
11
A reminder that a medium sized enterprise in Oman is defined as a firm consisting of 10 to 99 employees with an
annual sales ranging between RO 250,000 to RO 1,500,000.
12
A small enterprise in Oman consists of firm that employs between 5 and 9 employees with an annual sale that ranges
RO 25,000 and RO 250,000.
13
A micro enterprise in Oman consists of firm with less than 5 employees and an annual sale of less than RO 25,000.
PUBLIC
34
Table 5.1.2: Success Lending Rate for the SME Sector Based on 5-Year Repayment
Rate of lending success for all SMES
Range Number of Banks Response Rate

10% -20% 2 28.57%
20% - 30% 0 0.00%
30% -50% 0 0.00%
50% -70% 1 14.29%
Others 4 57.14%
Rate of lending success for medium enterprises

10% -20% 2 28.57%
20% - 30% 0 0.00%
30% -50% 0 0.00%
50% -70% 0 0.00%
Others 4 57.14%
Rate of lending success for small enterprises

10% -20% 3 42.86%
20% - 30% 0 0.00%
30% -50% 0 0.00%
50% -70% 0 0.00%
Others 3 42.86%
Rate of lending success for micro enterprises

10% -20% 2 28.57%
20% - 30% 0 0.00%
30% -50% 0 0.00%
50% -70% 0 0.00%
Others 3 42.86%
PUBLIC
35
6. A Strategy for a Growing, Competitive, and Dynamic SME Sector in Oman
The strategy devised under this study comes on the back of an exhaustive analysis of all the
responses of the survey questions from various stake holders. The strategy also incorporated
selected best practices garnered from experiences of other countries and aligned them within the
context and specifics to the Omani economy and institutions.
According to the strategy, the goal of government policy makers in Oman insofar as the SME sector
is concerned, would be to ensure its growth, competitiveness, and dynamism that in turn would
contribute to the overall economic growth, economic diversification, upward mobility and higher
income among the participants in the sector. However, realizing the goal set by policy makers
requires a mechanism of support through a network of institutional interactions.
Four major modules have been identified, forming the basis of the support network required to
reach the goal that has been set (Chart 6.1). Included in the support network modules for the SME
sector in Oman are policy and institutional supports, a legal framework that would govern the
sector, access to financing and opportunities, and infrastructure support. Each of these four
modules is to be supported by actions deemed critical to their successes and ultimately in realizing
the goal of promoting a growing and dynamic SME sector in the country.
Section 7 of the study listed a number of policy recommendations that support the modules in the
proposed strategy as well as provide detailed explanations in addition to implications of each of
these policy recommendations.
PUBLIC
36
Chart 6.1: A Strategy for the SME Sector in Oman
Goal
Promote a Growing, Competitive and

Dynamic SME Sector in Oman
Support Network
Policy and Access to

Institutional Infrastructure
Legal Framework Financing and
Supports Support
Opportunities
Regular Policy Growth-Driven Direct and Indirect Effective and Efficient

Evaluation Regulations CBO Initiatives Incubators
Capacity Integrated Clusters in

Dynamic and Promote Fair Enhancement by Competitive Sectors
Flexible Policies Competition Commercial Banks
Professionally
Institutional Viable Projects Resourced Statistical
Centralization or Effective Agency
from Entrepreneurs Body
Coordination Regulations
Access to Public Private

Entrepreneurship in Research-Based Government Partnership
Education Regulations Contracts
PUBLIC
37
6.1 Policy and institutional support
The growth of the SME sector in Oman as would be the case in any other country requires effective
policy and institutional support. This module consists of four sub-modules, namely regular policy
evaluation, dynamic and flexible policies, institutional centralization or coordination, and
entrepreneurship in education.
Regular policy evaluation
Regular policy evaluation is required to mitigate changes in economic dynamic or structure as well
as identify and address policy failures. Policy evaluation necessitates a pre-set of objective metrics
based on professional studies and realistic assessments and which could be used as instruments for
regular policy evaluation and its subsequent performance. The objective metrics could include,
among others, contribution of the SME sector to the GDP, number of new SMEs joining and
leaving the market, progression from Micro to Small and Medium and vice versa, trend in the
number of nationals working in the sector or owning the firms, sectorial dynamics, and others.
Dynamic and flexible policies
Dynamic and flexible policies are necessary to adapt to changes in the economy. As a follow-up to
policy evaluation, changes in policies should be driven by necessity and based on reliable data and
professional analysis and not in response to social pressure without accounting for financial and
economic implications. Dynamic and flexible policies require coordination among relevant
government entities to the SME sector to ensure consistency in the vision and goal.
Institutional centralization and coordination
Effective coordination among government institutions that have been set up to promote the SME
sector directly or indirectly must take place through a centralized government body. In other words,
all government entities should come under one umbrella either through restructuring or through
effective and high level participation in policy making body. The objective is to minimize
redundancies and unhealthy competitions among concerned agencies.
Entrepreneurship in education
Entrepreneurial culture should be fostered through the education system at both high school and
university levels in addition to avenues that promote this culture in the society as a whole. Equally
important is to promote an education that advances the idea and benefits of one being a job creator
and not just a job seeker. Encouraging innovation, stimulating critical thinking, and introducing soft
skills are few of the ideas to be included in entrepreneurial curriculum.
PUBLIC
38
6.2 Legal framework
A number of countries have developed regulations aimed at governing and promoting the SME
sector within the context of their respective commercial laws. The proposed strategy under this
study also recommends a formulation of a comprehensive set of rules and regulations also aimed at
governing and promoting the SME sector in Oman. The legal framework module under the
proposed strategy has four sub-modules that include growth-driven regulations, promotion of fair
competition in the market place where SMEs can strive, effective agency regulation, and research-
based regulations.
Growth-driven regulations
Growth-driven regulations need to be based on incentive structures that promote competition within
the sector. Introducing regulations that eliminate real and potential unfair practices from larger
firms is also required. Equally important is to have a legal framework that does not promote a path
dependency where government policies protect the sector at the expense of competitiveness and
growth.
Promote fair competition
The government needs to make sure that policies and rules promote level playing fields through fair
competition among SME firms as well as protection from larger firms. The legal framework
governing the SME sector in Oman should also set legal parameters that extend certain types of
business opportunities within an agreed margin to SMEs.
Effective agency regulations
The government of Oman should eliminate all loopholes in current agency laws to allow for a
proven ownership of SME firms by nationals. The agency laws must be effectively implemented
and enforced even through hefty fines.
Research-based regulations
Rules and regulations need to be based on proper studies that identify and analyze potential direct
and indirect implications in addition to gauge short or long term ramifications. Research-based
regulations would avoid paradoxical or contradictory policies targeting the SME sector.
6.3 Access to financing and opportunities
Similar to any other sector, SME sector in Oman require access to financing as well as business
opportunities in order to grow or in the event entrepreneurs want to start new businesses. The
survey conducted under this study validates the challenges faced by the sector in these two critical
PUBLIC
39
components of the business. In order to address these challenges, four sub-modules have been
identified including direct and indirect initiatives by CBO, capacity enhancement by the commercial
banks, viable projects from entrepreneurs or SME owners, and access to government contracts.
Direct and indirect CBO initiatives
A recent direct CBOs initiative that is of note in terms of SME financing was to compel
commercial banks to allocate 5 percent of their total credit to SMEs. CBO could also take initiatives
that are non-regulatory in nature given the constraints of regulations. Some of the initiatives may
consist of organizing seminars, workshops and awareness programs on the financing of SMEs or
bring venture capitalists and entrepreneurs together through regular forum. CBO is also in the
position to use moral suasion and incentives to influence commercial banks to lend to SMEs.
Capacity enhancement by commercial banks
Commercial banks and other lending institutions should give due diligence to this sector through
capacity enhancement and investment in required resources, human as well as technical. Risk
management and assessment of feasibility studies related to the SME sector are two areas that
require capacity enhancement among commercial banks.
Viable projects from entrepreneurs
Entrepreneurs who require financing for new projects or current SME owners who want to expand
their operations should present a professional feasibility study to the lending institutions. Benefits of
professional feasibility study presented to the lenders minimize uncertainties and potential risks and
provide opportunities to lend to businesses with higher probability of success.
Access to government contracts
Institutionalize and facilitate access to government contracts for SMEs through a transparent and
competitive approach. The government should dedicate a realistic share of government contracts to
SMEs. Secured government contracts would work as collateral surrogate and facilitate financing to
SMEs.
6.4 Infrastructure support
An effective strategy to support the growth of the SME sector must be accompanied by
infrastructure support. For the purpose of this study, four sub-components have been identified
including, effective and efficient incubators, integrated clusters in competitive sectors,
professionally resourced statistical body, and public private partnership.
PUBLIC
40
Effective and efficient incubators
Make sure business incubators work effectively and efficiently with metrics such as the number of
successful graduates as well as the level of standard and relevant services. It is important to make
sure that business incubators focus on core functions and not bureaucratic exercise and red tape. An
important undertaking would be to certify that services being provided by business incubators are
aligned with market requirements and more importantly driven by the spirit of innovation and
enhancement of competitive advantage.
Integrated clusters in competitive sectors
SME business clusters should be built around sectors with proven comparative advantage and
potential competitive advantage. It is also necessary to ensure that business clusters looks beyond
domestic markets into export markets regional as well as international. In addition to looking for
synergy and coordinating between successful graduates from business incubators with space
allocation in business clusters when and if required, ensuring proximity of business incubators to
relevant services infrastructure such as ports, highways and railway stations would enhance the
efficiency of clusters.
Professionally resourced statistical body
There is a need to establish a professionally resourced statistical body under the Secretariat General
of SME dedicated to SMEs so as to provide relevant, timely and complete data. In addition to
numerical indicators, the database should include information on existing and future government
and major private projects that require supply or other types of services from SMEs. More
importantly there needs to be coordination and interaction between the statistical body and policy
makers, entrepreneurs, investors, lending institutions, consulting firms, and current SME owners to
conduct relevant analyses and studies as well as making informed decisions.
Public and private sector partnership
Public and private sectors partnership is of critical essence to promote and sustain the SME sector in
Oman. The partnership should promote knowledge exchange, identifications of opportunities in
supply chain as well as in backward and forward linkages among others. The partnership should
also organize Seminars, workshops, and lectures and other avenues that could bring SME stake
holders together.
PUBLIC
41
7. Policy Recommendations for Oman
Some of the key objectives of the policy makers in the Sultanate include the promotion of a
diversified economic base, job creation that keeps up with the requirement of the market
development, expanding the private sector in the economy, increasing participation of the national
working force in all sectors of the economy and more specifically in the private sector. It is evident
that all these objectives are critically linked to the development of the SME sector, particularly
given the unrealized potential of this sector in Oman and its proven contributions to many other
economies worldwide in terms of value addition, job creation, flexibility and innovation.
Drawing from the challenges and opportunities of the SME sector in Oman, results garnered from
the two surveys as well experiences from other countries, the study provides a set of policy
recommendations that take into account the specifics of the Omani economy and other prevailing
conditions that are deemed relevant and critical in promoting and developing the sector in the
country. The policy recommendations are aimed at supporting and strengthen the strategy discussed
in section 6 of the study and are an extension of its four components and subsequent sub-
components. More importantly, these recommendations are designed to address the challenges
faced by the SME sector in Oman from the demand as well as the supply sides. The
recommendations are grouped in five categories, namely policy and institutions, legal basis, access
to financing, opportunities, and infrastructure.
7.1 Policy and institutions
The growth and development of the SME sector in Oman require a number of supports among
which are policy support and institutional support. In fact, effective policies and institutions provide
a basis from which the sector can be evaluated regularly and necessary changes made accordingly.
Below are a set of policy recommendations as well as recommendations pertaining to the
functioning of institutions responsible for overseeing the SME sector in Oman within the context of
prevailing dynamic in the country.
One major characteristic of the SME sector in Oman is in the large dominance of its foreign
workforce. The policy challenges for micro enterprises as well as small and medium
enterprises with regard to employing nationals can be traced in wages gap between the
sector and larger firms or public sector, misalignment of benefits as well working hours and
overall the prospect for growth and advancement for these employees. Policy incentives
that the government could initiate in order to attract national employees would be in
subsidizing training for SMEs and when possible and effective align some of the benefits
with the public sector. The overall policy strategy would be to promote a healthy growth of
the sector that would translate, together with other policy initiatives, into job creation with
livable wages.
One way to incentivize the SME sector is to address some of the cost advantages that large
businesses have enjoyed for many years. The prospect for startups or existing SMEs to
PUBLIC
42
compete and grow is further hindered given the existing biases towards established larger
businesses in terms of tax breaks and rollover subsidies that come in many forms as well as
exemptions from corporate taxation over five years that can be extended upon request.
Introducing a policy that exempts SMEs from taxation and selected fees while levying some
taxation on large firms and corporations that have proven to be successful over the years
would assist in promoting a level playing field.
A policy initiative compelling large businesses to progressively divest from activities that
could easily be carried out by small or medium firms and let these large firms focus on more
complex activities that require large capitals and multiple resources. The objective is to
promote supply chain structures wherein the divested SMEs could enter into contractual
agreements with the large businesses. These arrangements have a number of benefits,
including minimizing the costs of large businesses associated primarily with staffing as well
as expanding growth opportunities to the SME sector.
All policies initiated by the government related to the SME sector need to be dynamic so as
to adapt to changing economic conditions including economic structure. Any change in
policies need to be based on effective evaluation and when possible be pro-active. Failure to
properly and regularly evaluate prior policy outcomes and take appropriate actions could
lead to economic and financial costs as well as damage the credibility of policy makers.
The recently established Public Authority for the Development of SMEs should set up an
institutional framework that plays a strong and effective coordinating role among all entities,
public or private that deal with SME matters. The objective in this case is to avoid
redundancies, provide regular guidance towards the common goal, and eliminate unhealthy
competitions among these entities. More importantly, this institutional framework should be
at the forefront in evaluating and devising policies that promote the SME sector in addition
to be the repository of a database of all existing and potential business opportunities that
could benefit the SME sector.
The education system, both at secondary and university levels should introduce as part of its
curricula, strong entrepreneurial courses depending on the level. Critical thinking,
innovation, basic business skills could provide the foundation of these curricula.
7.2 Legal basis
The SME sector in Oman requires a legal basis or framework from which it can be governed.
However, in the process of developing a legal framework and relevant regulations, it is vital to keep
in mind that the role of the government should be that of a facilitator and enabler that mitigates
market failures. More importantly, the role of the government should be guided by the goal of
promoting a growing, competitive, and a dynamic SME sector.
One major challenge facing the SME sector in Oman is the issue of ownership or
management of firms. The survey indicates that over half of owners identify their
businesses as their only sources of income while the rest cited their full time jobs and other
PUBLIC
43
sources such as pension funds as additional sources of income. In a country where many
SMEs are not managed and in certain cases not even owned by the registered owners, it is
difficult to suggest that this sector is a viable source of income to the Omani owners or for
that matter a source of job creation for nationals or a basis for upward mobility. Strict
working visas rules as well as clear laws need to be devised by the concerned authorities as
to the ownership of SMEs where owners are expected to be invested rather than
representing mere fronts for others. More importantly, these laws must be effectively
enforced.
Regulations must strike a balance between a competitive SME sector and an ineffective
SME sector. Equally important are regulations that introduce a level playing field between
SMEs and large companies with the purpose of expanding opportunities to SMEs and
curtailing the influence of large companies in driving out competitive and successful SMEs
through unfair practices such as price wars.
Among key rules and regulations would be the introduction of clear property rights,
minimize the costs associated with resolving business disputes, effective contractual laws
that protect all parties involved in transactions, and eliminate loopholes that could result in
abuses. These rules and regulations should be guided by the principles of efficiency,
accessibility and simplicity in their interpretation14.
7.3 Access to financing
Facilitating financing to SMEs should be a critical component of the government policy program
with the Central Bank of Oman (CBO) being one of the major players. Given its role as a monetary
policy agency, regulator and supervisor of commercial banks, CBOs policy and initiatives aimed at
promoting the SME sector in the Sultanate could translate into positive outcomes. Before listing the
proposed policies on financing, it is worth noting and as already alluded in the strategy section of
the study, that the recent CBO initiative asking the commercial banks to allocate 5 percent of their
total credit, amounting to about RO 1 billion in the phased period of implementation to SMEs in
addition to providing incentives though prudential regulation that lowered the capital requirement as
well as risk weighing for the sector, amounted to an important and potentially beneficial decision
for the sustainability of the sector. Equally important would be the various roles played by other
government entities and lending institutions in facilitating the financing of SMEs both directly and
indirectly.
The following policy recommendations are drawn from the analysis conducted in relevant sections
of this study, experiences from other countries and mainly from South East Asian countries through
a comprehensive study of the region by Boldbataar et al (2005). It is however important to note that
though other countries experiences have been taken into account in recommending the following
policies, they have been molded to fit the specifics and particularities of Oman.
14
These concepts were drawn from the World Bank and IFC report titled Doing Business 2014: Understanding
Regulations for Small and Medium-Size Enterprises.
PUBLIC
44
The fact that commercial banks in Oman have little incentive to lend to SMEs, especially
to those enterprises that are in the establishment phase due to their inherent high risk and
the fact that personal loans tend to be more lucrative and less risky, enhancing the
capacity of the current Banking Credit Statistical Bureau (BCSB) under CBO is
important. Specifically, the enhanced capacity would target potential borrowers for SME
projects by making information available in the form of their credit worthiness to
commercial banks. This initiative would go a long way in bridging information
asymmetry and potentially limiting the use of collateral or other types of guarantee
against the risk of default.
Expand and enhance the current Banking Credit Statistical Bureau (BCSB) at CBO to
include an SME database component given the prevailing scare financial statistics in this
sector. In view of its role as a compiler of financial statistics, CBO can obtain the
necessary data and publish relevant indicators to assist the banks in accessing required
information and data for lending purpose in this sector.
CBO, together with relevant government entities could be at the forefront to promote
policy initiatives that would mitigate market failures and as such focusing on those
measures that complete the market with regard to financing SMEs rather than those
measures that simply work as substitutes which often have high probability of failure. A
case in point would be of a collateral surrogate that is completed by other requirements
such as the viability of a project demonstrated through a professional feasibility study or
a creditworthiness of a borrower.
Equally important is the importance of distinguishing by CBO and lending institutions

between what could be viewed as willful default and other defaults so that genuine
business failures are not associated with stigma of non-payment while the treatments of
defaults are also exercised accordingly.
CBO, together with relevant government entities should be at the forefront of promoting
policies aimed at reducing the current heavy reliance on collateral by banks in lending to
SMEs. The first would be to assess the possibility of expanding existing collateral
surrogates by the Government. It is important to note that collateral surrogates cannot be
complete substitutes for collateral itself, in particular when it is not coupled with some
sort of borrowers commitments. However, collateral substitutes are critical in reducing
the fixed costs of financing and one effective way is to expand government credit
guarantee.
Another approach in collateral substitute could be in the linking of credit scoring of

prospective borrowers in the SME sector. In other words, credit history and high credit
score by an entrepreneur should reduce the extent of collateral required for SME loans or
allow the borrower to benefit from government guarantee scheme.
Islamic Banking, by the nature of its business philosophy, should be in a position to

broaden the asset-based and activity-based financing from which SMEs could benefit.
PUBLIC
45
Relevant government entities along with CBO could be at the forefront and in
partnership with the private sector in promoting equity financing for potentially
profitable SMEs. Studies have indicated that in most part, there is a positive relationship
between profitability and equity financing and negative relationship between
profitability and debt financing. The advantage of equity financing is the capacity to
identify SMEs with growth prospects15.
Within the framework of public private partnership, CBO could lead the way and take a
pro-active role in organizing workshops, seminars, and other forms of gatherings
involving banks, prospective equity financiers and entrepreneurs as well as relevant
government entities. Meetings between prospective entrepreneurs in various population
concentration areas and prospective financiers, including banks should also feature in
CBO's initiatives agenda.
Commercial banks that lead the way in SME financing could be incentivized by the
government in the form of compensation for cheaper and conditional funds channeled to
SMEs as is the case in some South East Asian member states. In the case of Oman, this
initiative could only be successful in an environment of competitive banking sector
where there is a balance between demand and supply for liquidity in which case the
following could be initiated by the government and CBO:
o Funds could be allocated through banks that have clearly committed to expand
SME financing and have track records in this regards. A simple metric would be
the proportion of SME lending of the total lending by a bank. CBO could play a
role in the implementation of this policy and in overseeing the lending by
commercial banks.
o The sources of funding could be from fiscal budget. It is important in this case
to make sure that this initiative does not collide with other existing initiatives.
The objective is to make each initiative unique and effective in its financing
requirements. The key characteristic of this initiative is that commercial banks
will have to agree and comply with pre-specified conditions such as the rate of
interest rate, the amount to be lent, and the type of industry that the government
has deemed critical to the economy following careful studies.
The government, through its contractual obligations to SMEs, could introduce an

expedient payment mechanism that does not extend beyond 30 days once SMEs have
rendered the agreed services, or CBO could extend non-payment SME loan
classification beyond the existing practice of 90 days, in particular in cases of proven
account receivable from government entities.
Commercial banks should invest in risk managements that are geared towards more
effective assessments of prospective SME borrowers among which is an effective risk
pricing. An effective risk pricing is also critical in the sustainability of SMEs financing
given the prospect of reduction in the cost of borrowing.
15
The relationships were identified by Tze-Wei Fu et al in 2002 study. A number of other studies have pointed
to similar relationship
PUBLIC
46
Effective risk management and by implication risk pricing also require that commercial
banks invest in training and resources in order to provide better information and support
to SME borrowers in understanding the various financial products in offer.
Equally important is training in sectoral financing which would allow commercial bank
staff to identify competitive sectors within SMEs and channel financings accordingly.
For instance, staff should be familiar with the economics of agriculture, fisheries, or
tourism sectors as part of the overall risk management training.
The investment in SME financing resources and services by the commercial banks
should extend to other population concentration areas in Oman and not simply limited to
a few major cities. Entrepreneurs in these areas should be able to address their needs
locally and as such avoid all sorts of transaction costs. While e-financing is the most
effective way to address transaction costs, it still requires a sophisticated and integrated
infrastructure which is still lacking in Oman.
Underpinning all measures pertaining to facilitate financing in the SME sector is the
promotion of bankable SMEs which must be coupled with policies that minimize market
failures instead of policies that rely on ineffective subsidies and similar support
mechanisms. In fact, the cost of financing SMEs could escalate for existing subsidized
loans in the event market failures in the forms of information asymmetry and limited
competition among financing institutions persist. For commercial banks, information
asymmetry puts pressure on administrative costs on SME loans while limited
competition incentivizes commercial banks in Oman to channel most of their financing
to personal loans and large corporations where profit is higher and risk is lower16.
Established and successful SMEs could also be allowed to be listed in the capital market
using it as a source of financing as well as credit risk barometer for the listed enterprises.
The recent announcement of a plan by the Capital Market Authority (CMA) to list SMEs
in Muscat Securities Market (MSM) is a step in the right direction17.
Another potential source of financing for SMEs is through asset-based financing or also
known as leasing financing18. This type of financing allows entrepreneurs to lease assets
from a lessor who in return through contractual agreements will receive periodical
payments. Here all risks and rewards of the ownership of the assets are transferred to the
entrepreneur or lessee while the lender or lessor remains the owner of the assets. This is
another form of collateral based lending that is secured.
Eliminate conditional lending from government entities that assist SMEs with financing.
Conditional lending refers to the practice where the beneficiaries of the loans in certain
16
Administrative costs come mostly in the forms of processing and monitoring as discussed in a study by Bolbaatar on
the Asian SMEs.
17
The announcement was sourced from the Oman Observer, January 21, 2014.
18
The idea was garnered from a working paper by Kramer Eis and Lang in which they discuss the importance of asset-
based financing (2012).
PUBLIC
47
instances have suppliers and vendors imposed on them as a part of loan approval. This
practice contradicts the spirit of entrepreneurship and beyond taking away operational
flexibility from the borrowers; it is not cost effective for the business or the government.
SMEs should only be required to operate within approved criteria of safety, health and
other required operational and work standards.
7.4 Opportunities
A pro-growth policy for SME sector needs, first and foremost, a process that continuously identify
potential opportunities for the sector and devise a strategy with a mechanism that would promote
access to these opportunities by the sector, in particular when government contracts are awarded.
Large firms in Oman should also have strategies through business models that work with SMEs.
The following are selected initiatives that could be introduced by the Government and its various
institutions as well as large firms with the purpose of promoting the SME sector in Oman.
Promote SME growth through access to government contracts by emulating the In-Country
Value model currently in vogue among some major downstream hydrocarbon companies in
Oman. The model could be modified to target the SME sector. The Government could start
with a realistic target as to the amount share of total contracts that need to benefit the
domestic SME sector. This policy needs to be accompanied by a transparent and competitive
mechanism with respect to the awards of contracts and a certifiable validation mechanism as
to the Omani ownership and involvement of the company.
Access to government contracts by SMEs should require a set of standards and criteria from
these firms such as proven records in the project at offer and human capacity and skills.
Through rigorous assessments and depending on the requirement of a project SMEs with no
proven records in similar projects but possess the required capacity and skills should be
considered.
Government agencies and ministries should devise strategies that promote the supply of
their operational resources through SMEs whenever possible. A share of supply of these
resources should be sourced or supplied through SME firms.
Initiate a specific strategy that would allow SMEs to benefit through contracts or supply
links from the multitude of public investments that are expected to take place to further
develop these sectors. The objective is to generate opportunities for new SMEs to join the
market and for the existing ones to grow. In order to have an effective strategy however,
coordination is of essence between the newly established Public Authority for Development
of SMEs and all the stakeholders, including business incubators and clusters.
Large corporations should not either directly or indirectly be the beneficiaries of SME-
specific government - awarded contracts through agency loopholes or any other forms of
indirect accesses. It is important to optimize the use of modern technology to facilitate the
PUBLIC
48
process given that validation can easily be made through government to government portal.
What must be avoided is the creation of more bureaucracy and paper work19.
Large firms could divest from businesses that could be easily be handled by SMEs either
through supply agreements or forward or backward linkages whenever possible. Creating
ownership of SMEs through members of families who own large family businesses for the
purpose of serving the mother companies defies the objective of developing the sector at so
many levels, but more importantly the objective of upward mobility by those who take risk
to build SMEs and fostering and promoting entrepreneurship. Allowing SMEs to partner
with large firms would benefit large firms in terms of cost efficiency with regard to staffing,
administration, and a number of hidden transaction costs as the large firms focus on their
core and complex businesses.
The In-County Value program currently in vogue in the hydrocarbon sector where oil and
gas companies in Oman opt to optimize the share of foreign contracts with domestic
suppliers, should include an SME component even through sub-contracting policies so as to
allow the spread of benefits of these contracts beyond few large and established firms.
The Foreign Direct Investment policy of the Sultanate should introduce set of policies that
would also benefit SMEs through linkages or supply. Equally important is for foreign
investing firms to transfer knowledge and skills whenever possible.
7.5 Infrastructure
A key and critical component aimed at developing the SME sector is the establishment and
development of relevant and modern physical infrastructure as well as human capital. The following
selected measures are deemed important towards developing a sustainable and competitive SME
sector in Oman.
Expanding existing business incubators beyond the capital area and develop SME clusters
with the purpose of promoting entrepreneurship, knowledge, costs sharing, and capitalize on
additional benefits realized through the economy of scale under these entities. it is however
important that the resources that are allocated to develop SME clusters and business
incubators have clear objectives that in turn should be linked to the goal of sustainable
growth of the sector.
The establishment of business incubators and clusters should take into account the structure
of the Omani economy and its inherent comparative and prospective competitive
advantages. Equally important is to make sure that the endeavor is devoid of institutional
overlaps that these entities work effectively and efficiently with public-private and education
partnership. Business incubators and clusters should also reflect targeted industries within
the context of the overall industrial policy in Oman. One potential SME cluster for Oman
besides IT and ICT is in the fishing sector given a coastal line of over 1000 kilometers.
19
Detailed measures and policies to improve SME financing in Oman are discussed in the subsequent section of the
paper.
PUBLIC
49
Experiences by other countries indicate that successful clusters incorporate synergies among
their activities. The benefits, among others, include cost and knowledge sharing.
Business incubators and clusters should also promote capacity building among aspiring and
existing entrepreneurs as well as for staff employed by these enterprises as part of human
infrastructure development. Knowledge and skills transfer, innovation, optimization of
existing technology through adoption, absorption and adaptation, all of which should feature
prominently in these establishments and could be promoted through interactions between
these entities, the education system and Research and Development entities 20. The
interconnection of companies and relevant institutions through business incubators and
clustering has potential to generate business opportunities by opening the market and
reducing cost of doing business via resources pools and as such allows the SME sector to
become competitive and grow. These initiatives are important in addressing some of the
challenges in the demand side of the sector in Oman.
Effective governance of business incubators is required through clear mandate of its

operating framework and articulated by its management. As recommended by the European
Commission in 2002, incubators need to clearly define their target markets, admission and
exit rules, as well as quality standards for client assistance and other aspects of the
incubators operations. All employees need to be aware of the targets and rules so as to
ensure effective operation. Incubators must also keep tab of success stories as well as cases
of failure and use them as sources of learning.
Allocation of needed resources with required capacity to the National Center for Statistics
and Information dedicated to gather critical and relevant data pertaining to the SME sector
in Oman such as market structure, specialization, capital, ownership, number of employees,
value addition to the GDP, rates of successes and failures etc. Emphasis should be put on the
quality, reliability as well as timeliness of the data. One way to deal with market failures is
to devise effective policies which in turn require relevant and quality data issued in a timely
manner.
The building of dynamic databases by large corporations, government entities, and large
service providers such as ports and airports with listed opportunities in services, logistics,
and products that can be provided by startup businesses and established SMEs is critical in
mitigating information asymmetry, transaction costs, and more importantly assisting
entrepreneurs to start new firms and established SMEs to expand through the identification
of business opportunities. Mitigating information asymmetry also addresses some aspect of
policy biases given that access is not a privilege to few.
A government supported entity, preferably in partnership with the private sector to assist
startup SMEs to produce professional feasibility studies, assess the viability of projects and
business initiatives, costs projection, fixed and mobile training on effective management of
SMEs, e-banking, review of financial and administrative aspects of startup and expanding
20
A 2011 paper by UNCTAD titled: A Framework for Science, Technology and Innovation Policy Reviews discusses
the importance of adoption, absorption and adaptation of existing technological knowledge generated abroad for the
purpose of helping developing economies to leverage knowledge and innovation for development.
PUBLIC
50
enterprises, nurturing entrepreneurship, marketing, and others. A more comprehensive
support under the Public Authority for the Development of SMEs equipped with appropriate
cadre of professionals and resources is required to promote the SME sector from all angles.
More importantly, this unit needs to be supported across the various regions of Oman with
branches. The unit, along with its branches, should also represent a one-stop shop where all
bureaucratic requirements are addressed and queries answered. Equipping the unit with
Business to Business and Business to Public portals is essential for expediency and
minimizing transaction costs.
An effective telecommunication infrastructure and friendly telecommunication policies by

the Telecommunication Regulatory Authority towards businesses in general and the SME
sector in particular, with the aim of minimizing operational costs are important avenues to
assist SMEs to expedite communication and by default efficiency.
Assistance in providing professional feasibilities studies and consultancy fees at minimum

fees as well as conducting awareness on the importance of producing regular financial
statements for SME firms and the use of modern technologies in payment and supply
methods to minimize transaction costs.
PUBLIC
51
8. Concluding Remarks
The SME sector in Oman requires significant reforms in order to grow, be competitive, dynamic
and add value to the economy and society at large. Drawing from the findings of the two surveys,
targeting Omani entrepreneurs and SME owners on one hand and domestic lending institutions on
the other, this paper has outlined a strategy to develop the SME sector in Oman and listed a number
of policy recommendations that are in line with the proposed strategy.
Realizing the goal of a growing, competitive and dynamic SME sector in Oman should be premised
on a support network consisting of four major components as encapsulated in the strategy. The four
components, namely policy and institutional support, a legal framework, access to financing and
opportunities, and infrastructure support, are to be realized through a set of respective sub-
components listed in the strategy and discussed in subsequent sections of the study. While having a
strategy and set of policies to guide the development of the SME sector in Oman are critical
components, what is even more important is an implementation that is conducted effectively,
efficiently, and professionally.
PUBLIC
52
Appendix 1: Aggregate Findings on SMEs Survey
Q1. Name of the company/establishment:
Q2. The governorate the business is located in:
Number Percentage
Q3. The age of the owner(s)/founder(s): (If more than one owner exists, please 120 100
indicate so at the end of the question)
Less than 20 years old 5 4.2
20 - 29 years old 22 18.3
30 - 39 years old 46 38.3
40 years old and above 47 39.2
Q4. The highest formal qualification attained by the business owner(s): (If more 120 100
than one owner exists, please indicate so at the end of the question)
No academic qualifications 4 3.3

Academic qualification lower than high school diploma 22 18.3
High school Diploma 40 33.3
2 year diploma 23 19.2
Undergraduate degree or above 28 23.3
Other 3 2.5
Q5. Before starting up your current business, what was your accumulated 120 100
business and working experience? (If more than one owner exists, please
indicate so at the end of the question)
No experience 17 14.2
Less than 1 year 11 9.2
From 1 year to 3 years 22 18.3
From 4 years to 10 years 29 24.2
More than 10 years 41 34.2
Q6. Have you had any financial and/or business administration training prior or 118 100
during establishment?
Yes 35 29.7
No 83 70.3
PUBLIC
53
Q7. When was this business established and how long have you been running it? 118 100
Less than 1 year 15 12.7
Q8. What is the main activity of your company? 144 100
Retail trade 29 20.1

Manufacturing 12 8.3
Craft/ Artisan 23 16.0
Information and communication technology 17 11.8
Construction 16 11.1
Agriculture and fishing 5 3.5
Mining, electricity, gas and water supply 0 0.0
Transportation and storage 3 2.1
Accommodation and tourism 3 2.1
Food services 11 7.6
Others 25 17.4
Q9. Is this business your only source of income? 120 100
Yes 63 52.5
No 57 47.5
(If yes, please go on to question no. 11)
Q10. If not, what are your other sources of income? 56 100
Pension/retirement annuity 10 17.9

Full time job 33 58.9
Revenue from investments 0 0.0
Revenue from other businesses 10 17.9
Other (please specify) 3 5.4
Q11. What type of premises do you operate your business from? 119 100
Own house 17 14.3

House/room/factory owned by business 12 10.1
House/room/factory rented for business 88 73.9
2 1.7
Other (please specify)
Q12. Did you obtain any professional advice for your business? 120 100
Yes 58 48.3
No 62 51.7
PUBLIC
54
Q13. If yes, from whom? 64 100
Family, Friends, Relatives 41 64.1
Government institutions (Ministry of Commerce and Industry, 10 15.6
Ministry of Manpower, etc.)
Oman Development Bank 3 4.7
Professionals advisors 9 14.1
Other (Please specify) 1 1.6
Q14. How many people does your company currently employ either full or part 120 100
time (including the founder(s)/owner(s))? Please do not include unpaid
family workers and freelancers working regularly for your company.
From 1 employee to 4 employees 61 50.8

From 5 employees to 9 employees 24 20.0
More than 20 employees 15 12.5
Q15. How many Omanis does your company currently employ either full or part 118 100
time (including the founder(s)/owner(s))? Please dont include unpaid family
workers and freelancers working regularly for your company.
None 25 21.2
From 1 employee to 4 employees 69 58.5
More than 20 employees 7 5.9
Q16. What is the total capital of the business? 159 100

Less than R.O 10 thousand 87 54.7
From R.O. 10-49 thousand 40 25.2
From R.O. 50 thousand to R.O. 99 thousand 16 10.1
From R.O. 100 thousands to R.O. 249 thousand 10 6.3
From R.O. 250 thousand to R.O. 999 thousand 6 3.8
From R.O. 1 Million to R.O. 5 Million 0 0.0
More than R.O. 5 Million 0 0.0
Q17. What sources of finance did you use to start/establish this business? 137 100
(Several answers possible)
Personal money from me and my family 76 55.5

Borrowed from family/friends 28 20.4
Borrowed from Oman Development Bank 10 7.3
Funded by SANAD 4 2.9
Borrowed from banks/financial institutions 18 13.1
Other (Specify) 1 0.7
PUBLIC
55
Section 2: Challenges
Q18. What is currently the most pressing problem that your firm is facing? 360 100
(Multiple answers can be selected)
Lacking the required knowledge 20 5.6

Finding customers 40 11.1
Competition 63 17.5
Access to finance 60 16.7
relatively high costs of finance or loans 38 10.6
Costs of production or labor or rent 47 13.1
Availability of skilled staff or experienced managers 39 10.8
Regulations and administrative burdens 45 12.5
Others 8 2.2
Q19. On a scale of 1-5, where5 means it is extremely pressing and 1 means it is

not at all pressing, how pressing are each of the following problems that
your firm is facing:
Lacking the required knowledge 53 100
1 - Not pressing at all 28 52.8
2 7 13.2
3 4 7.5
4 7 13.2
5 - Extremely pressing 7 13.2
Finding customers 65 100
2 5 7.7
3 14 21.5
4 8 12.3
Competition 72 100
2 9 12.5
3 12 16.7
4 14 19.4
Access to finance 67 100
2 6 9.0
3 6 9.0
4 5 7.5
PUBLIC
56
Relatively high costs of finance or loans 60 100
2 11 18.3
3 5 8.3
4 12 20.0
Costs of production or labor or rent 69 100
2 4 5.8
3 12 17.4
4 14 20.3
Availability of skilled staff or experienced managers 55 100
2 2 3.6
3 9 16.4
4 10 18.2
Regulations and administrative burden 55 100
2 6 10.9
3 8 14.5
4 8 14.5
Other (mention please) 7 100
2 1 14.3
3 0 0.0
4 2 28.6
Q20. The following indicators are relevant to the income generated by your firm.
Please tell us whether the following indicators have decreased, remained
unchanged or increased over the last year in your company:
a) Turnover 111 100
Increased 36 32.4
Decreased 27 24.3
b) Labor cost (including social security contributions) 111 100
Increased 67 60.4
Decreased 7 6.3
PUBLIC
57
c) Other cost (materials, energy, other) 108 100
Increased 72 66.7
Decreased 9 8.3
d) Net interest expenses [= interest expenses minus interest 104 100
income = what you pay in interest for your debt minus what
you receive in interest for your assets]
Increased 32 30.8
Decreased 11 10.6
e) Profit [= net income] 108 100
Increased 24 22.2
Decreased 42 38.9
f) Profit margin [= the difference between the selling price and the 102 100
cost price for each unit]
Increased 16 15.7
Decreased 35 34.3
Q21. How many competitors do you have? 120 100
None 8 6.7
1 to 10 competitors 42 35.0
More than 10 competitors 45 37.5
Unknown 25 20.8
Q22. What method do you use to buy supplies for your business? 157 100
Cash 88 56.1
Cheque 45 28.7
Direct transfers from a bank 19 12.1
Payment/Debit/Credit cards 4 2.5
Other (Please mention) 1 0.6
Q23. Which of the following apply to your business in terms of generated 143 100
business?
Contracts (>1 year) with large reputable companies 35 24.5
Contracts/legal agreements with customers 57 39.9
Established regular customers 32 22.4
Never know where customers will come from 19 13.3
PUBLIC
58
Section 3: Financing of the firm
Q24. Do you prepare financial statements? 112 100

Yes 65 58.0
No 47 42.0
Q25. Did you record any profits from the previous year? 106 100
Yes 68 64.2
No 38 35.8
If you have a loan from a commercial bank or from any financing

institution, please answer the following questions:
Q26. How long did it take to get an approval for the loan (from the date of you 43 100
submitting the request for a loan)?
Less than 6 months 36 83.7

From 6 months to 12 months 4 9.3
Q27. What is your loan collateral? 43 100

Property 19 44.2
Equipment 5 11.6
Others (Specify please) 19 44.2
Q28. What is the average of the interest rate you are paying on your loan? 43 100
0-3% 16 37.2
3%-5% 8 18.6
5%-7% 6 14.0
7%-10% 10 23.3
More than 10% 3 7.0
Q29. What is the repayment period of your loan? 41 100

1-2 years 4 9.8
2-5 years 15 36.6
5-8 years 11 26.8
8 years and above 11 26.8
Q30. Do you pay any charges levied by your bank other than the interest on your 41 100
loan account?
Yes 23 56.1
No 18 43.9
PUBLIC
59
Appendix 2: Aggregate Findings on Commercial Banks Survey
Responses Percentage
Q1. Preferred recipients of MSMEs lending: 7 %

Family businesses 4 57.14%
Individual Businesses 5 71.43%
Non-family partnership businesses 5 71.43%
Others and please specify below 3 42.86%
Q2. Preferred stages of MSMEs lending:
Start-up firms 3 42.86%
Established firms 5 71.43%
Firms that are about to sign contracts with larger firms/gov 4 57.14%
Firms that are already in contract with larger firms/gov 4 57.14%
Q3. Reasons for limited lending to MSMEs:

Lack of collateral 4 57.14%
High risk 2 28.57%
High failure rate 3 42.86%
Limited or lack of required skills by owners 4 57.14%
Small or limited market for growth 3 42.86%
Lack or poor feasibility studies 3 42.86%
Lack of financial history or position through financial statements 5 71.43%
Q4. Maximum amount willing to lend to an individual MSME:

RO 10,000 - RO 50,000 2 28.57%
RO 50,000 RO 250,000 0 0.00%
RO 250,000 RO 1,000,000 2 28.57%
Others and please specify the amount below 2 28.57%
Q5. What needs to be done to enhance MSME financing?

A binding administrative requirement from CBO a given 2 28.57%
Percentage of the total lending portfolio
Improve infrastructure support for MSMEs 5 71.43%
Level the plane field when it comes to completion with Large firms 5 71.43%
through a legal framework
Financial institutions to invest resources in analyzing and Assessing 3 42.86%
opportunities in MSME sector
Others and please specify below 3 42.86%
PUBLIC
60
Q6. Does your institution allocate any funds for MSMEs lending? If so
RO 5 million 1 14.29%
Others and please specify the amount below 3 42.86%
Q7. As a follow-up to question 6 above, by how much do you project this
fund to grow on yearly basis?
1% -3% 0 0.00%
3%-5% 0 0.00%
5%-8% 1 14.29%
8%-10% 2 28.57%
Others and please specify the rate below 3 42.86%
Q8. In what industries do financed MSMEs predominately operate in?

Retail trade 6 85.71%
Manufacturing 3 42.86%
Craft/ Artisan 2 28.57%
Information and communication technology 2 28.57%
Construction 5 71.43%
Agriculture and fishing 3 42.86%
Mining, electricity, gas and water supply 3 42.86%
Transportation and storage 5 71.43%
Accommodation and tourism 3 42.86%
Food services 4 57.14%
Real estate 3 42.86%
Other service activities (please specify) 1 14.29%
Q9. Provide overall rate of Success for MSME financing in your organization
(aggregating all three classifications Micro, Small and Medium) in the
last 5 Years *
10% -20% 1 14.29%
20% - 30% 0 0.00%
30% -50% 0 0.00%
50% -70% 1 14.29%
Q10. Provide rate of success for Medium Enterprises only in the last 5 Years
10% -20% 1 14.29%
20% - 30% 0 0.00%
30% -50% 0 0.00%
50% -70% 0 0.00%
PUBLIC
61
Q11. Provide Rate of Success for Small Enterprises only in the last 5 Years
10% -20% 2 28.57%
20% - 30% 0 0.00%
30% -50% 0 0.00%
50% -70% 0 0.00%
Q12. Provide Rate of Success for Micro Enterprises only in the last 5 Years. If
possible, please briefly list the reasons for failure.\
10% -20% 1 14.29%
20% - 30% 0 0.00%
30% -50% 0 0.00%
50% -70% 0 0.00%
PUBLIC
62
Appendix 3: Selected Non-Banking SMEs Support Avenues in Oman
Supporting Institutions Support

The Public Authority for Small and Established through a Royal Decree No 36/2013 in 2013 which also
Medium Enterprises** terminated the Directorate General for SMEs in the Ministry of
commerce and Industry. A subsidiary of the Ministry of Commerce and
Industry that aims to achieve overall development and support of the
growth of SMEs, strengthen the role of SMEs in Providing more
employment opportunities, add value to the economy and contribute in
economic diversification.
National Business Center** Established in 2012 and designed to work as a platform for the
development and support of Omani entrepreneurs. Among others, it
provides physical facilities and value added services, and capitalizes on
linkages with industrial areas.
Rafd Fund** Established by the Royal Decree No 6/2013 in 2013 with a capital or RO
70 million and RO 7 million to be added to the capital annually with the
objective of supporting the Omani young entrepreneurs in their
endeavors to establish or develop SMEs.
Sharakah** Established by the Royal Decree No 76/98 in 1998. It functions as a closed
joint stock company which encourages and supports the development of
entrepreneurs and SMES in Oman. It provides customized financial
solutions and has three schemes: Loans, equity financing, and bill
discounting.
Intilaaqah** A program that was established in 1995 by shell Oil Company in Oman to
provide training, counseling, and accountancy in addition to supporting
women entrepreneurs.
Knowledge Oasis Muscat* Geared towards supporting technology-oriented businesses through
connecting a variety of businesses, including HP, Oracle, Microsoft, NCR,
Motorola and Huawei as well as dynamic startups.
The Knowledge Mine* Publicly funded business incubator program that offers companies with
high growth potential business mentoring, office space, reduced
overheads, marketing assistance, financial signposting and others.
Oman Investment Corporation* Provides private equity investments in many sectors including oil and gas,
construction and aviation.
Al Omaniya Financial Services Provides financial and leasing services for individuals and businesses. It is
Company* engaged in the purchase and lease-financing of vehicles and other assets.
Muscat Finance Company* Engaged in installment financing as well as leasing on vehicles and other
assets, debt factoring, working capital and receivable activities.
Sources: * Wamda at ** Respective Institutions websites and written media

static.wamda.com
PUBLIC
63
References
Abraham, George SME Development in Singapore, SME Development Committee.

www.cacci.org.tw/journal/2009Vo11/GeorgeAbrahamVo11.pd, 2009
Ahmad, Noor Hazlima. Dissecting Behaviours Associated with Business Failure: A Qualitative Study of
SME Owners in Malaysia and Australia. Business School, University of Adeliane Vol. 5, No. 9, September
2009
Al Barwani, Khalfan M. (April 30, 2011), The Eight Five-Year Development Plan: Analyzing the Path
towards an Inclusive and Sustainable Growth in Oman, Central Bank of Oman Internal Policy Paper, March
2011
Al Belushi et al, Rouya (February 12, 2012) Challenges and Limitations Faced by SMEs in Oman, 2012
Al Riyami, Safa and Al Amri, Younis In-Country Value (ICV) (March 12, 2013), Products made and
Services Provided by Omanis, in Oman, Petroleum Development Oman (PDO), March 2013
Barlett, David. Small and Medium Enterprises in the Global Economy. RSM International, March 2011
Boldbaatar, Dagva, Role of Central Banks in Promoting Small and Medium Scale Enterprises in the
SEACEN Countries The South East Asian Central Banks (SEACEM), 2005
Central Bank of Oman, Report on BCSB System Micro, Small and Medium Enterprises (MSME) data,
July 2013
Chironga, Mutsa et al. McKinsey & Company (2012). Micro-,small and medium-sized enterprises in
emerging markets: how banks can grasp $350 billion opportunity Mckinsey, 2012
Dieckmann, Raimar (December 19, 2007), Microfinance: An Emerging Investment Opportunity, Deutsche
Bank Research, December 2007
Document of the World Bank (2006, Oman Investment Climate Assessment: Towards a Comprehensive
SME Development Strategy for Sultanate of Oman, the World Bank, Volume I: Main Report, 2006
Doing Business 2014 Understanding Regulation for Small and Medium-Sized Enterprises, International
Finance Corporation and the World Bank, 2013
Dubai SME (2011). The Corporate Governance Code for Small and Medium Enterprises: Building the
Foundation for Growth and Sustainability
Ecorys (September, 2012), EU SMEs in 2012: Other Crossroads, Annual Report on Small and Medium-
Sized Enterprises in the EU, 2011/12, Rotterdam, September 2012
Egypt Ministry of Foreign Trade, the Small and Medium Enterprises Policy Development Project Profile of
M/SMEs in Egypt, March 2003
PUBLIC
64
Eurofish Magazine 6 (2012), Bergen Welcomes Global Fisheries Event, 2012
European Commission Enterprise Directorate-General, Benchmarking of Business Incubators, Center for

Strategy and Evaluation Services, February 2002
Fu,Tze-Wei, et al, Capital Growth, Financing Source and Profitability of Small Businesses: Evidence from
Taiwan Small Enterprise, Small Business Economics, Vol. 18. 2002, P 257-67, 2002
Gibson, Tom and Van der Vaart, H.J. Defining SMEs: A Less Imperfect Way of Defining Small and Medium
Enterprises in Developing Countries. Brookings Global Economy and Development, September 2008
Global Competition Review, The Asia-Pacific Antitrust Review 2007, The International Journal of
Competition Policy and Regulation, 2007
Grant Thornton (April, 2013), National Business Center: Market and Feasibility Study, April 2013
Gulf Business (December 10th, 2012). UAE Approves New SME Law
International Finance Corporation, World Bank Group and Global Partnership for Financial Inclusion (2011).
SME Finance Policy Guide, 2011
International Monetary Fund and the World Bank (2010) Financial Sector Assessment Program: Sultanate
of Oman, International Monetary Fund and the World Bank, 2010
Kaplan, Robert D, Monsoon: The Indian Ocean and the Future of American Power, Random House, New
York, 2010
Kraemer-Eis H et al, The Importance of Leasing for SME Finance, working paper 2012/5, European
Investment Fund Research and Market Analysis, August 2012
Kushir, Khrystyna. A Universal Definition of Small Enterprises: A Procrustean Bed for SMEs.
http://blogs.worldbank.org/psd August 11th, 2010
Muscat Daily (March 12, 2013), Information Technology Launches Initiative for ICT Business Incubators
Norwergian Centers of Expertise (2006), World Class Clusters, www.nce.no
Oman Daily Observe (June 20th, 2012). Fresh Criteria for SMEs
Oman Daily Observer (March 11, 2013), Foreign Investment Law is Being Revised in Oman
Oman Daily Observer (January 21, 2014), CMA Plans to List SMEs in MSM
Oman Tribune (March, 2013), 19 percent Growth Recorded in 2011
OECD Policy Brief (November, 2006). Financing SMEs and Entrepreneurs.

www.sourceOECD.org
PUBLIC
65
Oxford Business Group (April, 2012), Oman: Big Opportunities for Small
Businesses,www.oxfordbusinessgroup.com/economic_updates/Oman-big-opportunities-smallbusiness
Policy Brief, OECD (June, 2000). Small and Medium Sized Enterprises: Local Strength, Global Reach.
www.oecd.org/publications/pol_brief/
Porter, Michael E., Clusters and the New Economics of Competition, Institute for Strategy and
Competitiveness www.isc.hbs.edu/econ-clusters.htm March 11, November-December, 1998
Ralph, Lam W. and Shin, Jongsoon, What Role Can Financial Policies Play in Revitalizing SMEs in
Japan, IMF working paper, WP/12/291, 2012
Raphael, Parambi, Oman Daily Observer (February 16, 2014), SME Development in Oman: Small is Not
Beautiful
Schaper, Michael Competition and the NFP Sector: New Challenges and Opportunities, Australian
Competition and Consumer Commission, July 2012
Singapore Business Federation, SME Committee Recommendations for Budget 2013, December 2012
SME Corp. Malaysia Secretariat to the National SME Development Council (October, 2013). Guideline for
New SME Definition
Small and Medium Enterprises Administration, Ministry of Economic Affairs, Taiwan. The Definition of
SMEs. http://www.moeasmea.gov.tw September 2nd, 2009
Spring Singapore (March, 2011). New SME Definition and Launch of New Online Tool and E-Servics.
www.spring.gov.sg/NewsEvents/pr/2011/
Sultanate of Oman, Ministry of Commerce and Industry (2008) Services Provided to Small and Medium
Enterprises in the Sultanate of Oman, Directorate General for the Development of SMEs
The Economist (August 24, 2009), Clustering http://www.economist.com/node/14292202, August 2009
The World Bank (June, 2004), Oman Investment Climate Assessment: Towards a Comprehensive SME
Development Strategy for Sultanate of Oman Volume I, June 2004
UNCTAD & UNDP Creative Economy Report. The Challenge of Assessing the Creative Economy:
Towards Informed Policy-making, 2008
United Nations Conference on Trade & Development (UNCTAD), Science, Technology & Innovation
Policy Review of Oman, 2014
United States International Trade Commission, Small and Medium-Sized Enterprises: Overview of
Participation in U.S. Exports, Investigation No. 332-508, USITC Publication 4125, January 2012
USAID (August 24, 2007), Booklet of Standardized Small and Medium Enterprises Definition, United
States Agency for International Development, August 2007
U.S. Small Business Administration Office of Financial Assistance, Lender and Development Company
Loan Program, USBA, October 200
PUBLIC
66

SME Sector in Oman - Paper

Transféré par

Informations du document

Titre original

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

SME Sector in Oman - Paper

Transféré par

Droits d'auteur :

Formats disponibles

Central Bank of Oman Occasional Paper: 1 August 2014

Strategy and Policies

Khalfan Mohamed Al Barwani*

Central Bank of Oman

Hamood Sangour Al-Zadjali

2. Selected Studies on Small and Medium-Sized Enterprises ........................................................................... 4

2.1. Definition of SMEs................................................................................................................................... 4

3. Small and Medium-Sized Enterprises in Oman ........................................................................................... 11

3.1 Contribution of the SME sector to the Omani economy ....................................................................... 11

4. Data Collection and Methodology ............................................................................................................... 17

5. Findings and Data Analysis ........................................................................................................................... 18

5.1 Surveys on Small and Medium-Sized Enterprises in Oman ................................................................... 18

6.1 Policy and institutional support ............................................................................................................. 38

7. Policy Recommendations for Oman ............................................................................................................ 42

Appendix 1: Aggregate Findings on SMEs Survey ............................................................................................ 53

Appendix 2: Aggregate Findings on Commercial Banks Survey ....................................................................... 60

Appendix 3: Selected Non-Banking SMEs Support Avenues in Oman ............................................................. 63

2.1. Definition of SMEs

2.2 Contribution of the SME sector to the larger economy

2.3 Challenges in the SME sector

2.4 Opportunities for the SME sector

Promotion of New Incubation Sectors

2.5 The role of governments in promoting the SME Sector

3.1 Contribution of the SME sector to the Omani economy

3.2 Challenges faced by the SME sector in Oman

Box 3.2.1: A Discussion with a Senior Commercial Bank Official

Organizational and regulatory limitations

Box 3.3.1: Selected Transport and Logistic Projects

Railway and Airports

5.1 Surveys on Small and Medium-Sized Enterprises in Oman

5.1.1 Selected SME descriptive statistics

no academic qualifications 18.3 Academic qualification

The study also identifies prior work

over 34 percent had prior work 14.2

Similar to any business, SME firms

The survey listed 10 business

gauge sectorial distribution of the Manufacturing

SME firms in Oman. Given the Craft/ Artisan

sample surveyed, the finding Information and communication

The findings suggest that the SME Others

sector in Oman is yet to engage in

Access to professional consultancy

Another important and pertinent

5.1.2 Overall challenges faced by SMEs in Oman

a) Turnover 111 100

Payment method is one of the key

Preparing relevant financial

5.1.3 SME financing in Oman

Access to financing is one of the

Continuing with the financing

The average rate of interest rate

Chart 5.2.1: Ownership Structure and Lending Preference

Chart 5.2.3: Reasons for Limited Lending

Chart 5.2.4: Maximum Amount of Lending

Other service activities

Transportation and storage

Rate of lending success for all SMES

Range Number of Banks Response Rate

Range Number of Banks Response Rate

Range Number of Banks Response Rate

Range Number of Banks Response Rate

Promote a Growing, Competitive and

Policy and Access to