The UAE’s banks showed great initiative last week when they announced they would suspend any legal action against small and medium sized enterprises (SMEs) struggling to repay debt. The three month-reprieve should provide some leverage for affected businesses to catch up on liabilities and prevent defaulting – a scenario that is not only detrimental to the business owner but also the banks and the wider economy.

But amongst the applause for the 49 members of the UAE Banks Federation who agreed to the initiative, there was still plenty of continued finger pointing. The stark contrast between SMEs’ contribution to the UAE’s non-oil gross domestic product (60 percent) and their share of total bank lending in the country (3 percent) remains a point of contention.

This magazine has long talked of the difficulties SMEs have in gaining funding and I will not elaborate further. The UAE government-backed Khalifa Fund, which provides funding and training to worthy start-ups (see more on page 30), fills a small gap, but it is only available for nationals.

Also, UAE Banks Federation chairman Abdul Aziz Al Ghurair rightly re-emphasised the urgent need for an insolvency law. A draft has been in the making for numerous years and it is about time it was implemented.

Allowing businesses, no matter how big or small they are, to declare bankruptcy and allow administrators to recover as much as possible for creditors would likely stave off a significant proportion of the failed business people who flee the UAE every month.

Al Ghurair said in November that those who fled in 2015 owed a total of about $1.4bn. No wonder banks are wary about lending to SMEs.

While industry has done what it can to assist, there are two more obvious mechanisms that require government input. One is to expedite an insolvency law, the other is to expand funding or guaranteed loans to expat entrepreneurs.

On the surface it seems fair that government money should be reserved exclusively for nationals. But when one considers the exponential impact expats have had and continue to have on the economy, plus the ongoing value of SMEs – whether created by a local or foreigner – the benefits are clear. There could, of course, be conditions including a certain length of residency before an expat qualifies.

At the very least, authorities should address the high establishment costs, from visas and permits to office and retail rents. While such moves would go against the government’s current attempts to scale back spending and up taxes, the medium to long-term impacts on the economy would pay back any concessions multi-fold.

The UAE really is a thriving place to do business and inspiring new locations are cropping up, such as the Dubai Design District and other free zones. But the notion that ‘build it and they will come’ that has applied to many international corporations and migrant workers will not work for entrepreneurs. Just as it is for the banks, investing in a start-up is risky for the founder and, for some, there are too many hurdles and not enough landing cushions to make entrepreneurship worthwhile in the UAE.