## 1. SMEs are expected to play a key role in supporting long-term growth and job creation in Oman. ## Source details **Canonical URL:** [1. SMEs are expected to play a key role in supporting long-term growth and job creation in Oman.](https://www.imf.org/-/media/files/publications/selected-issues-papers/2025/english/sipea2025035.pdf) ## Other formats - [Markdown version](/-/media/files/publications/selected-issues-papers/2025/english/sipea2025035.pdf.md) - [Structured JSON version](/-/media/files/publications/selected-issues-papers/2025/english/sipea2025035.pdf.json) --- ### A. Role of SMEs and labor market needs - Oman aims to diversify away from hydrocarbon production toward a private sector and knowledge driven economy as stated in Oman Vision 2040. - The economy will need to create around 30 thousand new jobs annually between 2024 and 2032 to absorb the entry of a young and increasingly educated labor force. - SMEs represented around 98 percent of firms in 2023. - SMEs contributed to about 33 percent of nonhydrocarbon GDP in 2023. - SMEs employed 76 percent of the private sector workforce in 2023. - Most SMEs operate in wholesale and retail trade, construction, and manufacturing sectors. ### B. Recent trends and key statistics - Startup rate for limited liability companies fell from 14.5 percent in 2006 to 6.5 percent in 2020 (2006-2020 trend). - SME share of the private sector workforce increased from 68 percent in 2020 to 76 percent in 2023. - SME contribution to nonhydrocarbon GDP increased following the pandemic to almost 33 percent (Table 1). - UAE’s SME contribution benchmark: 64 percent in 2022 (peer comparison). - Riyada has financed more than 400 projects since 2022, for a total of OMR 38 million. - Riyada’s grants system has supported 67 projects so far (as of the document). - ODB offers loan facilities to support micro projects (up to OMR 20 thousand) and SMEs (up to OMR 250 thousand). - The OIA’s Future Fund Oman is an OMR 2 billion growth fund targeting 10 percent of its investments in SMEs—reaching OMR 60 million as of September 2024. - SME Development Fund (established in 2014) provides subsidized credit up to OMR 500 thousand. - Crowdfunding access available since 2021 with 9 platforms registered so far. - Esnad procurement preference: SMEs benefit from a 10-percent price differential in government procurement contracts. - OPAZ reduced SME registration fees within SEZs from OMR 1 thousand to between OMR 30 and 40, and OPAZ service fees were reduced by 50 percent. - A CBO floor recommendation: 5 percent of commercial banks’ loan portfolio to be allocated to SMEs; actual share reached 3.7 percent in 2022. - Non-performing loans to the sector are estimated at almost one third of total loans to the sector. - In insolvency law: the newly introduced restructuring procedure does not cover businesses in operation for less than two years; post-bankruptcy rehabilitation lacks debt forgiveness. - Bank Muscat’s “al Wathbah” program provided collateral-free lending to SMEs over a decade ago. - Tawasul Fund increases access to finance to SMEs operating in SEZs (in cooperation with ODB). ### C. Obstacles to SME development - Limited access to credit due to: - Higher risk perceptions (non-performing loans estimated at almost one third of total loans to the sector). - Imperfect information about business prospects. - Lack of collateral. - Central Bank of Oman recommended 5 percent SME lending floor; actual 3.7 percent in 2022. - Insolvency framework limitations: - No path towards financial rehabilitation to struggling entrepreneurs wishing to return to business activity (post-bankruptcy rehabilitation lacks debt forgiveness). - Newly introduced restructuring procedure excludes businesses in operation for less than two years. - Historically high capital thresholds to register as a limited liability company disincentivized separation of personal assets from businesses. - Administrative and legal costs remain bottlenecks for SMEs and young entrepreneurs. - Public sector high salaries and job security deter risk-taking and entrepreneurship among young Omanis. ### D. Recent policy actions and programs - 2019 reforms: - Introduced a Bankruptcy Law to allow distressed companies to continue operating under certain conditions. - New Commercial Companies Law introduced to facilitate incorporation of One-Person Limited Liability Companies (replacing the old 1974 Companies Law). - Credit Bureau (Mala’a) established to alleviate asymmetric information constraints. - 2021 launch of Invest Easy One-Stop Shop to facilitate doing business. - Home businesses and freelancers can obtain a commercial registration number. - Riyada (SME Development Authority) and Oman Development Bank partnership: - Financing purposes include working capital, fixed asset acquisition, supporting in-country value (ICV) increases, and incubator support. - Riyada launched grants for innovative and high-tech SMEs; working on enabling Family Offices as Angel Investors. - Trade credit insurance available through Credit Oman. - Private sector initiatives: - Bank Muscat’s collateral-free “al Wathbah” program. - SME Development Fund (public and private stakeholders) providing subsidized credit up to OMR 500 thousand. - Crowdfunding platforms (9 registered since 2021). - Planned parallel stock market for emerging businesses, including SMEs, and an investment company focused on financing SMEs in Oman Vision 2040 target industries. ### E. Policy priorities and recommendations - Encourage risk-taking - Modernize insolvency frameworks: - Consider streamlined and less costly procedures tailored to SMEs. - Offer a path of financial rehabilitation to business owners by allowing non-consensual debt relief (drawing on Bahrain’s approaches). - Allow entrepreneurs to remain in control of the business during insolvency procedures given their operational importance relative to larger firms. - Adopt an Early Warning Tool to identify debtors’ emerging difficulties and support early interventions (drawing from Denmark and France experience). - Enhance access to finance by mobilizing the private sector - Shift initiatives toward more market-driven solutions; public financial institutions currently dominate support but may lack screening and monitoring expertise relative to private banks. - Implement a well-designed credit guarantee scheme (CGS) to alleviate collateral constraints and strengthen incentives for commercial banks to expand SME credit. - Consider coverage ratio design: - Partial guarantees (less than 100 percent) to mitigate moral hazard while incentivizing bank monitoring. - Full coverage may be appropriate for nascent industries or priority sectors (example: Technology Guarantee Fund in Korea covering up to 100 percent for new-technology firms). - Consider ownership structure: - Private sector involvement tends to be associated with better financial performance. - Mutual guarantee schemes (MGS) with full private ownership (e.g., Confidi in Italy) can leverage local enterprises’ information advantages and peer pressure. - Use Mala’a credit bureau data fully for appraisal of creditworthiness and loan guarantees; leverage personal credit history to complement personal insolvency legislation. - Scale up FinTech to support small business lending: - Continue CBO’s FinTech Accelerator Program (currently supporting two startups focused on microfinance and loan-based crowdfunding). - Recognize FinTech loans as catalytic—junior unsecured loans can help firms acquire assets later pledged as collateral for bank credit (evidence from France). - Help SMEs grow and integrate with foreign firms - Accelerate integration of SMEs into SEZ value chains and expand pilot initiatives. - Focus on connecting multinational enterprises (MNEs) in SEZs with local SMEs to identify needs and help SMEs acquire required knowledge and skills. - Policies to enhance spillovers from MNEs include: - Support technology acquisition, digitalization, and R&D through grants and incubators. - Provide financial assistance, marketing support for exports, and help entrepreneurs connect with foreign enterprises and investors. - Increase SME labor skillsets and encourage labor mobility of expatriates: - Consider wage subsidies or time-bound cash grants for SMEs to hire skilled foreign workers. - Encourage high-skilled expatriates to create SMEs within SEZs. - Enhance university-SEZ collaboration and incentivize internships in local SMEs and foreign MNEs. - Identify collaboration opportunities between local SMEs and large MNEs and use Invest Oman to promote domestic SMEs, connect them with foreign MNEs, assess needs, and support upskilling. ### Box 1. Corporate Bankruptcy Reform in Oman - Overview of the 2020 Bankruptcy Law - Oman’s new Bankruptcy Law became effective in 2020 (Royal Decree 53/2019). - The law offers the possibility for distressed business owners to restructure their debt while continuing operations. - The restructuring process is expected to occur with minimum court supervision, facilitated by the Ministry of Commerce’s role as a mediator, and does not require a high threshold of creditors to agree. - Caveats and limitations of the restructuring procedure - The company needs to be in operation for at least two years, potentially discouraging new entrepreneurs to start riskier projects. - Even if a majority of creditors agree to restructure the company debt, the agreement does not bind non-participating parties to the agreement. - Other options in the law: bankruptcy and preventative composition - The two other alternatives present in the law are (i) bankruptcy, and (ii) preventative composition. - Bankruptcy in Oman, as in several other countries in the region, does not imply debt forgiveness. - Preventative composition: - Happens under court supervision. - Requires a majority of creditors holding two thirds of claims to consent to a settlement. - Is binding to all creditors. - Like bankruptcy, does not lead to non-consensual debt discharge. - The law no longer imposes civil disabilities to bankrupt owners of liquidated companies. - Creditors remain entitled to enforce their claims following the post-bankruptcy period (3 years). - Implications for SMEs - The law does not feature a simpler procedure for small businesses that address characteristics specific to SMEs such as greater creditor disengagement and lower business sophistication. - Simpler procedures would be particularly beneficial to SMEs given that they tend to be more vulnerable than larger businesses to economic downturns and less willing to attempt insolvency procedures due to high costs and documentation requirements, preventing a reallocation of resources following liquidation. - Regional example: Bahrain - In 2018, Bahrain became the first country in the region to allow individual entrepreneurs to be discharged of their debt following bankruptcy, under certain conditions. - Bahrain provisions that directly benefit small businesses below an asset threshold of BHD 10 thousand: - The bankruptcy procedure no longer requires a trustee or a creditor committee. - It allows reorganization plans to be adopted by a simple majority. - It empowers the court to impose a plan that pursues the best use for the debtor’s assets, while shortening timelines for dispute resolution. - Financial support is provided to small business debtors to cover their bankruptcy proceedings expenses. - Policy recommendations and international standards - Oman would benefit from introducing a bankruptcy reform that provides a streamlined procedure for SMEs in line with international standards (United Nations, 2024), including: - Lower documentation requirements. - Supervision by insolvency specialists. - Simplified procedures for business liquidation and reorganization. - Simpler plan approval mechanisms. - Minimal use of courts. - Financial support to small businesses to start the bankruptcy procedure (World Bank, 2022). *Source: IMF staff summary of “1. SMEs are expected to play a key role in supporting long-term growth and job creation in Oman” (sipea2025035).* ### 1. SMEs are expected to play a key role in supporting long-term growth and job creation in ### 1. SMEs are expected to play a key role in supporting long-term growth and job creation in Oman. ### A. Role of SMEs and labor market needs - Oman aims to diversify away from hydrocarbon production toward a private sector and knowledge driven economy as stated in Oman Vision 2040. - The economy will need to create around 30 thousand new jobs annually between 2024 and 2032 to absorb the entry of a young and increasingly educated labor force. - SMEs represented around 98 percent of firms in 2023. - SMEs contributed to about 33 percent of nonhydrocarbon GDP in 2023. - SMEs employed 76 percent of the private sector workforce in 2023. - Most SMEs operate in wholesale and retail trade, construction, and manufacturing sectors. ### B. Recent trends and key statistics - Startup rate for limited liability companies fell from 14.5 percent in 2006 to 6.5 percent in 2020 (2006-2020 trend). - SME share of the private sector workforce increased from 68 percent in 2020 to 76 percent in 2023. - SME contribution to nonhydrocarbon GDP increased following the pandemic to almost 33 percent (Table 1). - UAE’s SME contribution benchmark: 64 percent in 2022 (peer comparison). - Riyada has financed more than 400 projects since 2022, for a total of OMR 38 million. - Riyada’s grants system has supported 67 projects so far (as of the document). - ODB offers loan facilities to support micro projects (up to OMR 20 thousand) and SMEs (up to OMR 250 thousand). - The OIA’s Future Fund Oman is an OMR 2 billion growth fund targeting 10 percent of its investments in SMEs—reaching OMR 60 million as of September 2024. - SME Development Fund (established in 2014) provides subsidized credit up to OMR 500 thousand. - Crowdfunding access available since 2021 with 9 platforms registered so far. - Esnad procurement preference: SMEs benefit from a 10-percent price differential in government procurement contracts. - OPAZ reduced SME registration fees within SEZs from OMR 1 thousand to between OMR 30 and 40, and OPAZ service fees were reduced by 50 percent. - A CBO floor recommendation: 5 percent of commercial banks’ loan portfolio to be allocated to SMEs; actual share reached 3.7 percent in 2022. - Non-performing loans to the sector are estimated at almost one third of total loans to the sector. - In insolvency law: the newly introduced restructuring procedure does not cover businesses in operation for less than two years; post-bankruptcy rehabilitation lacks debt forgiveness. - Bank Muscat’s “al Wathbah” program provided collateral-free lending to SMEs over a decade ago. - Tawasul Fund increases access to finance to SMEs operating in SEZs (in cooperation with ODB). ### C. Obstacles to SME development - Limited access to credit due to: - Higher risk perceptions (non-performing loans estimated at almost one third of total loans to the sector). - Imperfect information about business prospects. - Lack of collateral. - Central Bank of Oman recommended 5 percent SME lending floor; actual 3.7 percent in 2022. - Insolvency framework limitations: - No path towards financial rehabilitation to struggling entrepreneurs wishing to return to business activity (post-bankruptcy rehabilitation lacks debt forgiveness). - Newly introduced restructuring procedure excludes businesses in operation for less than two years. - Historically high capital thresholds to register as a limited liability company disincentivized separation of personal assets from businesses. - Administrative and legal costs remain bottlenecks for SMEs and young entrepreneurs. - Public sector high salaries and job security deter risk-taking and entrepreneurship among young Omanis. ### D. Recent policy actions and programs - 2019 reforms: - Introduced a Bankruptcy Law to allow distressed companies to continue operating under certain conditions. - New Commercial Companies Law introduced to facilitate incorporation of One-Person Limited Liability Companies (replacing the old 1974 Companies Law). - Credit Bureau (Mala’a) established to alleviate asymmetric information constraints. - 2021 launch of Invest Easy One-Stop Shop to facilitate doing business. - Home businesses and freelancers can obtain a commercial registration number. - Riyada (SME Development Authority) and Oman Development Bank partnership: - Financing purposes include working capital, fixed asset acquisition, supporting in-country value (ICV) increases, and incubator support. - Riyada launched grants for innovative and high-tech SMEs; working on enabling Family Offices as Angel Investors. - Trade credit insurance available through Credit Oman. - Private sector initiatives: - Bank Muscat’s collateral-free “al Wathbah” program. - SME Development Fund (public and private stakeholders) providing subsidized credit up to OMR 500 thousand. - Crowdfunding platforms (9 registered since 2021). - Planned parallel stock market for emerging businesses, including SMEs, and an investment company focused on financing SMEs in Oman Vision 2040 target industries. ### E. Policy priorities and recommendations - Encourage risk-taking - Modernize insolvency frameworks: - Consider streamlined and less costly procedures tailored to SMEs. - Offer a path of financial rehabilitation to business owners by allowing non-consensual debt relief (drawing on Bahrain’s approaches). - Allow entrepreneurs to remain in control of the business during insolvency procedures given their operational importance relative to larger firms. - Adopt an Early Warning Tool to identify debtors’ emerging difficulties and support early interventions (drawing from Denmark and France experience). - Enhance access to finance by mobilizing the private sector - Shift initiatives toward more market-driven solutions; public financial institutions currently dominate support but may lack screening and monitoring expertise relative to private banks. - Implement a well-designed credit guarantee scheme (CGS) to alleviate collateral constraints and strengthen incentives for commercial banks to expand SME credit. - Consider coverage ratio design: - Partial guarantees (less than 100 percent) to mitigate moral hazard while incentivizing bank monitoring. - Full coverage may be appropriate for nascent industries or priority sectors (example: Technology Guarantee Fund in Korea covering up to 100 percent for new-technology firms). - Consider ownership structure: - Private sector involvement tends to be associated with better financial performance. - Mutual guarantee schemes (MGS) with full private ownership (e.g., Confidi in Italy) can leverage local enterprises’ information advantages and peer pressure. - Use Mala’a credit bureau data fully for appraisal of creditworthiness and loan guarantees; leverage personal credit history to complement personal insolvency legislation. - Scale up FinTech to support small business lending: - Continue CBO’s FinTech Accelerator Program (currently supporting two startups focused on microfinance and loan-based crowdfunding). - Recognize FinTech loans as catalytic—junior unsecured loans can help firms acquire assets later pledged as collateral for bank credit (evidence from France). - Help SMEs grow and integrate with foreign firms - Accelerate integration of SMEs into SEZ value chains and expand pilot initiatives. - Focus on connecting multinational enterprises (MNEs) in SEZs with local SMEs to identify needs and help SMEs acquire required knowledge and skills. - Policies to enhance spillovers from MNEs include: - Support technology acquisition, digitalization, and R&D through grants and incubators. - Provide financial assistance, marketing support for exports, and help entrepreneurs connect with foreign enterprises and investors. - Increase SME labor skillsets and encourage labor mobility of expatriates: - Consider wage subsidies or time-bound cash grants for SMEs to hire skilled foreign workers. - Encourage high-skilled expatriates to create SMEs within SEZs. - Enhance university-SEZ collaboration and incentivize internships in local SMEs and foreign MNEs. - Identify collaboration opportunities between local SMEs and large MNEs and use Invest Oman to promote domestic SMEs, connect them with foreign MNEs, assess needs, and support upskilling. *Source: IMF staff summary of “1. SMEs are expected to play a key role in supporting long-term growth and job creation in Oman” (sipea2025035).* ### Box 1. Corporate Bankruptcy Reform in Oman ### Box 1. Corporate Bankruptcy Reform in Oman ### Overview of the 2020 Bankruptcy Law - Oman’s new Bankruptcy Law became effective in 2020 (Royal Decree 53/2019). - The law offers the possibility for distressed business owners to restructure their debt while continuing operations. - The restructuring process is expected to occur with minimum court supervision, facilitated by the Ministry of Commerce’s role as a mediator, and does not require a high threshold of creditors to agree. ### Caveats and limitations of the restructuring procedure - The company needs to be in operation for at least two years, potentially discouraging new entrepreneurs to start riskier projects. - Even if a majority of creditors agree to restructure the company debt, the agreement does not bind non-participating parties to the agreement. ### Other options in the law: bankruptcy and preventative composition - The two other alternatives present in the law are (i) bankruptcy, and (ii) preventative composition. - Bankruptcy in Oman, as in several other countries in the region, does not imply debt forgiveness. - Preventative composition: - Happens under court supervision. - Requires a majority of creditors holding two thirds of claims to consent to a settlement. - Is binding to all creditors. - Like bankruptcy, does not lead to non-consensual debt discharge. - The law no longer imposes civil disabilities to bankrupt owners of liquidated companies. - Creditors remain entitled to enforce their claims following the post-bankruptcy period (3 years). ### Implications for SMEs - The law does not feature a simpler procedure for small businesses that address characteristics specific to SMEs such as greater creditor disengagement and lower business sophistication. - Simpler procedures would be particularly beneficial to SMEs given that they tend to be more vulnerable than larger businesses to economic downturns and less willing to attempt insolvency procedures due to high costs and documentation requirements, preventing a reallocation of resources following liquidation. ### Regional example: Bahrain - In 2018, Bahrain became the first country in the region to allow individual entrepreneurs to be discharged of their debt following bankruptcy, under certain conditions. - Bahrain provisions that directly benefit small businesses below an asset threshold of BHD 10 thousand: - The bankruptcy procedure no longer requires a trustee or a creditor committee. - It allows reorganization plans to be adopted by a simple majority. - It empowers the court to impose a plan that pursues the best use for the debtor’s assets, while shortening timelines for dispute resolution. - Financial support is provided to small business debtors to cover their bankruptcy proceedings expenses. ### Policy recommendations and international standards - Oman would benefit from introducing a bankruptcy reform that provides a streamlined procedure for SMEs in line with international standards (United Nations, 2024), including: - Lower documentation requirements. - Supervision by insolvency specialists. - Simplified procedures for business liquidation and reorganization. - Simpler plan approval mechanisms. - Minimal use of courts. - Financial support to small businesses to start the bankruptcy procedure (World Bank, 2022). *Source: Box 1. Corporate Bankruptcy Reform in Oman (sipea2025035).* --- _Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2025/english/sipea2025035.pdf_