RIYADH: The latest data shows that Saudi Bank for Small and Medium Enterprises has disbursed SR1 billion ($267 million) since its launch in December 2022 to January this year.
Official data from the National Development Fund of the Kingdom highlight that in 2023 the bank introduced five new financial products for SMEs – microloans, working capital loans, term loans, trade loans and loans with a revolving limit.
The SME sector plays a key role in Saudi Arabia’s economic diversification away from oil dependence by supporting innovation, job creation and sustainable growth across a range of industries.
“Saudi Arabia’s leadership recognizes the important role played by SMEs, as they constitute 99 percent of businesses in the Kingdom. Various initiatives have been introduced to further accelerate their growth,” said Abdulrahman bin Mohammed bin Mansour, Acting CEO of SME Bank.
To strengthen this segment, in February 2021, the Cabinet of the Kingdom established the SME Bank, affiliated with the NDF, starting operations the following year. The financial institution works to strengthen the SME sector as a cornerstone of economic development in the Kingdom and a catalyst for achieving the goals set out in Vision 2030.
The General Office for Small and Medium-sized Enterprises and the NDF have launched a series of initiatives aimed at increasing the share of SMEs in the Kingdom’s gross domestic product to 35 per cent by the end of this decade.
Supporting entrepreneurship
The latest report highlights the Kingdom’s proactive steps to support entrepreneurship through a variety of development finance funds and banks operating in its economic ecosystem.
“The NDF coordinates and integrates the activities of its affiliated funds and banks in addressing medium- and long-term development financing needs in order to enhance their efficiency and financial stability. This is consistent with the Fund’s broader objective of encouraging and motivating entrepreneurship,” the report reads.
According to Mansour, SME Bank plays a key role in solving the sector’s problems, which include the shortage of financial products.
“The market is large, with over 1.4 million small and medium-sized businesses. Providing the right financial solutions for these businesses is essential to helping them grow,” he added.
The Acting CEO added: “The SME Bank is becoming a key player in bridging the financing gap, addressing existing challenges and solving them with comprehensive financing and investment solutions in partnership with the Kafalah program and Saudi Venture Capital Company.”
The Kafalah program aims to help small and medium-sized enterprises obtain the necessary financing to develop and expand their businesses.
On the other hand, SVC aims to stimulate and sustain financing for startups and SMEs from pre-seed to pre-IPO stage.
“The Saudi economy is now much stronger thanks to its SME sector, which is thriving within a development ecosystem that enhances SMEs’ ability to address challenges,” Mansour added.
He added that the financial institution has developed three innovative financing models aimed at supporting entrepreneurship in the Kingdom: joint financing, substitute financing and low-interest loans.
In relation to the joint financing model, he explained that it involves funds deposited by SME Bank and the partner bank in a dedicated program portfolio at the partner bank. The partner bank then manages the portfolio, invests these funds and provides financing directly to these businesses.
An alternative solution is the proxy model, in which the SME Bank deposits funds into a special software wallet on crowdfunding platforms specializing in debt-based crowdfunding.
The platform then manages the portfolio according to specific rules and conditions, investing the funds obtained through direct corporate financing.
Moreover, in the low-cost lending model, the financial liquidity of the non-bank finance sector is ensured to increase its capacity to provide more loans to SMEs, thereby facilitating their growth and expansion while reducing financing costs.
The journey of digitalization
The Acting CEO further noted that SME Bank is currently developing a comprehensive digital strategy covering three interconnected pillars: financial services, data centres and value-added services.
“The bank offers innovative financing programmes through the Financing Portal to help SMEs achieve their goals and easily access various financial solutions,” he said of digital financial services.
On the other hand, the purpose of the data center is to store and provide complete analysis of SME data, supported by artificial intelligence.
Similarly, through value-added services, the bank will carefully select offers that meet the non-financial needs of SMEs and cooperate with them through partners.
“The (digital) strategy is still in development and its goal is to build an innovative business model that will help us achieve our goals faster, more efficiently and more accessible,” Mansour said.
VC Investments
The SME bank CEO highlighted that in 2023, the Kingdom will have a 52 percent share of total venture capital investments in the Middle East and North Africa region, up from 31 percent in 2022.
“This is a testament to the strength, resilience and efficiency of the Saudi economy and its growing attractiveness to investors. Furthermore, this achievement underscores the modernization and development of the legal and regulatory framework governing venture capital investments,” he noted.
In early January, SVC revealed that venture capital investments in Saudi Arabia would rise to $1.4 billion in 2023.
Mansour stressed that the Kingdom’s expansion in the VC sector has clearly strengthened its role as an important member of the G20 and a key player in the global economy.
“In 2018, the Kingdom ranked fourth in the MENA region in terms of venture capital investment value. Today, our beloved nation proudly leads the region,” Mansour said.