Saudi Arabia: Saudi Arabia’s Small and Medium Enterprise Bank disbursed SR1 billion ($267 million) between its launch in December 2022 and January this year, latest figures show. 

Official data from the Kingdom’s National Development Fund highlights that the bank introduced five new financing products for SMEs in 2023 – microloans, working capital loans, term loans, commerce loans, and revolving limit loans. 

The SME sector plays a crucial role in Saudi Arabia’s economic diversification away from oil dependency, as it fosters innovation, job creation, and sustainable growth across various industries.  

“The leadership of Saudi Arabia acknowledges the vital role that SMEs play, as they constitute 99 percent of the Kingdom’s businesses. Various initiatives have been put in place to further catalyze their growth,” said Abdulrahman bin Mohammed bin Mansour, acting CEO of the SME Bank. 

To bolster this segment, the SME Bank, affiliated with the NDF, was established by the Kingdom’s Cabinet in February 2021, commencing operations the following year. The financial institution works to strengthen the SME sector as a cornerstone of economic development in the Kingdom and as a catalyst for achieving the goals outlined in Vision 2030.  

The Small and Medium Enterprises General Authority and the NDF have launched various initiatives aimed at increasing the SME contribution to the Kingdom’s gross domestic product to 35 percent by the end of this decade. 

Supporting entrepreneurship  

The latest report underscored the Kingdom’s proactive efforts to bolster entrepreneurship through diverse development finance funds and banks within its economic ecosystem. 

“NDF coordinates and integrates the operations of its affiliated funds and banks regarding medium- and long-term development financing needs to enhance their efficiency and financial sustainability. This aligns with the Fund’s broader goal of encouraging and motivating entrepreneurship,” said the report.  

According to Mansour, the SME Bank plays a crucial role in addressing the challenges in the sector which include the scarcity of financing products. 

“The market is large, with over 1.4 million small and medium-sized enterprises. Providing appropriate financing solutions for these enterprises is essential to help them expand,” he added.   

The acting CEO added: “The SME Bank emerges as a critical player in bridging the financing gap, confronting existing challenges, and addressing them through comprehensive financing and investment solutions in collaboration with the Kafalah Program and Saudi Venture Capital Company.”  

The Kafalah Program aims to help SMEs in obtaining the necessary financing to develop and expand their activities.  

On the other hand, SVC aims to stimulate and sustain financing for Startups and SMEs from the pre-seed to the pre-initial public offering stage.  

“The Saudi economy is now much stronger because of the SME sector, which is growing within a development ecosystem that enhances SMEs’ ability to withstand challenges,” added Mansour.  

He further elaborated that the financial institution has developed three innovative financing models to support the entrepreneurial landscape in the Kingdom: joint financing, proxy financing, and low-cost loans. 

Regarding the joint financing model, he explained that it involves funds deposited by the SME Bank and the partner bank into a dedicated program portfolio at the partner bank. The partner bank then manages the portfolio, invests these funds, and provides financing directly to these enterprises.

Alternatively, the proxy model operates by the SME Bank depositing funds into a dedicated program portfolio at crowdfunding platforms specializing in debt-based crowdfunding. 

The platform then manages the portfolio according to specific terms and conditions, investing these funds by directly financing enterprises. 

Moreover, in the low-cost loan model, liquidity is provided to the non-bank financing sector to enhance its capacity for issuing more loans to SMEs, thereby facilitating their growth and expansion while lowering their financing expenses. 

Digitization journey  

The acting CEO further noted that the SME Bank is currently developing a comprehensive digital strategy, targeting three interconnected pillars that encompass financial services, data centers, and value-added services.  

“The bank provides innovative financing programs through the Funding Portal to help SMEs achieve their goals and easily access a variety of financing solutions,” he said about digital financial services.  

On the other hand, the data center aims to store and provide a complete analysis of SME data, supported by artificial intelligence.  

Similarly, through value-added services, the bank will carefully select offerings which cater to SMEs’ non-financial needs and collaborate with them through partners.  

“The (digital) strategy is still under development, aiming to build an innovative business model which helps us achieve our goals in a faster, more efficient, and accessible manner,” said Mansour.  

VC investments 

The SME bank CEO further pointed out that the Kingdom has a 52 percent share of total venture capital investment in the Middle East and North Africa region in 2023, compared to 31 percent in 2022.  

“This stands as a testament to the strength, resilience, and effectiveness of the Saudi economy and its burgeoning investment appeal. Furthermore, this achievement underscores the modernization and development of the legislative and regulatory framework governing venture capital investment,” he noted.  

Earlier in January, SVC disclosed that venture capital funding in Saudi Arabia surged to $1.4 billion in 2023. 

Mansour further emphasized that the Kingdom’s expansion in the VC sector has markedly bolstered its role as a prominent member of the G20 and a pivotal player in the global economy.