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RIYADH: Saudi Arabia’s bank for small and medium enterprises disbursed SR1 billion ($267 million) between its launch in December 2022 and January this year, latest figures show.

Official figures from the Kingdom’s National Development Fund highlight that the bank introduced five new financing products for SMEs in 2023 – microloans, working capital loans, term loans, commercial loans and loans with a revolving limit.

The SME sector plays a key role in diversifying the Saudi economy away from oil dependence, as it promotes innovation, job creation and sustainable growth in various sectors.

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

To strengthen this segment, in February 2021, the kingdom’s cabinet established a bank for SMEs affiliated to the NDF, with operations starting 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 General Office for Small and Medium Enterprises and the NDF have launched various initiatives aimed at increasing the contribution of SMEs to the kingdom’s gross domestic product to 35 percent by the end of this decade.

Business support

The latest report highlighted the kingdom’s proactive efforts to strengthen entrepreneurship through various development finance funds and banks within its economic ecosystem.

“The NDF coordinates and integrates the operations of its affiliated funds and banks with regard to medium and long-term development financing needs in order to increase their efficiency and financial sustainability. This is in line with the fund’s broader goal of supporting and motivating entrepreneurship,” the report said.

According to Mansour, the SME Bank plays a key role in addressing the sector’s challenges, which include a lack of financing products.

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

The Acting CEO added: “SME Bank appears to be 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 goal of the Kafalah program is to help SMEs in obtaining the necessary funds for the development and expansion of their activities.

On the other hand, the SVC aims to stimulate and maintain funding for start-ups and SMEs from the seed stage to the initial public offering stage.

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

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

In connection with the joint financing model, he explained that these are funds deposited by the SME bank and the partner bank into a specialized program portfolio in the partner bank. The partner bank then manages the portfolio, invests these funds and provides financing directly to these businesses.

Alternatively, the proxy model works by having the SME bank deposit funds into a dedicated program portfolio on crowdfunding platforms that specialize in debt-based crowdfunding.

The platform then manages the portfolio according to specific conditions and invests these funds by directly financing businesses.

Moreover, in the low-cost credit model, liquidity is provided to the non-banking financial sector to increase its ability to provide more credit to SMEs, thereby facilitating their growth and expansion while reducing the cost of financing.

The path of digitization

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

“The bank provides innovative funding programs through the funding portal to help SMEs achieve their goals and easily access various financial solutions,” he said of digital financial services.

On the other hand, the goal of the data center is to store and provide a complete analysis of the data of small and medium enterprises with the support of artificial intelligence.

Similarly, through value-added services, the bank will carefully select offers that satisfy the non-financial needs of SMEs and cooperate with them through partners.

“The (digital) strategy is still evolving and aims to build an innovative business model that will help us achieve our goals faster, more efficiently and more affordably,” Mansour said.

Venture capital investments

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

“This is a testament to the strength, resilience and efficiency of the Saudi economy and its growing investment appeal. In addition, this success underscores the modernization and development of the legislative and regulatory framework governing venture capital investment,” he noted.

In early January, the SVC disclosed that venture capital funding in Saudi Arabia will grow to $1.4 billion in 2023.

Mansour further emphasized that the kingdom’s expansion in the venture capital sector has greatly strengthened its role as a prominent member of the G20 and a key player in the global economy.

“In 2018, the Kingdom was ranked fourth in the MENA region in terms of the value of venture capital investments. Today, our beloved nation proudly leads the region,” Mansour said.

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