Saudi Arabia sets up bank to boost lending to small and medium-sized businesses

The digital bank will look to bridge a financing gap for SMEs across the kingdom

The Riyadh skyline. Saudi Arabia on Wednesday said it has raised 7.67 billion riyals through the sale of a dual-tranche sukuk. Reuters

Saudi Arabia is setting up a bank to boost lending to small and medium-sized enterprises to increase their contribution to the Arab world’s largest economy.

The Small and Medium Enterprises Bank, set up by the General Authority for SMEs, or Monshaat as it is known, will be a digital lender, providing all of its products and services online, state news agency SPA said on Tuesday.

Its online-only operating model and partnerships with local and international lenders will increase its reach across the kingdom and allow it to provide services to all different types of SMEs, the statement said.

The SME Bank aims to “bridge the financing gap” and boost the financial stability of SMEs, making it a “basic pillar for economic development in the kingdom” that will help the country to achieve its Vision 2030 goals, according to the SPA's statement.

SMEs account for about 90 per cent of businesses in the Arab world and provide about 45 per cent of its jobs but often struggle to access funding. Improving financing to the sector, which stood at just 7 per cent of total loans in 2019, could boost regional GDP by 1 per cent and create 15 million new jobs, the International Monetary Fund said in a 2019 study.

Saudi Arabia's new SME bank has been structured following a benchmarking study into practices in 14 other countries and will offer an umbrella for all types of financing, including direct lending and the provision of guarantees, the SPA said.

The launch of the SME bank is in line with a national strategy to support SMEs as part of the kingdom's economic diversification efforts. Monshaat, which was set up in 2016 to help grow SMEs' contribution from 20 per cent to 35 per cent of GDP, has already taken a number of initiatives to improve financing to smaller firms. 
These include an indirect lending programme with capital of 1.6 billion riyals ($426.6 million), the establishment of the Saudi Venture Capital (SVC) Company with 2.8 billion riyals of capital, and the raising of the capital limit of the "kafalah" programme – an SME loans guarantee scheme – to 1.6bn riyals, according to the SPA report.

The total funds disbursed through the indirect lending initiative by the end of 2020 reached 2bn riyals, while the amount invested by SVC has now increased to more than 1bn riyals. The total value of guarantees extended through the financing guarantee programme for SMEs from 2018 to the end of 2020 reached 32.2bn riyals, the report added.

The kingdom is trying to minimise the impact of Covid-19 on businesses, especially on the SME sector.

It unveiled 142 economic stimulus initiatives worth 214bn riyals last year. In November, the Saudi Central Bank extended a loan deferral programme until the end of the first quarter of 2021 in an effort to assist affected businesses.

The regulator said the decision would allow it to continue to empower the financial sector to play its role in supporting micro, small and medium enterprises, contribute to economic growth and maintain employment in the private sector.

In January, the central bank set new rules governing crowdfunding-based activities as it sought to open up more avenues of funding for smaller businesses and broaden the pool of liquidity.