In Saudi Arabia, the third quarter of 2023 has seen a significant 18 percent year-on-year growth in credit facilities available to micro, small, and medium enterprises (MSMEs). The central bank of the Kingdom, SAMA, has reported that loans to this pivotal sector reached SR268.57 billion ($71.61 billion) by October 2023, marking an increase from SR228.03 billion in the previous year.
This upswing is largely the result of government-led efforts to bolster these enterprises that are vital for job creation, innovation, and the diversification of the economy. Over recent years, there has been a concerted push to cultivate the growth of small businesses in the nation.
The SME General Authority, Monsha’at, has been instrumental in this push, implementing a range of initiatives to nurture the sector’s development. Notable measures include refunds of taxes paid by MSMEs, the launch of the Kafalah program to reduce investment risks in the sector, the provision of $426 million in indirect funding to banks for small business support with lower costs, and the creation of the Saudi Venture Capital program to invest in startup funds with high growth potential.
In collaboration with Kafalah, SAMA introduced the Guaranteed Financing Program in 2020, offering 95 percent guarantees on loans provided by banks and companies to micro-enterprises. This initiative aims to bolster support and improve the creditworthiness of the smallest market players.
Kafalah’s latest figures reveal that during the third quarter of 2023, cumulative guarantees provided to MSMEs amounted to SR60.95 billion. The wholesale and retail trade sector, along with motor vehicle and motorcycle repairs, dominated the guarantees, accounting for 34 percent of them, followed by the construction industry, which made up 26 percent.
Another key development was Monsha’at’s establishment of a national SME Bank in 2021, intending to support the goals of the Kingdom’s Vision 2030 to raise the sector’s GDP contribution to 35 percent. This bank is also focused on increasing the financing volume for MSMEs to account for 20 percent of the total loan portfolio.
Breaking down the credit facilities, medium enterprises received the lion’s share at 59 percent in the third quarter. However, micro companies saw the most dynamic growth—a notable 35 percent year-on-year increase to SR24 billion. Small enterprises saw a 25 percent rise to SR85.92 billion, while credit to medium businesses climbed by 12 percent, reaching SR158.62 billion.
Micro enterprises, defined as those with revenues up to SR3 million and up to 5 full-time employees, and small enterprises, with revenues between SR3 million and SR40 million and a workforce of up to 49, contrast with medium-sized enterprises which have revenues between SR40 million and SR200 million and staff numbers between 50 and 249.
Saudi banks were responsible for 94 percent of these credit facilities, with finance companies contributing the remaining 6 percent. The loans to this sector constituted 8.3 percent of total credit from Saudi banks and 20.6 percent of facilities provided by finance companies.
A quarterly SME report by Monsha’at highlighted the country’s growth of nearly 1.27 million SMEs, with Riyadh at the forefront with 43.3 percent, buoyed by government support and solid investments. These SMEs played a role in the non-oil economy’s 3.6 percent year-on-year expansion, signifying the success of diversification strategies.
Yousef bin Abdullah Al-Benyan, chairman of the SME bank, acknowledged the sector’s impressive growth, attributing it to substantial government backing. SMEs are increasingly recognized as fundamental to diversifying income streams and propelling economic advancement, aligning with Saudi Arabia’s Vision 2030 objectives.