SME

SAUDI UNLOCKS POTENTIAL OF SMES WITH NEW FUNDING SCHEME

The International Islamic Trade Finance Corporation (ITFC), the Saudi Export-Import Bank (Saudi EXIM), and the Small and Medium Enterprises General Authority (Monsha'at) have signed a memorandum of understanding that will launch the kingdom’s Small and Medium Enterprises Development Program.

“The MoU aims to set a general framework for co-ordinating the co-operation regarding the development and implementation of small and medium enterprises and companies programmes in the Kingdom of Saudi Arabia to increase its non-oil exports through trade finance facilities and capacity enhancement programmes for enterprises participating in the programme,” according to the Saudi Press Agency.

The MoU also calls for boosting digital transformation among the targeted SMEs to increase their export capabilities, and provide indirect funding by offering insurance, products, and financial guarantees.

“The MoU will also encourage Shariah-compliant SMEs in Saudi Arabia to access new markets,” Hani Sonbol, CEO of ITFC, told the media.

 

THE ROLE OF MONSHA’AT

SME funding has surged in recent years as the kingdom invests heavily in creating new national champions, and nurturing entrepreneurship at an early stage of the companies’ development. The proliferation of web-focused apps and businesses has led to a major boom in the launch of new companies.

Monsha’at’s SME borrowing via Funding Gate (Tamweel), the online financing platform, rose at an astonishing 884% year on year in 2021, the agency said.

While the authority is not a direct lender, Funding Gate facilitates an automated lending platform that aggregates financial products, and expedites the delivery of funding for SMEs.

Monsha’at’s platform has assisted more than 2,770 companies, as it automated the SME lending process from inquiry through to delivery, thus reducing average service delivery time from 86 days in December 2020 to seven days in December 2021.

“Demand for the lending platform has been exponential, indicating a significant appetite for financing among SMEs in the kingdom. 45 entities currently provide financial products via Funding Gate,” the agency said.

Borrowing through Funding Gate reached over SAR 11 billion in 2021 from SAR 1.1 billion in 2020, helping Saudi Arabia’s SME ecosystem to contribute 35% of GDP, and achieving a key Vision 2030 objective to diversify the country’s economy.

Separately, Monsha’at’s ‘Kafalah’ programme, a loan guarantee service that reduces risk and increases appetite for lenders, has guaranteed SAR 67.7 billion in credit facilities in 2021.  

Meanwhile, Monsha’at’s ‘Esterdad Initiative’ for reimbursement of government fees (such as licences), enabled SAR 3.5 billion to be repaid to SMEs; while SAR 2.5 billion in loans have been facilitated through Monsha’at’s Indirect Lending Initiative, which enables SMEs to access low-cost financing.

Monsha’at also created the Saudi Venture Capital Company (SVC) with the mandate to stimulate venture investments by injecting funds into, as well as co-investing with, angel groups with the primary goal of minimising financing gaps for start-ups and SMEs by investing SAR 2.8 billion.

SAR 1.3 billion has so far been invested through SVC, further stimulating Saudi Arabia’s private investment ecosystem.

 

FUNDING FOR SMES

Funding for small to medium enterprises accounted for 8.2% of the banks’ and finance companies’ credit facilities in 2021, according to Saudi Central Bank (SAMA). While that was a shade lower compared to 8.4% of total credit facilities provided by the banking sector and finance companies in 2020, the overall credit facility of SAR 203.25 million in 2021 was higher than the SAR 182.24 million provided in 2020

Saudi start-ups are also making a funding splash. New companies from the kingdom raised the most dollars in the Middle East and North Africa region, accounting for USD 195 million, according to Wamda, which tracks regional private equity and start-up deals.

The Saudi figures were dominated by the USD 170 million raised by Foodic in its Series C round. Foodic is a restaurant management and fintech app that empowers food and beverage company owners and merchants to run their operations more seamlessly, allowing them to fast-track their own business growth in the process. Formally licensed as a fintech company by SAMA, Foodic caters to every segment of the F&B sector from traditional dine-in restaurants, cafés, quick service restaurants, bakeries, and food trucks, through to cloud kitchens.

“This latest round will support Foodic’s regional and international expansion including its M&A strategy to increase market penetration,” the company said. “The company will also use the proceeds to launch and scale new initiatives around fintech, micro-lending and supply chain management, alongside boosting its innovation capabilities to better
serve business owners. As part of its growth strategy, Foodic will also expand into non-food micro-retail outlets as a new segment.

Investors based in Saudi Arabia were once again the region’s most active, participating in 13 deals, followed by investors in the UAE who took part in 10 deals, Wamda said in its monthly report.