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

Official data from the Kingdom’s National Development Fund shows that the bank has launched five new financing products for SMEs in 2023 – microcredit, working capital loans, term loans, trade loans and revolving limit loans.

The SME sector plays a critical role in Saudi Arabia’s economic diversification away from oil dependence by promoting innovation, job creation and sustainable growth across numerous industries.

“Saudi Arabia’s leadership recognizes the important role of SMEs, as they account for 99 percent of the Kingdom’s businesses, and various initiatives have been introduced to further promote their growth,” said Abdulrahman bin Mohammed bin Mansour, acting CEO of SME Bank.

To strengthen this segment, the Kingdom’s Cabinet established the NDF-affiliated SME Bank in February 2021, which began operations the following year. The financial institution is working to strengthen the SME sector as a cornerstone of the Kingdom’s economic development and a catalyst for achieving the goals set out in Vision 2030.

The General Authority for Small and Medium-Sized 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.

Promoting entrepreneurship

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

“NDF coordinates and integrates the activities of its affiliated funds and banks on medium and long-term development finance needs to improve their efficiency and financial sustainability. This is in line with the Fund’s overall objective of promoting and motivating entrepreneurship,” the report said.

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

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

The Acting CEO added: “SME Bank is proving to be a key player in bridging the financing gap, addressing existing challenges and overcoming them through comprehensive financing and investment solutions in collaboration with the Kafalah Program and the Saudi Venture Capital Company.”

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

On the other hand, SVC aims to stimulate and sustain the financing of startups and SMEs from the pre-seed to the pre-IPO phase.

“The Saudi economy is much stronger today thanks to the SME sector, which is growing in a development ecosystem that strengthens the ability of SMEs to overcome challenges,” added Mansour.

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

Regarding the joint financing model, he explained that the SME bank and the partner bank pay funds into a special program portfolio at the partner bank. The partner bank then manages the portfolio, invests these funds and provides financing directly to the companies.

Alternatively, the proxy model works in such a way that the SME bank deposits funds into a special program portfolio on crowdfunding platforms that specialize in debt-based crowdfunding.

The platform then manages the portfolio according to certain terms and conditions and invests these funds by directly financing companies.

In addition, the low-interest lending model will provide liquidity to the non-bank financing sector to improve its ability to provide more credit to SMEs, thereby facilitating their growth and expansion while reducing their financing costs.

Digitalization journey

The acting CEO also pointed out that SME Bank is currently developing a comprehensive digital strategy based on three interconnected pillars, namely financial services, data centers and value-added services.

“The bank offers innovative financing programs through the Funding Portal to help small and medium-sized enterprises (SMEs) achieve their goals and gain easy access to a variety of financing solutions,” he said of digital financial services.

On the other hand, the data center aims to store and provide a full analysis of SMEs’ ​​data supported by artificial intelligence.

Likewise, as part of its value-added services, the Bank will carefully select offers tailored to the non-financial needs of SMEs and work with them through partners.

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

VC investments

The SME Bank CEO also pointed out that the Kingdom will account for 52 percent of total venture capital investments in the Middle East and North Africa in 2023, compared to 31 percent in 2022.

“This is a testament to the strength, resilience and performance of the Saudi economy and its growing attractiveness as an investment destination. Furthermore, this success underscores the modernization and development of the legal and regulatory framework for venture capital investments,” he noted.

In early January, SVC announced that venture capital funding in Saudi Arabia would increase to $1.4 billion in 2023.

Mansour also stressed that the Kingdom’s expansion in the VC sector has significantly strengthened its role as an important member of the G20 and a key player in the global economy.

“In 2018, the Kingdom ranked fourth in the MENA region in terms of venture capital investment value. Today, our beloved nation is the proud leader in the region,” said Mansour.

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