Huge opportunities for Banks within the SME sector


Having recognised the role SMEs play in the economic development of the region, banks in Saudi Arabia are continuing to create specialised solutions, offering a wide range of banking and financial services, from bank accounts to loans, with the aim of helping SMEs grow beyond their potential.

The multitude of large hydrocarbon projects in existence have, naturally, dominated the economy until recent years. However, now SMEs in KSA are very much at the core of the economy, accounting for 99 percent of establishments and 62 percent of total employment, according to a report from the Global Competitiveness Forum, meaning it falls in line with the global average of 60-75 percent.

Now, more than ever, banks are looking at SMEs as not only more reliable, but also the most direct route to profit and momentum in the drive to boost the private sector and, more specifically, SME’s in KSA is gathering greater pace. In 2006, the Government laid solid groundwork to help boost the growth of SMEs, launching an SME loan guarantee programme called Kafala. The programme, established through the Saudi Industrial Development Fund, acts as a guarantor to banks providing credit.

Abdullah Marei Bin Mahfouz, board member of the Jeddah Chamber of Commerce and Industry, revealed that thanks to the programme, commercial banks have become more involved with solidity supporting the growth of SMEs.

In addition to the Kafala programme, the banks are offering a whole host of other financial solutions aimed specifically at SMEs. Among them are NCB who offer benefits including same day cash into an account and flexible payback terms of up to 60 months, and Arab National Bank who provide dedicated SME relationship officers, business installment finance and secured overdrafts among their targeted products.

Jon Richards CEO of compareit4me group, who operate finance comparison websites across the Middle East, said: “Cash flow is the life blood for any business and this is particularly true for a small start-up, where revenues are in their infancy and the business requires a lot of investment to grow.” He added: “Given the importance of SMEs in any market, it’s essential the local banks and government support their development and create banking products designed around the needs of start-ups. It’s these businesses that are creating jobs and opportunities, which in turn helps the economy as a whole. So it’s a win-win situation for the banks.”

In economies across the globe, SMEs make significant contributions in areas such as innovation, efficiency, job creation and international competitiveness. Even in mature economies like the US, the impact of SMEs is huge. It was reported that 98 per cent of the 302,000 companies which exported goods in 2011 were SMEs with fewer than 500 employees, while small firms accounted for 63 per cent of the net new jobs created between 1993 and mid-2013.

Currently in the UAE, SMEs contribute an estimated 40-46 per cent of nominal gross domestic product (GDP) in Dubai, and host the majority of employment opportunities in the country, providing an impressive 86 per cent of all private sector employment. Dubai based SMEs represent 95 per cent of all firms, accounting for 42 per cent of the workforce and contributing around 40 percent to the GDP generated.

This is in the most part down to the support of the UAE banks, with many offering a wide range of products and services, including loans and over drafts, trade finance products and foreign exchange solutions.

With the SME sector in KSA already contributing 33 percent to GDP, it’s clear with continued support from the banks, the same impact on the economy is in the foreseeable.

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