Micro, small and medium enterprises (MSMEs) in Saudi Arabia have seen a substantial growth in credit facilities in the second quarter of 2024, compared to the same period last year.
A recent report issued by the Saudi Central Bank (SAMA), cited by Arab News, credit facilities to MSMEs increased in Q2 2024 by 17.04%, reaching a total of SAR 307.4bn ($82bn).
Increase in Financing
According to SAMA data, Saudi banks provided 94% of these credit facilities, while finance companies provided the remaining 6%. These credit facilities represented 8.8% of banks’ total lending portfolio and 19% of finance companies’ credit portfolio.
This aligns with the government’s call for financial institutions to allocate 20% of their loan portfolios to the MSMEs sector, emphasizing strong and unwavering support for these enterprises.
MSMEs Definition
Micro enterprises refer to enterprises which gain up to SAR 3mn in revenues with a workforce that does not exceed 5 employees. Small enterprises are those generating revenues ranging from SAR 3mn to SAR 40mn, with a workforce up to 49 employees.
On the other hand, medium enterprises refer to those generating revenues ranging between SAR 40mn and SAR 200mn, with 50 to 249 employees.
Significant Growth
In Q2 2024, medium-sized enterprises were the largest recipient of credit facilities, with a total of 54% or SAR 167.31bn. At the same time, small enterprises saw a rise in credit by 26.84%, reaching a total of SAR 106.39bn during the second quarter of 2024. This accounts for 35% of MSMEs financing, according to Arab News.
Meanwhile, micro enterprises recorded substantial growth, with a 45.53% increase in credit to reach SAR 33.7bn, although it recorded a smaller overall share.
Vision 2030 Reforms
Saudi Arabia is undergoing a massive reform process under the transformative Vision 2030, which aims to diversify the Kingdom’s economy away from oil. As a result, these reforms have facilitated investment and startup procedures, and increased their share in the GDP.
Under Vision 2030, the MSME sector is witnessing a significant growth in lending, due to the rise in demand for private business expansion into several key sectors, including entertainment, hospitality, sports and retail. These industries have a young and aspirational consumer base.
Kafalah Program
The Saudi government has introduced numerous initiatives to support the MSMEs sector, especially in the non-oil sector, by granting financial support and promoting sustainable economic development.
With regards to this, Kafalah Program plays a vital role in empowering MSMEs in Saudi Arabia. In 2023, Kafalah Program provided support for more than 23,000 small and medium enterprises, with over SAR 1bn in loan guarantees. It also provided more than 1 million jobs in the private sector.
Monsha’at Role
The Saudi General Authority for Small and Medium Enterprises (Monsha’at) is a key pillar in advancing the objectives of Vision 2030. It provides a wide range of services for small and medium enterprises, such as upskilling, enablement, financing, business development, franchising, and expansion program.
According to Monsha’at’s SME Monitor Report for the second quarter of 2024, Saudi Arabia experienced a significant growth in commercial registrations in Q2 2024, which surged by 78% compared to the same period last year.
The report noted that 45% of these new registrations went to female-owned businesses, while 38% were for youth-owned businesses, underscoring the Kingdom’s efforts to empower women and youth and increase their participation in the national economy.
The most active regions in new commercial registrations in Q2 2024 were Riyadh with 32% growth, followed by Makkah with 23% growth, and the Eastern Province with 15% increase, while other regions accounted for 30% growth.