Abu Dhabi to expand office space as occupancy rates surpass 95% due to hedge funds 

RIYADH: Saudi Arabia’s SME Bank disbursed SR 1 billion ($267 million) between its launch in December 2022 and January this year, latest figures show.

Official data from the Royal Fund for National Development points out that the bank introduced five new financial products for small and medium-sized enterprises in 2023 – microloans, working capital loans, fixed-term loans, commercial loans and revolving limit loans.

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

“Saudi Arabia’s leadership recognizes the vital role played by small and medium-sized businesses, as they account for 99 percent of the Kingdom’s business.” Various initiatives have been launched to further catalyze their growth,” said Abdulrahman bin Mohammed bin Mansour, Acting CEO of MSP Bank.

In order to strengthen this segment, in February 2021, the Government of the Kingdom established the MSP Bank, which is affiliated with the NDF, which began operations the following year. The financial institution works to strengthen the sector of small and medium-sized enterprises as a cornerstone of economic development in the Kingdom and as a catalyst for achieving the goals set forth in Vision 2030.

The General Administration for Small and Medium 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.

Support for entrepreneurship

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

“The NDF coordinates and integrates the operations of its affiliated funds and banks related to medium and long-term development financing needs to improve their efficiency and financial sustainability. This is in line with the Fund’s broader objective to encourage and motivate entrepreneurship,” the report states.

According to Mansoor, MSP Bank plays a key role in addressing challenges in the sector which include lack of financial products.

“The market is large, with over 1.4 million small and medium enterprises. “Providing appropriate financing solutions for these businesses is essential to help them scale,” he added.

The acting CEO added: “MSP Bank is emerging as a key player in bridging the financial gap, facing existing challenges and solving them through comprehensive financing and investment solutions in cooperation with the Kafalah Program and the Saudi Venture Capital Company.”

The Kafalah program aims to help small and medium-sized enterprises in obtaining the necessary financial resources for the development and expansion of their activities.

On the other hand, SVC aims to stimulate and sustain financing of startups and SMEs from pre-seed to pre-initial public offering stage.

“The Saudi economy is now much stronger because of the SME sector, which is growing within a development ecosystem that improves the ability of SMEs to withstand challenges,” Mansour added.

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

Regarding the joint financing model, he explained that it is about funds that MSP Bank and the partner bank deposit in a dedicated program portfolio with the partner bank. The partner bank then manages the portfolio, invests these funds and provides financing directly to these businesses.

Alternatively, the proxy model works by having the SME bank deposit funds into a dedicated program portfolio on crowdfunding platforms specialized in debt-based crowdfunding.

The platform then manages the portfolio according to specific conditions, investing these funds by directly financing the company.

Furthermore, in the low-cost loan model, liquidity is provided to the non-banking financial sector to improve its capacity to lend more to SMEs, thereby facilitating their growth and expansion and reducing their financing costs.

A journey through digitization

The acting CEO further noted that MSP Bank is currently developing a comprehensive digital strategy, targeting three interrelated pillars that include financial services, data centers and value-added services.

“The bank provides innovative funding programs through funding portals to help SMEs achieve their goals and easily access various funding solutions,” he said of digital financial services.

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

Similarly, through value-added services, the bank will carefully select offers that meet the non-financial needs of SMEs and collaborate with them through partners.

“The (digital) strategy is still under development, with the goal of building an innovative business model that helps us achieve our goals in a faster, more efficient and affordable way,” Mansoor said.

VC investments

The CEO of MSP Bank further pointed out that the Kingdom has a 52 percent share of total venture capital investments in the Middle East and North Africa region in 2023, compared to 31 percent in 2022.

“This is a testament to the strength, resilience and efficiency of the Saudi economy and its growing investment appeal.” Moreover, this achievement highlights the modernization and development of the legislative and regulatory framework governing venture capital investments,” he pointed out.

Earlier in January, SVC revealed that venture capital funding in Saudi Arabia will grow to $1.4 billion in 2023.

Mansour further emphasized that the Kingdom’s expansion in the VC sector has significantly strengthened its role as a prominent member of the G20 and a key player in the global economy.

“In 2018, the Kingdom ranked fourth in the MENA region by the value of venture capital investments. Today, our beloved nation is proudly leading the region,” said Mansoor.

Leave a Comment