Resolving the actual problems of SMEs

Resolving the actual problems of SMEs

In a recent interview with Okaz newspaper, Talat Hafiz, secretary general of the Media and Banking Awareness Committee for Saudi Banks, estimated that the volume of financing provided to the small and medium enterprises (SMEs) sector was over SR71 billion, which is equivalent to five percent of the total volume of financing extended to the private sector.

He emphasized that the SME’s stake in the financial portfolio of Saudi banks has doubled over the last two years, with an increase from two percent to five percent, and this is an unprecedented growth rate and more than is targeted by the Kingdom’s National Transformation Program 2020. The program envisages activating the role of banks in stimulating the growth of this vital sector and raising its contribution to the gross domestic product (GDP) from 20 percent to 35 percent in line with Vision 2030.

He pointed out that banks have confirmed their role as a major player and a key supporter to ensure the development and stimulation of the SME sector on several tracks. Banks are a major partner in supporting these firms with their SMEs Loan Guarantee Program (Kafalah), which was launched in 2006 in partnership with the Saudi government represented by the Ministry of Finance with capital of SR200 million. Saudi local banks have a stake of five percent in the program.

Kafalah was able to achieve its ten-year strategic plan in only seven years. The amount of credit facilities provided by the local banks participating in the program since its creation till the end of last year was more than SR25 billion. The number of SMEs that benefited from banking credit facilities and guarantees reached 11,912.

Hafiz said that the Kafalah Program was not the only financing channel on which banks rely to support SMEs. Banks have specialized units supported by qualified Saudi staff. Under the umbrella of these units, a series of programs are offered by each bank as (direct and indirect) financing products in addition to consulting services, administrative support and training programs.

Speaking about the customer response to the awareness campaigns launched by Saudi banks, in partnership with the Kafalah Program, to encourage young Saudi men and women to benefit from credit facilities and guarantees, and the impact of these campaigns over the past years, Hafiz emphasized that there was a growing response to the program. This was evident from the steady increase in the number of enterprises that are being benefited by the program.

Hafiz painted a beautiful picture of SMEs that witnessed growth by benefiting from banking credit facilities. But he did not mention the problems facing some enterprises that are small both in size and capital. These enterprises suffer more from administrative and related issues than from funding issues, especially issues related to the Nitaqat Saudization program being implemented by the Ministry of Labor as well as the levies imposed on foreign workers. This has resulted in the final exit of many foreign workers and that has caused a disruption in the functioning of these establishments or shops mainly because of the inability of their owners to find qualified Saudis who are ready to work in the morning and evening shifts. Moreover, the Ministry of Labor carries out inspection raids on these premises. If the inspectors fail to find Saudis who are running the shops, the owners will be given hefty fines that tend to cripple them.

One trader, who owns a carpet shop, said that he had signed contracts to hire young Saudis on a monthly salary of less than SR4,000. However, they all opted to leave the job after one week or ten days, forcing the shop owner either to sit in the shop by himself or to shut it down.

The owner of an eyeglasses outlet had a similar complaint. The shop owner said that he finds it very difficult to find any Saudi employee who will sit in the shop. Though he was successful in hiring more than one Saudi to work, they did not come to work on a permanent basis. Some of them worked for one week while others remained for ten days and then decided to leave the job, citing reasons and excuses that were clearly not true. Their main argument was that the two-shift job did not suit them. This forces the owner to stay in the shop so as to avoid penalties that might be imposed by Ministry of Labor inspectors due to the absence of any Saudi employees. He claimed that the inspectors often take punitive measures without seeking any clarification or review of the case.

The third case was that of a printing press owner, who said: “I was fed up with searching for a Saudi who has some proficiency in printing work. I was even forced to consider one who has at least the desire to work in a printing press even though he does not have any proficiency or experience in the printing press field.”

These are three examples of the situation faced by those SMEs whose real problems do not involve financial issues. They have some potential problems, and I think Hafiz knows about them. Perhaps he is working to resolve or mitigate some of these problems so that owners of such small enterprises will not resort to closing their businesses.

Dr. Ali Al-Ghamdi is a former Saudi diplomat who specializes in Southeast Asian affairs. He can be reached at