Transforming SME Support Through Kafalah’s $26.6 Billion Initiative

The Kafalah program aims to provide funding by the end of the year of around SR22 billion to ensure that it is on track to meet its set target

Kafalah is Saudi Arabia’s Small and Medium Enterprises Loan Guarantee Program which is said to have facilitated over SR100 billion ($26.6 billion) in financing guarantees. This was announced at an event that took place in Riyadh.

Since Kafalah was introduced in 2006, the initiative has supported over 23,000 SMEs, helped create approximately 1 million jobs, and established 100 partnerships with public and private organizations through collaboration with a variety of financial institutions, such as the Saudi Central Bank, National Development Fund, and the General Authority for Small and Medium Enterprises.

The figures were revealed at the event held in Riyadh organized by the Kafalah program which is recognized for supporting SMEs by the contribution of financial institutions. The institutions are crucial for economic development under the Saudi Vision 2030.

The CEO of Kafalah, Humam Hashem, highlighted the program’s alignment with Vision 2030 in an interview. The program mainly focuses on sectors such as tourism, entertainment and manufacturing.

“Simultaneously, when we help them, we give them higher exposure. For example, the standard is that we take 80 percent of the risk. This is the ceiling for the regular Kafalah. However, if we are targeting specific sectors, we increase our exposure from 80 to 90 or 95 percent,” he said.

The program also aims at helping SMEs and reducing fees by providing them with better ways to do better business, he added.

The program aims to provide funding by the end of the year of around SR22 billion to ensure that it is on track to meet its set target, noted the CEO of the Kafalah program. He also stated that by next year, the program aims for a minimum of 20% increase from its present year to debut into the market.

In order to support Saudi Arabia’s green initiatives Kafalah is also examining its social, environmental and governance impact.

Stating this as one of their focal points, CEO Hashem said they are hoping to improve their impact and give the green Kafalah. Hashem further explained the program aims at scrutinizing the 17 pillars of ESG to understand and determine which could possibly align with the program.

Hashem additionally stated that Kafalah is working towards improving efficiency in sectors like manufacturing and industrial. The program hopes to achieve the goal of increasing their exposure in these areas.

In his inaugural remarks, Abdul Rahman bin Mansour, the chairman of the Kafalah program, stressed the value of Kafalah Award for Outstanding Performance in promoting cooperation with the SME sector.

The initiative widens the financing access for underserved businesses which significantly contributes to the local economy’s diversification and growth.

Youssef Al-Benyan, Minister of Education and Chairman of the SME Bank, presided over the event, which honored successful partners from both the public and commercial sectors.

The Saudi Central Bank, National Development Fund, and General Authority for Small and Medium Enterprises were all recognised as government institutions.

Other recognised entities included the Tourism Development Fund, SME Bank, and Cultural Development Fund, in addition to the General Authority for Entertainment, Awqaf, and the National Information Technology Program.

The private sector honourees included Riyadh Bank, Arab National Bank, National Commercial Bank, and Bank Albilad, as well as organizations such as Abdul Latif Jameel, Al-Amthal, and Al-Raeda Finance.

To date, the Kafalah initiative has granted 64,494 guarantees worth SR72.5 billion, with the remainder coming from cooperating banks. As a result, 27 medium-sized firms supported by the initiative moved to the parallel market.

Furthermore, 8% of micro-organizations turned into small and medium-sized businesses, while 4% of small businesses grew into medium-sized enterprises.

From 2019 to 2023, Kafalah saw a 166 percent increase in the number of guarantees granted, as well as a reduction in processing time from 48 working days to 36 hours, thanks to artificial intelligence technology.