Saudi SMEs extend lifeline with borrowing to recover from the pandemic

According to the most recent figures by the Saudi Central Bank, the total amount of credit awarded to SMEs between the first quarter of 2020 and the first quarter of the current year increased by 39.74 percent.

The data showed that in the first quarter of 2021 the total amount of borrowing by SMEs was SR188.42 billion ($50 billion), up from SR134.84 billion in Q1 2020 and SR113.17 billion in Q1 of 2019.

The SAMA data showed that the medium-sized enterprises were the top beneficiaries of the government subsidies and their revenues ranged between SR40 million and SR200 million. Medium enterprises are classed as those with 50-249 employees.

Mohammed Ramady, a London-based independent economist, told Arab News it is not surprising to see a surge in credit provided by both banks and finance companies due to “economic revival in this period, and due to the SMEs sector receiving increased government support through Monshaat (the General Authority for SMEs).”

"SMEs also borrowed to cover some debt during lockdown but more to move on from COVID slowdown and to expand some of their activities such as repairs, food and take aways," he added.

He said the Kingdom is also encouraging micro-financing especially for entrepreneurs in the high-tech sector. The economist expects this trend to continue.

All major economies started with a strong SME base, but some have moved on to empowering this sector by stimulating the commercial banking sector to play an effective lending role.

The government has also introduced several programs that are helping small and medium businesses financially, such as the sponsorship program with banks that provide loans.

Ramady said: “It is a positive picture as compared to a few years ago when the overall percentage of total bank credit facilities was 5.8 percent for the SMEs sector and the share of finance companies was even much smaller (then).”

The report added that the Kingdom saw a 4.4 percent increase in small-sized enterprises compared to Q1 of 2020 and Q1 of 2021. Small companies are classified as those whose revenues do not exceed SR3 million to SR40 million, and the number of employees does not exceed 6 to 40.

SAMA also reported an increase in credit offered by financial companies in the first quarter of 2021 to SR12.97 billion compared to the first quarter of 2020, which totaled SR9.67 billion while the volume of corporate financing in Q3 of 2020 reached SR10.75 billion.

The banking sector, however, awarded the most credit to SMEs amounting to SR164.53 billion.

Total bank credit for the private sector increased to a record amount, SR1.874 trillion in July, SAMA figures show.

This is up by 0.5 percent from June and by 15.7 percent year on year. This was the 25th consecutive month of growth.

Bank lending to the private sector increased for the 12th consecutive month, bringing the total to SR1.945 trillion, up by 15 percent year on year, and by 0.6 percent compared to June.