Saudi Kafalah SME financing: Kafalah’s SME Loan Guarantee program creates over 1 million jobs through public and private sector partnerships in line with Saudi Vision 2030

The Kafalah Program, Saudi Arabia’s Small and Medium Enterprises (SMEs) Loan Guarantee initiative, has surpassed $26.6 billion (SR100 billion) in financing guarantees, according to an announcement made during a key event in Riyadh. Launched in 2006, Kafalah has been a significant driver of economic growth, supporting more than 23,000 SMEs and facilitating the creation of 1 million jobs.

In collaboration with institutions such as the Saudi Central Bank, the National Development Fund, and the General Authority for Small and Medium Enterprises (Monsha’at), Kafalah has formed 100 partnerships across public and private sectors, accelerating SME development as part of Saudi Arabia’s Vision 2030 agenda.

At the event, Humam Hashem, CEO of Kafalah, highlighted how the program focuses on supporting key sectors, including tourism, manufacturing, and entertainment, which are vital to economic diversification. “By increasing our exposure in certain industries, we take on more risk — up to 95 per cent in some cases — to provide better opportunities for SMEs,” Hashem explained. He also noted that the program had lowered fees and aimed to provide SR22 billion in funding by the end of 2024, with a planned 20 per cent increase in financing for the following year.

Kafalah is not just focused on economic growth but also on aligning with Saudi Arabia’s environmental, social, and governance (ESG) goals. Hashem stressed that the program is developing a Green Kafalah initiative and working to integrate ESG principles into its framework.

During his speech, Abdul Rahman bin Mansour, Chairman of Kafalah, emphasized the impact of the program on underserved businesses. He stated that the Kafalah Award for Outstanding Performance has been instrumental in fostering collaboration between financial institutions and SMEs, significantly contributing to the Kingdom’s economic growth and diversification efforts.

The event, presided over by Youssef Al-Benyan, Minister of Education and Chairman of the SME Bank, honoured numerous public and private sector entities for their roles in supporting Kafalah’s mission. Recognized institutions included the Tourism Development Fund, SME Bank, and Cultural Development Fund, as well as key private sector players such as Riyad Bank, Arab National Bank, and Abdul Latif Jameel.

To date, Kafalah has issued 64,494 guarantees, totalling SR72.5 billion, and has seen 27 medium-sized enterprises transition to the parallel market. Additionally, 8 per cent of micro-enterprises have grown into SMEs, while 4 per cent of small businesses have expanded into medium-sized enterprises. The program has achieved a 166 per cent increase in guarantees since 2019 while cutting processing time from 48 working days to just 36 hours through the use of artificial intelligence (AI) systems.

A study conducted by King Fahd University of Petroleum and Minerals found that companies supported by Kafalah created 17.3 per cent more jobs compared to similar enterprises receiving traditional financing. As part of its alignment with Vision 2030, Kafalah has contributed an estimated SR27 billion to Saudi Arabia’s economy.

Analysis

Political: The Kafalah Program is a central pillar in Saudi Arabia’s broader Vision 2030 initiative, which seeks to diversify the economy away from oil dependency. By focusing on small and medium-sized enterprises, Kafalah empowers local businesses and strengthens the Kingdom’s economic resilience. Politically, this aligns with Crown Prince Mohammed bin Salman’s vision of economic reform, positioning the Kingdom as a hub for innovation and private sector growth.

The program also illustrates Saudi Arabia’s commitment to economic self-sufficiency and long-term sustainability. By fostering homegrown industries, particularly in sectors such as tourism and entertainment, the country can reduce its reliance on oil exports and build a more diverse economic base. This initiative also strengthens the government’s political legitimacy, as it delivers on its promise to create jobs and support local businesses, which are crucial for maintaining domestic stability.

Social: On a social level, Kafalah’s impact is profound, particularly in addressing unemployment and providing opportunities for young Saudi entrepreneurs. The creation of 1 million jobs is a testament to the program’s success in addressing one of the most pressing social issues in the Kingdom. By supporting SMEs, Kafalah contributes to social mobility and empowers individuals to move beyond traditional career paths, offering opportunities in sectors previously less accessible.

Furthermore, the program reflects a broader cultural shift in Saudi society, where entrepreneurship and innovation are increasingly encouraged. This shift not only diversifies the economy but also helps transform societal norms, encouraging a new generation to contribute to the Kingdom’s modernization efforts.

Gender: Kafalah’s efforts are also aligned with Saudi Arabia’s recent push toward gender inclusivity. By supporting SMEs, the program indirectly helps female entrepreneurs, who are playing a growing role in the Kingdom’s economy. In the past few years, there has been a concerted effort to empower women in business, with more female-owned businesses emerging across sectors like tourism, retail, and entertainment.

The program’s commitment to lowering risk and offering better access to financing could be particularly beneficial for women entrepreneurs, who have historically faced more barriers to entry into the business world. Thus, Kafalah represents an opportunity for women to participate more fully in Saudi Arabia’s economic transformation.

Economic: Economically, Kafalah’s impact cannot be overstated. The program has helped 23,000 SMEs gain access to financing, significantly boosting economic activity and creating jobs. SMEs are the backbone of any economy, and by facilitating their growth, Kafalah ensures a more robust and resilient economic structure.

The program’s focus on key sectors such as manufacturing, tourism, and entertainment aligns perfectly with the goals of Vision 2030. These sectors are less reliant on oil revenues and can generate sustainable income streams, contributing to the Kingdom’s long-term economic stability. Moreover, the Kafalah Program’s ability to increase SME funding by 20 per cent next year signals continued economic growth, with ripple effects that will benefit the entire Saudi economy.

Environmental: Kafalah’s recent focus on developing a Green Kafalah initiative demonstrates its commitment to environmental sustainability. As Saudi Arabia takes steps toward becoming a greener economy, the program will play a pivotal role in facilitating green financing for SMEs. This includes supporting businesses that focus on reducing carbon footprints and implementing environmentally friendly practices.

This commitment is crucial as the world moves toward sustainable development. By aligning its loan guarantee program with Saudi Arabia’s green initiatives, Kafalah can help the Kingdom meet its climate goals while ensuring that SMEs contribute to a greener future.

Technological and Operational: Kafalah’s recent advancements in AI-driven systems have reduced processing times from 48 days to just 36 hours, showcasing the program’s commitment to technological innovation. This efficiency is crucial for SMEs, which often face delays in securing financing. The ability to provide guarantees quickly allows businesses to scale faster and capitalize on market opportunities, driving overall economic growth.