Sama reports a surge in Saudi MSME credit growth, reaching SR307.4 billion, driven by government support and economic diversification efforts

Credit facilities extended to Saudi Arabia’s micro, small, and medium enterprises (MSMEs) experienced remarkable growth of 17.04% year-on-year in the second quarter of 2024, totalling SR307.4 billion ($82 billion), as reported by the Saudi Central Bank (SAMA). This surge in Saudi MSME credit growth aligns with the Kingdom’s Vision 2030 initiative, which aims to diversify the economy by significantly supporting non-oil sectors and enhancing private enterprise.

Of these credit facilities, Saudi banks provided 94 per cent, while finance companies accounted for the remaining 6 per cent. These loans now represent 8.8 per cent of total lending portfolios for banks and 19.5 per cent for finance companies. The government has been urging financial institutions to allocate 20 per cent of their loan portfolios to the MSME sector, signalling its commitment to fostering growth and innovation within this crucial part of the economy.

The MSME sector’s importance has surged in recent years, as reforms have made it easier to invest and start businesses. In 2013, MSMEs accounted for 21 per cent of Saudi Arabia’s gross domestic product (GDP), but under Vision 2030, the aim is to increase this to 35 per cent.

Medium-sized enterprises have received the largest share of these credit facilities, totalling SR167.31 billion or 54 per cent of the total. Small enterprises, which make up 35 per cent of MSME financing, saw a significant 26.84 per cent increase in lending, rising to SR106.39 billion. However, micro-enterprises—though a smaller part of the overall market—experienced the most rapid growth, with credit rising by 45.53 per cent to SR33.7 billion.

Defining MSMEs Micro enterprises in Saudi Arabia are defined as those generating revenues up to SR3 million and employing no more than five people. Small enterprises have revenues between SR3 million and SR40 million and can employ up to 49 workers, while medium enterprises have earnings ranging from SR40 million to SR200 million and can employ between 50 and 249 individuals.

The growth in lending to these businesses is part of the Kingdom’s broader push to diversify its economy away from oil dependency. Demand is rising in sectors such as entertainment, hospitality, sports, and retail—industries that are being driven by a young, dynamic consumer base. The expansion of MSMEs into these areas is seen as critical to creating jobs, stimulating innovation, and securing Saudi Arabia’s economic future.

Government Support and Programmes Key to this growth is the government’s active support for the MSME sector, particularly through initiatives like the Kafalah programme, which provides financial backing to small businesses. This programme has been instrumental in empowering enterprises in the non-oil sectors by offering guarantees that encourage banks and finance companies to extend more credit to smaller businesses.

Monsha’at, the General Authority for Small and Medium Enterprises, plays a pivotal role in enhancing access to finance, promoting entrepreneurship, and supporting the growth of MSMEs. It facilitates funding through partnerships with financial institutions and initiatives like Kafalah. Moreover, Monsha’at focuses on upskilling businesses through training programmes and advocating for regulatory reforms that improve the business environment.

In the second quarter of 2024, Saudi Arabia saw a 78 per cent year-on-year surge in commercial registrations, totalling 121,521, with female-owned businesses making up 45 per cent of this figure. This rise in registrations highlights the crucial role the private sector plays in driving the Kingdom’s economy, with many of these new businesses falling under the MSME category.

The report also revealed a 4.3 per cent increase in new commercial registrations compared to the first quarter of 2024, further demonstrating sustained growth across various sectors.

Regional Growth and Fintech’s Role Riyadh leads the way in terms of active business registrations, accounting for 32 per cent, or 482,690 registrations. Makkah follows with 23 per cent (342,840), the Eastern Province with 235,606, and other regions collectively totalling 457,520.

The financial technology (fintech) sector has played a crucial role in enabling MSME growth, enhancing both access to finance and business sustainability. Joint initiatives by SAMA and the Capital Market Authority have fostered a vibrant fintech ecosystem, resulting in the launch of innovative services that support businesses.

A key milestone in the sector was the Kingdom’s first fintech Initial Public Offering (IPO) for Rasan in May, which attracted significant investor interest. As of the end of 2023, there were 216 active fintech companies in Saudi Arabia, employing over 6,500 skilled professionals. Venture capital investment in fintech has also been robust, with over $1.84 billion flowing into the sector.

The Fintech Lab, established by SAMA, has emerged as a major driver of this growth. It provides a regulatory sandbox for entrepreneurs and startups to test and develop new products, contributing to the emergence of innovative business models. Fintech companies are also making a substantial impact on job creation, particularly in sectors such as finance, technology, and business services.

Looking Forward Looking ahead, the Open Banking Lab, set to launch in 2024, will create an environment for collaboration between banks and startups, promoting innovation in financial services. Additionally, the Financial Academy will continue to offer training to entrepreneurs and SMEs, ensuring they are equipped with the skills needed to navigate the changing business landscape.

Meanwhile, the Makken Programme will remain a key initiative, easing regulatory and technological compliance costs for startups, and ensuring that Saudi Arabia’s MSME landscape continues to thrive. As the Kingdom marches towards its Vision 2030 goals, MSMEs are set to remain at the forefront of this economic transformation.