Kafalah program is dedicated to facilitating a bigger role for small and medium-sized enterprises

Sme milestone

Officials of Saudi banks, collaborating with the Kafalah program, confirmed their strong commitment to empowe small and medium-sized enterprises and facilitating their success at a press conference. — Courtesy photo

THE amount of funds granted by banks and guaranteed by the Kafalah program for small and medium-sized enterprises has exceeded SR21 billion since the inception of the program in 2006 until the end of 2017.

The Saudi banks collaborating with the program confirmed their strong commitment to empowering small and medium-sized enterprises and facilitating their success, thereby contributing to the national economy. One of the goals of Vision 2030 is to raise the GDP contribution of SMEs in the Kingdom from 20% to 35%.

Over the course of the past 12 years, more than 10,000 small and medium-sized enterprises benefitted from funding by participating banks — Saudi banks as well as Emirates NBD — with a cumulative annual growth rate of 42.7%. In 2017 alone, the number of small and medium-sized companies participating in Kafalah reached 1,793, an increase of 4.9% as compared to 2016.

The Kafalah program aims to overcome an obstacle often faced by SMEs, namely the inability to access adequate funding or to provide the required bank guarantees. Addressing this crucial topic, the program was established to cover the risk of the bank in case of failure of the enterprise. It guarantees the financing or part thereof and encourages banks to provide funding to small and medium-sized companies that have a convincing business strategy and promising outlook.

Homam Hashem, chief executive officer at Kafalah, highlighted that the success of the Kafalah program has brought forward more than 10,000 success stories covering a wide range of industries and sectors and also contributed to the commercial objectives of the participating banks.

Hashem underlined that Kafalah is one of the leading national programs that have achieved many milestones since inception in late 2006. In the first year of its existence, the program provided 51 bank guarantees for 36 companies. These numbers as well as that of participating SMEs continuously multiplied until the program achieved the ambitious objectives of its ten-year strategic plan ahead of schedule. Adding that the program has undergone substantial developments in its policies and procedures, Hashem also reflected on the ever-evolving requirements of the SME sector that need to be met in order to enable the companies to contribute to the economic and social development of the Kingdom.

A main driver of Kafalah’s progress, according to Hashem, has been the provision of its services to a broader set of beneficiaries once it became clear that the need for support is much greater than initially anticipated. The program has also continuously expanded and strengthened its relationships with banks and other third parties. In 2009, the guarantee rate increased from 50% to 75% of the financing provided to the respective company. Two years later, Kafalah’s guarantee rate was raised to 80% of the financing value. Around the same time, the program increased the maximum annual funding value from SR20 to 30 million.

Hashem added that the services of the program are being expanded, aiming to further increase the number of beneficiaries. The issuance of a royal decree to assigning an amount of SR800 million to drive the growth of the private sector is expected to make a major positive impact in this regard. Through the launch of new products, Kafalah seeks to stimulate the financing of SMEs in line with the Kingdom’s Vision 2030.

Kafalah’s CEO said that the program — in partnership with the Saudi Commission for Tourism and National Heritage — has developed products suitable for the tourism sector and is cooperating with the Small and Medium Enterprises General Authority to develop products for emerging sectors in order to motivate financing entities to increase the volume of funding directed to these sectors. He added that the program also seeks to provide incentives to the funding agencies to finance projects for businesswomen and less benefited areas.

"From a modest start in its first year, when Saudi banks provided SR22 million in financing to 36 small and medium enterprises, today Kafalah is well positioned as a pioneering program which will contribute to achieving one of the most important objectives of the Kingdom's Vision 2030, which is raising the contribution of small and medium enterprises in the Kingdom's GDP from 20% to 35%," said Talat Hafiz, secretary general, Media and Banking Awareness Committee and Spokesman of Saudi Banks.

The steady increase in the number and value of guarantees and the high demand by participating banks showcases the success of the forward-thinking concept of the program, with the main objective being the development of this crucial sector of the local economy in lockstep with many developed nations such as the United States of America and the European Union.

Hafiz concluded by expressing his gratitude to the banks that have been cooperating with the Kafalah program to contribute to the development of the SME sector. One important step was the establishment of specialized and independent departments and units at the banks to evaluate applications and grant financing for small and medium-sized companies. The strong track record of the program has paved the way for rapid growth of SMEs in the Kingdom. — SG