Small loan firms face closure after Nov. 4

Many small- and medium-sized finance and loan firms are likely to disappear from the market after the grace period to rectify their status ends on Nov. 4, according to experts.
These companies have to comply with new funding and other regulations issued by the Saudi Arabian Monetary Agency (SAMA).
Economists quoted by local media said many of these companies would need to merge if they want to continue operating in the market.
SAMA has extended the deadline for companies to comply with the rules from late August to Nov. 4.
An official at the Saudi Credit Bureau (SIMAH) said that it is uncertain how many operators are in the market. However, 48 companies have registered with SIMAH.
“The financial resources of some of these companies and small stores are not known. Some companies have capital of SR10,000 and offer (finance at) installments for clients to the value of SR3 million,” he said.
“These installment firms are incapable of merging, and are expected to be excluded from the market after the new regulations for funding and installment companies take effect,” he said.
Chairman of the funding and installment committee at the Riyadh Chamber of Commerce and Industry Abdullah Al-Sultan said finance companies provide an estimated SR30 billion in funding a year at varying interest rates.
Al-Sultan told local media that 13 of these companies are registered in Riyadh but there is little data about their business activities. “There are no accurate statistics about those who fail to pay back these companies,” he said.
He said SAMA’s new regulations would ensure there is better regulatory control over operators in the market. This is apart from regulations for banks.
Former adviser to the experts committee at the Council of Ministers Asem bin Abdulwahab Al-Eisa said some finance companies had met SAMA requirements and were allowed to continue with financing land and rental deals.
He said SAMA had extended the original deadline from Aug. 22 this year following appeals from companies through various chambers of commerce around the country.
Al-Eisa said the new funding regulations require these finance companies to inform clients about the consequences of nonpayment, withdrawal from contracts and compensation for these companies in the event of early repayment.
He said the regulations define the process of early repayment, especially since banks refuse to accept this from clients. Banks stick to agreements and do not want to forgo the profits from full-term contracts.
According to statistics, Riyadh has 168 financing companies, followed by Jeddah with 92 and Dammam with eight companies. Financing for cars and land makes up the largest share in the Saudi market, with demand higher than supply. Finance companies working in the Kingdom have an estimated SR100 billion in investments.