The Kafalah program for SMEs
Recently, I was invited to a conference in Riyadh co-organized by the Kafalah program, one of the Ministry of Finance’s initiatives to stimulate the economy.
Small- and medium-sized enterprises (SMEs) are usually unable, in most of their financial transactions with banks, to provide sufficient guarantees to get the desired funding despite their economic feasibility, so the Kafalah program has been created in cooperation with banks operating in the Kingdom. The program guarantees to the banks a proportion of the funding granted to the SMEs — for the purpose of enabling such enterprises to get the funding from the banks, as well as encouraging and urging banks to fund such enterprises after verifying their economic feasibility.
As the backbone of the Saudi economy, one of the main objectives of Vision 2030 is to increase the contribution of SMEs in the private sector to 35 percent of GDP. To achieve that, Kafalah has signed agreements with several major financing institutions, as well as all Saudi and some regional banks.
The name of the program comes from an Arabic word that means a guarantee. The Kafalah program helps entrepreneurs to launch or even expand their businesses. First, they submit a financing request to one of the banks that partners with Kafalah. If the lender needs guarantees to cover the risks associated with lending it can request such a guarantees from the program.
One of its products is designed for startups, offering extended support to build a strategic relationship with the General Authority for Small and Medium Enterprises and to help meet funding needs during early growth.
The Kafalah program is giving special attention to helping women in business. To help achieve Vision 2030’s objective to empower businesswomen and encourage their increased participation in SMEs, the program offers preferential benefits to enterprises that are at least 50 percent owned by women.
The program aims to support all types of businesses in diverse sectors such as tourism, entertainment, manufacturing, services, trading and agriculture.
Wearing my BMG investment banking and financial advisory hat with a certain focus on SMEs owners, the Kafalah program should be a component of the financial engineering of any SME, as well as start-ups. It should be considered especially by SMEs and family business owners who are planning and preparing themselves to be listed on the Nomu market. Not only will Kafalah support their business expansions, it will make their financials healthier due to its low cost.
• Basil M.K. Al-Ghalayini is the Chairman and CEO of BMG Financial Group.