Another shot of funding for SMEs
We at BMG Financial Group deal with family businesses almost on a daily basis. Those families, who own and manage small and medium-sized enterprises (SMEs), face the critical decision of funding for growth and survival. Funding can be achieved through either public offering and listing, private offering by inviting value-added strategic investors, or securing loans from local banks or from government-backed financial institutions.
We all know that SMEs are the backbone of any economy, including that of Saudi Arabia. Under Saudi Vision 2030, the Kingdom aims to raise the contribution of SMEs to 35 percent of gross domestic product (GDP) by facilitating their access to funding and encouraging financial institutions to allocate up to 20 percent of overall loans to them from the current 5 percent.
In the past few years, the Saudi government has launched several initiatives to support SMEs, including the creation of the General Authority for SMEs (Monsha’at), which aims to increase the contribution of SMEs in the economy.
Also, the government, through the Public Investment Fund (PIF), has supported SMEs by setting up a SR4 billion ($1.07 billion) fund to provide SMEs with access to capital. This "Fund of Funds," as it is known, will invest in venture capital and private equity funds targeting the SME sector.
Last week, the government approved the creation of a bank dedicated to SMEs, which aims to provide all types of financing solutions under one umbrella to enable SMEs to access appropriate financing and achieve stability and growth.
The bank will provide its services in a digital form without the need to establish branches, which will contribute to the delivery of services to all promising regions, and focuses on applying international best practices in cooperation with international and local partners to build a portfolio of appropriate products for each segment of small and medium enterprises.
Despite these government initiatives, we are still witnessing SMEs who close their businesses for lack of funding. Unfortunately, a large number of families who own SMEs still rely only on commercial banks to secure their funding requirements, without consulting financial advisers to explore other avenues. Once these SMEs reach overleveraged status, commercial banks started to wave red flags, with the threat to pull the plug on them.
We do not have many details about the new SME bank yet, but it is expected to be a big shot in SMEs’ arms for a speedy and sustainable funding. With its planned digital platform and online access, it will be accessible to a large number of SMEs across the country, especially in small cities and remote areas.
• Basil M.K. Al-Ghalayini is the chairman and CEO of BMG Financial Group