With the explosion of the Saudi population and with nearly 50 percent of youths knocking on doors after completing their college studies, it seems difficult for any country to accommodate all in government and private sector jobs.
Saudi Arabia is not an exception.
The possible alternative to engage the population is to make them entrepreneurs, maybe small entrepreneurs.
Saudi Arabia has all the resources available to create entrepreneurs.
The country's economy is very strong but still the problem of unemployment persists and the number is increasing every day. As the Kingdom's government has made employment a priority in order to guarantee a standard of living comfortable for all Saudis, still it needs more diversification to create jobs in all sectors.
As microfinance is becoming popular globally, it can also work in Saudi Arabia. Because of the global financial crisis, banks are tightening their strings and are reluctant to make easy loans, particularly small business loans.
The present financial institutions were not designed to help those who don't already have financial assets - they were designed to help those who do.
There is a need to change the banking policies to make microfinance easily available, particularly to the poor who have reasonable collateral. However, the majority of formal banks do not provide microfinance products as microfinance is an expensive enterprise - you can make a lot more money on a large loan than a small loan, and you won't make much money holding savings accounts with very little money in them. Banks can make more money if they only provide financial services to those who already have money.
Though the Saudi government is trying to help poor people through its Saudi Credit Bank and some other agencies, and other organizations are lending their helping hands to the poor and unemployed such as Abdul Latif Jameel's Community Services Program (Bab Rizk) which is doing a tremendous job in creating jobs for men and women in virtually every field. Bab Rizk is also trying to make people self-reliant by helping them set up small businesses.
In Saudi Arabia there is a much scope for microfinance. What is microfinance? It is the supply of loans, savings, and other basic financial services to the poor.
Take example of Bangladesh. Mohammed Yunus, the pioneer in the small-scale loans field, made microfinance so popular that the Nobel Peace Prize committee took note of it. Yunus won the Nobel Peace Prize in 2006 for his bold initiative in microfinance.
The Shoura Council in Saudi Arabia should give attention to this concept because it could change the lives of people.
Microfinance helps very poor households meet basic needs and protect against risks.
If Saudis were provided Shariah-compliant loans for small projects worth from SR5,000 to SR100,000, it would definitely help to improve the standard of living as well as giving a boost to the Saudi economy. It will also help make people self-employed in different fields.
Though microfinance looks small, it would have a great impact on the Kingdom's GDP (gross domestic product).
The use of financial services by low-income households is associated with improvements in household economic welfare and enterprise stability or growth.
It has another advantage also; by supporting women's economic participation, microfinance helps to empower women, thus promoting gender-equality and improving household well-being. In Saudi Arabia already there are many projects which aim at helping women.
Generally microfinance clients are poor and low-income people who do not have access to other formal financial institutions. Microfinance clients are usually self-employed, household-based entrepreneurs.
Their diverse "microenterprises" include small retail shops, street vending, artisanal manufacture, and service provision. In rural areas, microentrepreneurs often have small income-generating activities such as food processing and trade.
Other microfinance services such as savings, insurance and money transfers have developed more recently.
Many countries are concerned about the impact of excessive interest rates, abusive lending practices, and the over-indebtedness of poor borrowers. They have adopted various microfinance schemes which are running successfully. There is a huge potential for developing this concept in Saudi Arabia.
The World Bank estimates that there are now over 7,000 microfinance institutions, serving some 16 million poor people in developing countries. The total cash turnover of MFIs worldwide is estimated at $2.5 billion and the potential for new growth is outstanding.
Having discussed the advantages and the brighter side of microfinance, it should also be noted that microfinance suffers a few disadvantages which can be overcome by carefully mitigating the risks by microfinance institutions. The main problem associated is the credit assessment and rating of the borrower. This can be overcome by educating the borrowers on the importance of meeting the repayment requirements and by developing good credit practices through regular motivational meetings by the lenders. This would ensure repayment compliance by the borrowers to a great extent.
What Yunus, Grameen Bank founder, said is true - "Poverty is not created by the poor. It is created by the structures of society and the policies pursued by society. Change the structure and you will see that the poor change their own lives."
(Faisal H. Alsayrafi ([email protected]), a financial adviser, heads the Financial Transaction House.)
