The credit crisis has led to a drastic decline in the volume of cash inflows to projects — also the emergence of strict banking conditions have paralyzed many projects.
The crisis has also resulted in reducing growth rates, highlighting a serious decline in the levels of the GDP.
Serious attempts have been made through conferences, symposiums, seminars, and discussions in the media to understand the reasons why banks have introduced such stringent conditions.
They attempted to analyze this phenomenon and address the various obstacles especially in the light of massive government support for investment, as well as government intervention to help the settlement of most unresolved issues between banks and investors.
Banks have been mostly accused of playing too cautious and the fact that they need sufficient and reliable guarantees before any loans are considered.
This has led investors to accuse banks of lacking the vision to differentiate between a potential opportunity and a real risk, resulting in a decline in investment portfolios and a dearth of profits that did not make their way into the accounts of their executive directors.
"The condition that there must be a guarantee means that banks do not want to engage in any risk. But at the same time they waste several opportunities,” says economic and financial analyst Omar Al-Juraifani.
He added: “Meanwhile, the solution to this problem lies in adopting something like a guarantee scheme. Banks need a large number of employees trained in analyzing risks and assessing opportunities. Banks need to take a bit of risk and make up for it by raising the interest rate on this loan. This is first. Second, banks should manage an entire guarantee program and the government should allow the taking of medium risks."
Al-Juraifani is a financial advisor for leading investment projects in the GCC
He also said: "As for the weakness of the credit system, we know that the monetary institution has taken positive steps to establish a credit register for clients. What's more important is that there should be a credit rating for medium and small-sized companies. The company interested in obtaining a credit rating should disclose its financial data by giving a certain authority or a department affiliated to the monetary body access to all its financial statements round the clock.”
In other words, he says the financial and accounting system should be directly connected with the monetary institution. This will ensure companies' high transparency and help reduce manipulation in financial statements.
"Finding solutions to the problem of the weakness of the creditors' rights must come through the judiciary system. The judiciary need commercial courts to be run by judges specialized in the finance and business field and solely dedicated to look into creditors' rights related cases. The monetary institution should also give way to new banks with a new thought and new banking products. For example, Islamic banks have many untapped products,” said Al-Juraifani.
“There should also be an initiative to set up bold capital funds, where each bank is forced to set up at least one fund. The monetary institution is required to support the bank which earns good profits and a higher participation rate with important incentives, such as allowing it to obtain lower interest rates than other banks and so on," said Al-Juraifani.
Many financial analysts recommend that it's important to set up a stock market for small and medium-sized companies.
This simply means that anyone interested in setting up a company and could not get finance from banks, can get the money by offering stakes in the new company for sale. This helps sort out the problem of corporate assessment and legal problems concerning stakes.
The most important condition that should be taken into consideration is preventing speculation on shares.
In the Saudi market alone, there are 833,000 businesses counted as small and medium-sized projects, according to local sources.
And the loans provided by the banks for them are no more than 2 percent of the total loans offered to the business sector, according to a report by the International Financial Corporation.
This clearly means that 833,000 establishments share 2 percent of the total loans in the Kingdom, while it was announced that the accumulated cash in Saudi banks reached $18 billion that belong to women account holders in 2011, let alone the men.
It is important to note that the UAE comes first among the GCC countries in the area of providing banking facilities.
They reached 4 percent of the total loans provided.
Meanwhile, Qatar reported 0.5 percent, while Saudi Arabia, Oman and Kuwait had a lending rate of 2 percent. Bahrain had 1 percent, according to the World Bank report for 2011.
