Financial Inclusion for All

How have you advanced in your approach to finance SMEs and entrepreneurs in Saudi Arabia?

SMEs constitute the highest risk of all asset classes. They do not fit into a typical credit profile, and each has its own specific needs. Typically, this is why banks shy away from this asset class as their system and procedures are standardized and the exceptions too costly. Technology is at the forefront of AlRaedah’s business model. AlRaedah invested in bringing an automated machine learning and AI platform into the fold (DataRobot) in 2017. The company is running more than 100 different models, assessing more than 78 data points on each client. This definitely is an advantage compared to our competitors’ manual process, and allows us to identify patterns in the data in minutes. Notably, Alraedah Finance is 100% focused on SME financing, which is an advantage since we are embedded into the SME culture of the country. All the innovations and products we launch are directed toward SMEs, and 100% of our resources are focused on SMEs.

To what extent do you still need to work with the banks?

There will be a need to work with banks for the foreseeable future. Banks keep their distance from most SMEs. We use banks to provide some of the company’s liquidity to fund our current SME portfolio.

What is the basis of your collaboration with Monsha’at?

Monsha’at has many initiatives to support SMEs and start-ups, and the speed and agility with which it has been able to bring these programs into existence are impressive. We are part of one of its programs, which is called the Indirect Lending (IDL) initiative. This program provides liquidity to 15 different financing companies to lend to existing SMEs in the market. There are restrictions on the sectors that are part of the program. The benefit that Alraedah Finance and the other participating companies in the program receive is lower cost of funding. In return for that benefit, there is a limit on the profit rate that we can charge SMEs, so the benefits are mutual. The risk of default remains with the companies, and therefore the qualification conditions are that of the companies that are participating in the program. The companies are obligated to repay the financing facility based on predetermined terms. The program has increased the options that SMEs can get financing through. The increased competition has made it a better environment for SMEs. We are excited to see the launch of other initiatives from Monsha’at in the future.

What are the barriers for entrepreneurs to start a company?

The country and the responsible ministries have made significant progress in a short amount of time to support those interested in starting their own business. We have also seen an increase in venture capital investments in the country and region. Equally important, a growing number of young people are opting to start businesses.

What can be done to increase financial inclusion in the SME sector?

Significant progress has been made in regard to financial inclusion for many different entities in both private and public sectors. In my opinion, specifically for SMEs, ability to get financing comes down to one thing: data. It has gotten better in the past few years with Ebsher, Bayan Credit, and SIMAH increasing the amount of data that is provided. However, the costs of these products to new entrants in the financing market are prohibitive. The next step is to get into the “open Banking” movement, which is a significant step toward financial inclusion. The amount of data that banks hold is tremendous and will open doors for entities to provide products that SMEs require. This will also increase competition among banks, further benefiting SMEs.