SAUDI ARABIA - Finance
CEO, Kafalah Program
Homam Hashem, joined Kafalah as General Director, as part of the Loan guarantee program in 2017. Homam has over 25 years of experience in the financial sector & financial consulting services. Homam joined Kafalah and worked on restructuring the operations, launching new products, expanding the business network, and empowering the young team in Kafalah. He has a successful tracking record of managing a risky portfolio and converting opportunities to tangible business. Also, he managed areas like consumer financing, SME lending, commercial financing, real-estate mortgagees, credit card, auto-leasing, and digital-transformation projects. He has managed several strategic AI and scoring projects that helped automate the credit decision and published multiple articles on this subject. He has worked as a VISA International risk advisor representing the Middle East and North Africa region.
What is Kafalah Program’s mandate?
Kafalah Program is a program launched by the Saudi government under the Saudi Industrial Development Fund (SIDF) with the contribution of the Saudi banks, the program aims to promote financing to Small and Medium Enterprises (SMEs) within the Kingdom of Saudi Arabia. A fund was set up to help SMEs comprising SAR200 million, of which SAR100 million would be provided by the government. 11 banks participated in the beginning, and now there are 35 members from various financial bodies. In the last year, we supported 14,956 businesses. In 2018, we partnered with different government agencies and expanded our network. This increased our capital to almost SAR1.8 billion. The objective is to help all SMEs within the sector. Simultaneously, we started partnering with different governmental entities, like the Ministry of Tourism, Ministry of culture, national technology development program and increasing our portfolio services. We have grown exponentially; we used to have annual issuance of SAR 840 million a year, while during Pandemic and after we have reached SAR12 billion. The number of employees has also increased by 5-6%. To help the priority set out by Vision 2030 we work to figure out what policies work for our partners to ensure we have a win-win strategy. The financing partner cross references the businesses and evaluates the ones that can receive a loan guarantee program. Then, we do the verification to ensure businesses are solid and the decision is the right one and most importantly the SME has the capability to bay-back it’s obligation. This means we look for areas that need support, such as for example, exporting, manufacturing, supply chain, and socialization.
How did the pandemic impact Kafalah Program?
During the pandemic, people became the top priority. Financial entities and the government decided to provide financial assistance through stocks. We grew our ratio by 60% in 2018 and 2019, and between 2020 and 2021, we jumped above 100%. The reason was the need for SMEs to continue their business and secure jobs and ensure we provide them access. We learnt that we have to respond quickly, communicate with the decision makers, and improve teamwork. The team has to be able to make decisions and execute them. It was challenging, though in the end it helped us grow with businesses with customer and decision maker trust. The total size of lending in the Saudi market grew from 4% to more than 13% during the pandemic. This makes Kafalah the largest lender of SMEs indirectly or directly.
How has Kafalah Program helped SMEs across the different provinces in Saudi Arabia?
Kafalah has supported specific sectors through different products. Under situations where there is lack of financing, Kafalah has reduced its fees by one-third to targeted segments, and that helped financial partners and SMEs to acquire cheaper or lower rates. The program has also supported some less developed cities, as well as enabled access to remote cities by increasing the loan amount. In these cases, access to finance is sometimes higher, up to 60% or 70%. We also developed a special program for women, wherein our fees are reduced by one third. We have another program for E-commerce and online trading SMEs where women receive a further 50% reduction of fees in order to increase their contributions to society.
How has Kafalah Program digitalized its services and leveraged from innovation?
We have developed a platform based on Artificial Intelligent (AI) models that is able to make a decision on the spot. It is a Kafalah tailored SME Scoring model that has been embedded within the digitalized platform for automating the credit decision. We now gather a large amount of information through our platform, such as education, the five Cs of credit, and so on, all of which help us make the right decisions regarding loans amount. The result is that it has enhanced our KYC process by reducing information asymmetry. We are completely paperless and have shortened the time needed to issue a guarantee. We enable swift decision-making, as well as execution of loans. We share our experience and knowledge from our database with every bank /FI , and this data helped them grow their product portfolio. The objective is to build a platform linked to the SME Funding gateway, where we are able to filter or license all SMEs. Specifically, all leads of SME applicants received from the SME Funding Gateway will receive a pre-approved guarantee which enables them for adequate service by FI’s and NBFI’s. We want to be able to evaluate their requests before they contact banks and tell them the amount of loan they will receive. This will also help banks to determine the best moment to help them, under which terms, and at what price.
What is your vision for the medium term until 2030?
We are having a moment of continuous growth. Demand is high, especially because of our young population; there are many business opportunities. We also want to improve our current structure, as we will not be able to serve our customer using our current processes and have to adopt new technology that will help us align with Vision 2030 and serve the new sectors, for example, culture: museums filmmaking and arts, technology AI, software development, cloud hostility, cybersecurity management, and so on. We need the appropriate knowledge for each area. At the moment, we are investing heavily in SMEs in high-tech technology, tourism, culture, and entertainment. We also have a special program for SMEs involved in manufacturing, a supply chain franchising and schooling projects. Our aim is to standardize processes and support women and SMEs in remote areas.
Looking ahead, what are Kafalah program’s goals and priorities for the next six to 12 months?
Our priority is to ensure that what we gained and delivered for SMEs is sustainable. We want SMEs to sustain their businesses. We also need to focus on the value of the amount we are guaranteeing. As a business partner, we have to be sure we are supporting those SMEs that are creating the real value of the economy. As a result, we must focus on micro and small businesses, as medium businesses are able to gain access to lending. When we get a lender, we need to ensure it will add value to the business. During COVID-19, we extended the repayment period and reduced the lending rate. Then, we offered to skip payment for six months. Later, we eliminated their banks and MPFI collateral and waived the administration fee from FI’s and NBFI’s. Finally, we eliminated the administration fee from Kafalah, and the government financing was 95%. This is an overview of how we helped them grow. At this point, more SMEs are looking for assistance from Kafalah.
SAUDI ARABIA - Economy
Chairman of the Board & KSA Country Senior Leader, PwC Middle East
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