May 15 2012
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Access to liquidity main snag facing Saudi SMEs
"As if on cue, the Purchasing Managers' Index (PMI) unveiled that growth in business activity in Saudi Arabia's non-oil private sector rose to a nine-month high in April 2012," he said.
The SME sector and its role in the overall economy will be under close scrutiny at the upcoming Euromoney Saudi Arabia Conference 2012 to be held in Riyadh on May 22-23, in partnership with the Ministry of Finance.
Key figures from the public and private sector will discuss what policy developments are needed to stimulate growth of the SME sector in order to improve the employment situation in Saudi Arabia, and equally what is the role of multilaterals, private equity and venture capital in aiding growth of SMEs.
The government has undertaken many steps to boost the SME sector including cutting down on the cost and time to set up a business.
Further the plans to establish a General Authority for SMEs is currently under study by the Shoura Council.
Banks said "access to liquidity has been a key issue for SMEs and is one of the main impediments for this segment to flourish. The volume of loans by Saudi banks to the SME sector is less than 4 percent of the GDP and represents 2 percent of total loans. The government tried to tackle that issue by establishing the Kafalah program in association with local banks in order to grant SMEs access to private loans by means of a government guarantee. The program however, has only reached a penetration that is less than 1.5 percent."
The government has set a clear goal to reach 10,000 SMEs through the Kafalah system over the next 10 years. In the period 2006-2010 only 1,113 SMEs have received loans worth $247 million from Saudi banks.
It is expected that more than half of the SME firms will require additional loans ranging between $50,000-$150,000.
Saudi banks could play a vital role in absorbing this demand. With many sectors highly consolidated and most of the largest companies already fully leveraged, banks are left sitting on excess lending capacity that remains underutilized. This in turn depresses profits. Banks are expected to gradually move down the credit ladder to make their money work harder, creating new products aimed specifically at SMEs, Banks further said.
"Access to liquidity is only one of many obstacles the SME sector is confronted. Another is the absence of a regulatory environment that would allow registering of guarantees, application of regulations for those who fail to pay back loans. Other obstacles are the absence of financial statements, skilled manpower and shortage of data on markets. Further, SMEs still continue to lose out in the competition for megaprojects, which are usually awarded to the big contractors and developers."
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