Saudi banks are making it difficult for startups get off the ground by decreasing loans to new entrepreneurs, according to a Bloomberg report, despite the fact that these loans are backed by a government SME Loan Guarantee Program.
Deema Almashabi writes that entrepreneurs cannot count on receiving necessary startup capital because “banks are not lending to any startups without providing annual financial statements audited by licensed entities in Saudi Arabia,” according to a Saudi entrepreneur.
Bank lending to entrepreneurs has slowed, according to Bloomberg.
The article cites economy expert John Sfakianakis as saying that decreased lending to SMEs “will have a medium- to long-term effect on job creation but the effect isn’t immediate as jobs are also being created for Saudis outside the Kafalah program…Banks could be lending less due to a temporary shift as it’s a buyers market, with more competition and yield compression.”
[Click to read the full report from Bloomberg]
Recently, an official with Saudi Arabia’s National Entrepreneurship Institute said that 84 percent of Saudi entrepreneurs have “succeeded in their business ventures, while only 16 percent failed, a percentage considered very high compared to the international standard,” Arab News reported last month. If that success rate is accurate, much of those success stories are done without private bank financing.
As SUSTG noted in November, the Saudi economy is dominated by large-scale corporations and conglomerates as well as partially state-owned enterprises. Leaders in the Saudi government as well as analysts have long stressed the need for the Kingdom to foster growth of SMEs and new businesses in order to create private sector jobs for Saudis, as well as to compete internationally on technology and other industries. The World Bank’s 2015 Ease of Doing Business Report’s overall rank for Saudi Arabia was 49 out of 189 economies. However, in the sub-category of Starting a Business, Saudi Arabia sunk 11 places this year from 98th overall to 109th.
