SME Financing Moves to the Core of Saudi Arabia’s Non-Oil Economy

A night view of Riyadh, Saudi Arabia (SPA file)
A night view of Riyadh, Saudi Arabia (SPA file)
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SME Financing Moves to the Core of Saudi Arabia’s Non-Oil Economy

A night view of Riyadh, Saudi Arabia (SPA file)
A night view of Riyadh, Saudi Arabia (SPA file)

In a sign of a deep shift in the structure of financing within Saudi Arabia’s economy, and reflecting the goals of Vision 2030 to diversify the production base, credit facilities extended to micro, small and medium-sized enterprises reached a record high at the end of 2025.

Banks and finance companies injected around SAR 467.7 billion ($124.5 billion) into the sector last year, marking a 33 percent annual increase. The surge highlights the transition of these enterprises from the margins of economic activity to the center, positioning them as a key driver of non-oil growth and job creation.

On a yearly basis, total facilities rose 33 percent from about SAR 351.7 billion ($93.6 billion) in 2024, according to monthly bulletin data from the Saudi Central Bank (SAMA).

The banking sector accounted for the largest share, with facilities provided by banks reaching approximately SAR 446.6 billion, up 34 percent year on year. Finance companies contributed around SAR 21.1 billion, an annual increase of 15.4 percent.

By enterprise size, growth rates varied. Lending to medium-sized firms rose 18 percent year on year to SAR 220.9 billion. Small enterprises recorded stronger growth of 34 percent, reaching SAR 163.5 billion. Micro-enterprises saw the sharpest increase, with facilities surging 97 percent to SAR 83.3 billion, underscoring a notable expansion in financing to this segment.

Structural shift

The strong growth has been driven by several factors, most notably the clear strategic direction under Vision 2030, which places SMEs at the heart of economic diversification, along with the expanding role of institutions supporting the sector.

Among these is Monsha’at, which has helped improve the business environment and connect enterprises with funding sources, according to economist Hussein Al-Attas.

“This level of facilities is not just a record figure. It reflects a structural shift in the philosophy of financing within the Saudi economy,” Al-Attas told Asharq Al-Awsat.

He identified four main drivers behind the growth: a clear economic vision, a stronger regulatory environment, the expansion of credit guarantee programs, and a shift in how banks view the SME sector.

The Kafalah program has been particularly important, helping reduce lending risks and enabling banks to increase exposure to SMEs. This has coincided with improvements in financial data quality and governance practices, which have strengthened lenders’ confidence in the sector.

Sustainable growth

Al-Attas said the current trend reflects not a temporary expansion in credit but a redefinition of the role of SMEs in the economy, with growth expected to continue over the medium term.

However, he pointed to several challenges that could affect the pace of expansion. These include limited managerial expertise in some firms, the risk of defaults if financing is poorly managed, concentration of lending in specific sectors, and the potential impact of future interest rate increases.

Authorities are aware of these risks. This is reflected in a growing focus on improving governance, strengthening management efficiency, and linking financing more closely to actual operating performance to ensure funds are directed toward sustainable and productive activities.

The importance of this expansion extends beyond the headline figures. It supports a higher contribution of SMEs to non-oil GDP and plays a central role in job creation, given the sector’s labor-intensive nature.

According to Al-Attas, the growth also strengthens economic diversification by supporting the entry of new firms into promising sectors such as technology, industry, and services. It also increases local value added and reduces reliance on imports and large corporations.

Looking ahead, he expects financing growth to continue at a healthy pace over the next three to five years. This outlook is supported by the expansion of digital financing solutions, continued integration between government and banking sectors, and improving market maturity and enterprise quality. Large-scale projects and non-oil expansion are also expected to create new financing opportunities, gradually shifting the focus from the volume of funding to the quality of its economic impact.

Digital transformation

Mohammed Al-Farraj, senior head of asset management at Arbah Capital, said the development reflects alignment between ambitious government policies aimed at raising SMEs’ contribution to GDP to 35 percent and a responsive banking sector that has led the growth and captured the largest share of financing.

He noted that guarantee and incentive programs, as well as the SME Bank, have played a key role in reducing credit risks and boosting banks’ willingness to lend.

Digital transformation and the rise of fintech companies have also marked a turning point by improving access to financing and lowering operating costs. This has created a more flexible and attractive environment for business growth beyond traditional constraints.

Despite these positive indicators, Al-Farraj cautioned that rapid expansion requires strategic vigilance, particularly regarding credit risks and potential defaults amid interest rate volatility and increased competition in sectors such as retail.

He continued that the next phase will require a shift from quantitative growth, focused on expanding financing volumes, to qualitative growth that emphasizes credit quality, project sustainability, and resilience to economic changes.

Alternative financing tools such as venture capital are expected to play a growing role. These tools can ease pressure on bank balance sheets while directing funding toward strategic sectors including technology, tourism, and industry to ensure meaningful value creation in the national economy.

Developments seen in 2026 suggest early returns from this expansion. These include the emergence of a new generation of high-growth firms, increased SME contribution to non-oil exports, and greater use of instruments such as sukuk tailored for SMEs as a cost-effective long-term financing option.

Al-Faraj said SMEs are no longer a peripheral segment but a central driver of innovation and growth in Saudi Arabia’s economy. Sustaining this momentum will require continued regulatory development and more flexible repayment mechanisms to ensure durable growth aligned with long-term economic development goals.



Fitch Keeps Qatar at 'AA'

The skyline of illuminated high-rise buildings is seen along the Corniche Promenade in Doha on September 4, 2026. (AFP)
The skyline of illuminated high-rise buildings is seen along the Corniche Promenade in Doha on September 4, 2026. (AFP)
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Fitch Keeps Qatar at 'AA'

The skyline of illuminated high-rise buildings is seen along the Corniche Promenade in Doha on September 4, 2026. (AFP)
The skyline of illuminated high-rise buildings is seen along the Corniche Promenade in Doha on September 4, 2026. (AFP)

Global ratings ‌agency Fitch removed Qatar from "Rating Watch Negative" and maintained its sovereign rating at "AA" on Friday, citing reduced risks to its LNG facilities since March.

However, the agency kept Qatar's outlook at "negative", citing lingering risks from the disruption of LNG exports through the Strait of Hormuz.

"The impact of the war on the credit profile will take longer to discern," the ⁠agency said in a statement.

One of ‌the world's largest liquefied natural gas exporters, Qatar ‌has been dealing with disruptions ‌to exports through the Strait of Hormuz and shortages linked to damage at energy facilities.

The affirmation comes months after Fitch ‌warned of a downgrade of the Qatar sovereign as concerns about ⁠the ⁠security and economic fallout from the Iran war intensified.

Peers S&P and Moody's had also affirmed Qatar earlier this year, saying the country's "sizable" fiscal profile cushions the impact of the US-Israeli war on Iran.


Jeddah to Host Saudi Industry Forum 2026 from September 14 to 16

A view of Jeddah, Saudi Arabia. (SPA)
A view of Jeddah, Saudi Arabia. (SPA)
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Jeddah to Host Saudi Industry Forum 2026 from September 14 to 16

A view of Jeddah, Saudi Arabia. (SPA)
A view of Jeddah, Saudi Arabia. (SPA)

Under the patronage of Advisor to the Custodian of the Two Holy Mosques and Governor of Makkah Region Prince Khalid bin Faisal bin Abdulaziz, Jeddah will host the second edition of the Saudi Industry Forum 2026 from September 14 to 16 at Jeddah Superdome, reported the Saudi Press Agency on Friday.

The forum is organized by the Federation of Saudi Chambers of Commerce, represented by the National Committee of Industry, in cooperation with the Jeddah Chamber.

The forum is held in strategic partnership with the Ministry of Industry and Mineral Resources and its ecosystem, with the participation of several government entities, national companies, universities, academic institutions, and research centers, as well as prominent leaders, officials, experts, and specialists from within and outside the Kingdom.

The forum will feature panel discussions and specialized workshops addressing key developments and opportunities in the industrial sector, the future of national industries, the enhancement of supply chains and logistics services, and the development of an integrated industrial base in strategic sectors, particularly the automotive industry, as well as the food and pharmaceutical industries.

The forum will discuss ways to enhance integration between the industrial sector, universities, and research and development centers; align academic and research outputs with the sector's needs; and utilize modern technologies to advance industry. It will also address strengthening local content, increasing the contribution of national enterprises, and highlighting promising investment opportunities.

The forum will witness the signing of several agreements and memoranda of understanding among government and private entities, as well as educational and research institutions, aimed at strengthening partnerships and integration among stakeholders in the industrial ecosystem, stimulating investment, and enhancing the competitiveness of national industry.

The forum comes amid the rapid growth and transformation of the Kingdom's industrial sector and its expanding role in diversifying the economic base, strengthening local content, and attracting investment, in support of the objectives of Saudi Vision 2030.


Norway's Sovereign Fund Proposes Deep Cuts to US Treasury Holdings

A general view of the Norwegian central bank in Oslo, Norway March 6, 2018. Picture taken March 6, 2018. REUTERS/Gwladys Fouche
A general view of the Norwegian central bank in Oslo, Norway March 6, 2018. Picture taken March 6, 2018. REUTERS/Gwladys Fouche
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Norway's Sovereign Fund Proposes Deep Cuts to US Treasury Holdings

A general view of the Norwegian central bank in Oslo, Norway March 6, 2018. Picture taken March 6, 2018. REUTERS/Gwladys Fouche
A general view of the Norwegian central bank in Oslo, Norway March 6, 2018. Picture taken March 6, 2018. REUTERS/Gwladys Fouche

The manager of Norway's $2.3 trillion sovereign wealth fund has proposed significantly cutting its exposure to US Treasuries as part of a wider shake-up of its bond investments to improve returns, according to a letter published this week.

Norges Bank Investment Management has recommended reducing its weighting to government bonds within its benchmark bond index to 50% from 70%, with US Treasuries, the biggest holding, getting the biggest cut, according to the letter.

The changes would mean cutting nearly $80 billion from the fund's current holdings of about $215 billion of US Treasuries as of the end of June, according to Reuters calculations.

Government bond markets have been under pressure recently, with long-term borrowing costs soaring as rising inflation and government debt levels spooked investors.

Norway's sovereign wealth fund, the world's largest, owns on average 1.5% of ⁠all listed companies ⁠globally. Its scale means that portfolio decisions can influence broader market flows. Any cuts to its bond holdings are unlikely to be implemented until several months into 2027 at the earliest.

The letter containing the fund's proposals was sent in response to questions from Norway's finance ministry about the wealth fund's investment strategy for bonds.

Norges Bank IM said it would await the ministry's response, and any changes would be done gradually to limit market impact and transaction costs.

The proposals will form part of recommendations to the ministry in January.

They will be discussed ⁠as part of the fund's annual white paper process next spring, after which the ministry will make a final recommendation to parliament which will then hold a hearing, a Norges Bank IM spokesperson said.

"We recommend that the government subindex of the bond index be reduced from 70% to 50%," Ida Wolden Bache, governor of Norges Bank, and Norges Bank IM CEO Nicolai Tangen wrote in the letter.

"A government share of 50% will be sufficient to cover the liquidity needs, including in periods of turbulence in financial markets."

The fund also proposed considering an increase in investments in unlisted assets in a separate letter, in part as a way to reduce concentration risks that have grown in its equity portfolio amid the boom in the share prices of a handful of US tech companies.

Under its current mandate the fund can own unlisted real estate and renewable energy assets, but it has a lower share of unlisted investments ⁠than comparable funds.

Norges Bank IM said the biggest change to its bond index would be investing in more non-government debt, including mortgage-backed securities, to give it better diversification and exposure to risk premiums.

The spokesperson said total US dollar exposure would remain around 50%, adding: "What changes is the mix inside the dollar market: less US government debt, correspondingly more US mortgage and government-related bonds."

Under the proposals, the bond index weighting to US government bonds would reduce from 34.1% to 21.9%, according to the letter, with the allocation to euro area debt falling more modestly from 16.8% to 14.1%.

The allocation to Japanese government bonds would increase from 4.6% to 7.4%, while the UK allocation would remain unchanged at 4.2%. The fund said the changes would align the index more closely with the broader market weightings.

While US Treasuries exposure would fall, the proposed allocation to US non-government debt would jump from 16.2% to 27.6%, meaning that the overall bond index's weighting to the US dollar would fall only slightly, from 52.9% to 52.5%.

Europe's biggest pension fund, Dutch fund ABP, cut the value of its own US Treasury holdings in the first quarter of this year, Reuters previously reported.