Saudi Central Bank extends guaranteed financing program for small businesses

The Saudi Central Bank today announced an extension of its Guaranteed Financing Program for small and medium-sized businesses. 

The Central Bank said the program will run for one more year until March 14, 2023. The Saudi financial sector and economy are still suffering from the effects of the COVID-19 pandemic, according to a statement. 

The program is part of the Saudi initiative Kafalah (which means “guarantee” in Arabic) to help small and mid-sized businesses get loans from banks. The reasoning was that smaller enterprises may have difficulties providing sufficient guarantees for repayment to financial institutions. The program guarantees a portion of the funds banks grant to businesses. Kafalah is a partnership between the Saudi Ministry of Finance and private banks, according to the Riyadh-based Al Rajhi Bank. 

To receive funding via the program, businesses’ annual sales cannot exceed 30 million Saudi riyals ($8 million). 

The Guaranteed Financing Program was launched in March 2020 at the start of the coronavirus pandemic. Its financing value to date is more than 30 billion riyals ($8 billion), according to the Central Bank.

The Saudi economy was hit hard by COVID-19, including by the government’s business closures.

The Saudi government deliberately relaxed lending rules to small and medium-sized businesses in response to the virus-related economic downturn. This benefited wealthier citizens more, since Riyadh did not couple it with employment or wage support, Karen Young wrote for Al-Monitor last year. 

Kafalah follows the principles of Islamic financing, which prohibits charging interest.