Financing small businesses in Saudi Arabia

The overwhelming dependence of Saudi Arabia on oil exports as the only source of national income has exposed the Kingdom's economy to serious exogenous shocks. In order to reduce the impact of this external disruption, the Government, through successive five-year development plans, established the basic physical infrastructure necessary for developing the real and financial sectors. At the same time, it encouraged the private sector through various incentives to participate in the development process. As government spending started to decline after 1982, the Government urged the private sector to take a more prominent role in the future development process. So as to sustain economic growth. Small businesses, as a large segment of the private sector, can play a significant role in this. This study aims to provide guidelines to assist planners, decision makers and bankers in Saudi Arabia to design a programme which will ensure effective participation of small businesses in the development process. To achieve this goal, the study concentrates on identifying the main obstacles encountered by small businesses in their efforts to finance their projects internally, or to have access to external sources of finance. It also seeks to identify the main constraints that prevent the government credit institutions and commercial banks from providing adequate finance to small businesses. By linking the demand side for finance, represented by small businesses, with the supply side, represented by commercial banks and government credit funds, the gaps in the lending system as a result of the imbalance between these two sides are identified. Options for filling these gaps are then considered.