ÂÜÀòÊÓƵ

As ÂÜÀòÊÓƵ advances toward its ambitious Vision 2030 goals, small and medium enterprises have emerged as a pivotal force in driving the Kingdom’s strategy for economic diversification, employment creation, and sustained innovation. 

According to the Monsha’at, ÂÜÀòÊÓƵ recorded nearly 1.6 million registered SMEs by the fourth quarter of 2024 — marking a substantial 67 percent increase from Q3 2024, which demonstrates how rapidly ÂÜÀòÊÓƵ’s SME landscape is growing. 

In 2024, the Kingdom led the Middle East in venture capital funding in the SME sector, securing approximately $750m (SR 2.8 billion), a testament to growing investor confidence in the SME sector. 

Today, SMEs in ÂÜÀòÊÓƵ employ around 7.8 million people and account for nearly 39 percent of the Middle East’s total venture capital investments. 

However, sustaining this momentum requires the expansion of inclusive and innovative financing solutions. One such promising solution is microfinance.

Pathways to growth

Microfinance— broadly defined as providing small-scale, accessible financial services to underserved entrepreneurs and enterprises — has played a transformative role in global development. In the Saudi context and the broader GCC region, microfinance remains in its early stages, but holds untapped potential. 

ÂÜÀòÊÓƵ has one of the world’s highest internet and smartphone penetration rates, strong fintech infrastructure, and a young, digitally savvy population. The conditions are ripe for scalable, technology-enabled microfinance solutions to transform lives and communities more widely and efficiently than ever before.

In this dynamic environment, microfinance can be leveraged as a powerful tool for economic development by providing accessible capital to entrepreneurs and small businesses, often overlooked by traditional banking. It fosters innovation by enabling SMEs to invest in research and development and launch new products and services. As SMEs are major job creators, their growth directly contributes to the creation of employment opportunities, especially for women and youth. 

Microfinance also promotes financial inclusion, empowering underserved individuals and businesses to engage more fully in the economy. Most importantly, it strengthens economic diversification, reducing oil dependency and building a more resilient and sustainable non-oil economy.

Building foundations

Fully unlocking the potential of microfinance in ÂÜÀòÊÓƵ involves overcoming key challenges. Broader financial literacy programs, robust credit bureaus, and efficient asset registries are essential for effective service delivery, trust-building, risk management, and ensuring sustainable, long-term success among SMEs.

Addressing these challenges requires coordinated action among regulators, banks, specialized financial institutions, and innovative stakeholders. Joint efforts are necessary to develop supportive regulatory frameworks, expand financial education initiatives, enhance digital infrastructure, and deliver technology-driven financial products tailored specifically for Saudi entrepreneurs and SMEs.

If these challenges are successfully addressed, ÂÜÀòÊÓƵ’s microfinance sector holds tremendous promise. Advances in digital technology, and the integration of Islamic finance principles into microfinance products provide a foundation for substantial growth and adoption across ÂÜÀòÊÓƵ and the wider GCC.

Microfinance has the potential to reshape ÂÜÀòÊÓƵ’s economic future. By empowering individuals, driving entrepreneurship, promoting social inclusion, and bridging critical funding gaps, it will play a vital role in achieving ÂÜÀòÊÓƵ’s diversification goals and employment targets.

• Dr. Khalid Alsharif is the CEO of Abdul Latif Jameel Finance.