SMEs: Pivotal Role in Boosting Economy
Small and medium-sized enterprises (SMEs) have, for long, been critical drivers of economic growth. They have helped immensely in accelerating economic recoveries in the past. In the creation of jobs and product innovation, these companies play a crucial role. In order to mitigate the impact of the pandemic on SMEs, it is, therefore, necessary to devise a coordinated plan.
The Saudi Arabian Monetary Authority (SAMA) continues its support to private sector expansion and economic growth through multiple strategies, such as the deferred payments program, the loan guarantee program, the funding for lending program, and the support program for points of sale (POS) and e-commerce service fees. All of these have been found to be valuable instruments for mitigating pandemic-related shocks for SMEs by protecting their working capital while ensuring the stability of cash flow and enabling them to grow.
The deferred payments program has benefited micro, small and medium-sized enterprises (MSMEs), and the total amount has exceeded SR79 billion ($21 billion) in deferred payments. In addition, through the lending program, banks and finance companies extended more than 3,000 loans to MSMEs that amounted to more than SR2.5 billion. Moreover, over 1.1 billion POS transactions and 97 million e-transactions were exempted from fees of SR1 billion and SR270 million, respectively. The current SMEs’ finance gap in emerging markets, excluding the informal sector, is estimated to be $5 trillion.
In promoting stronger financial inclusion for SMEs, the Middle East and North Africa (MENA) region faces a major challenge. According to the World Bank, MENA has the largest global finance gap for SMEs, estimated at 84 percent, as a percentage of total financing demand by region. Therefore, better financial inclusion is a prerequisite for unlocking economic opportunities and allowing inclusive and robust development.
Under the Saudi presidency, the G20 has provided a set of policy guidelines that target SME financing gaps by promoting access to digital financial services in an affordable and responsible manner. The “G20 High-Level Policy Guidelines on Digital Financial Inclusion for Youth, Women and SMEs” of the Global Partnership for Financial Inclusion was developed to guide national authorities in their efforts to promote financial inclusion and to use and share the benefits of digitalization and innovation.
The Guidelines point to the need of promoting digital and innovative financing for small and medium-sized enterprises, focusing on building a strong foundation for digital infrastructure, promoting financial literacy, promoting digital capabilities among small and medium-sized enterprises, and building open and competitive markets where partnerships accelerate responsible innovation.
A sustainable solution to the SME finance gap is presented by digital technologies and innovative business models because they allow smaller firms to tap into alternative sources of funding. Promoting digital and innovative financing for small and medium-sized enterprises (SMEs) will also help to build a resilient digital infrastructure supported by regulatory frameworks that can create conditions to serve vulnerable and underserved groups better.
Saudi Arabia has undertaken a plethora of initiatives to increase the share of SMEs in the GDP by 2030 to realize the Vision 2030 plan. The Kingdom will strive to facilitate increased access to finance and to encourage financial institutions to provide SMEs with up to 20 % of total funding by 2030.
Under Vision 2030, the SME Authority, which has recently been set up, plans to thoroughly review laws and regulations, remove barriers, facilitate access to funding, and allow young people and entrepreneurs to market their ideas. Specialized training institutions, additional business incubators, and venture capital funds will continue to be established in the Kingdom. These will help businessmen develop their skills and networks.
To meet the increased demand for fast and innovative digital solutions, digital financial service providers are strongly encouraged. This is crucial for helping smaller businesses overcome the pandemic challenges and for promoting a sustainable and inclusive global recovery that provides new opportunities for employment.