Kafalah Program for SMEs in KSA

The Minister of Finance Resolution No. (1166) dated 04/05/1425 AH established the Small and Medium Enterprises Finance Guarantee Program. With the goal of removing the barriers to funding financially feasible small and medium businesses that lack the ability to give the requisite guarantees to the lending institutions.

The program's goal is to help small and medium businesses get the Islamic financing they need to grow and expand their businesses, as well as to inspire financial institutions to work with the sector. It also aims to attract a new segment of small and medium business owners who aren't used to interacting with financing agencies, in order to help the sector grow and develop. Small and medium businesses will play an essential role in the economy by contributing to the creation of new jobs and the development of the least economically productive governorates.

The Kafalah Initiative for Funding Small and Medium Scale enterprises has been one of the Kingdom's national programs dedicated to helping the small and medium business sector, and we are proud to be a part of the Kafalah Program's efforts to increase the contribution of small and medium businesses to GDP from 20% to 35% by 2030, as outlined in the Kingdom's Vision 2030.

It aspires to become the Kingdom's top Kafalah programme in the field of funding risk insurance, as well as one of the region's largest financial risk guarantee programs.

It aims to organize and enable access to necessary financing for small and medium-sized business owners from financial institutions and other funding authorities, regardless of the typical guarantee benchmark, and to provide high-quality and efficient products and services that meet the necessities of the small and medium scale business sector in all sectors and across the Kingdom.

History of Kafalah

In implementation of the Royal Decree No. (7/B/510) dated 23/01/1422 AH to approve the concept to establish an incorporated scheme involved with activating the function of small and medium organizations due to their effective outcomes at the financial and social levels, the Minister of Finance issued Resolution No. (1166) dated 04/05/1425 AH to approve the regulatory guidelines for the Small and Medium Enterprises Finance Guarantee Program, mandating the Saudi Industrial Development Fund can be accountable for dealing with this strategy, as a joint improvement initiative among the Ministry of Finance and the financial authorities. The program tries to eliminate barriers to finance small and medium businesses that have the necessary ingredients for success but lack the necessary safeguards to obtain financing by covering a proportion of the financier's risks in the event that the assured activity declined to pay the funding or a portion of it, as well as encouraging banking institutions to finance these types of businesses.

Ideas and Ambitions

  • Raising the ceiling on the total value of guarantees issued to a single activity, an individual institution, and businesses.
  • Providing advantages and favorable treatment to women's initiatives and promising regions.
  • Providing a competitive guarantee solution to tourism infrastructure with higher detection rates and competitive terms and benefits
  • Providing new firms with competitive advantages over existing enterprises, in collaboration with the General Authority for Small and Medium Enterprises.
  • Providing guarantees and working cash to medium-sized businesses.
  • To operate the "guarantee of the financing portfolios" system.
  • Collaboration with foreign banks doing business in the Kingdom.
  • Cooperation with Saudi Arabian Monetary Agency-licensed financing companies.
  • Collaboration with credit information businesses that have been granted permission to operate in the Kingdom.
  • In collaboration with the General Authority for Small and Medium Sized businesses, work on developing an electronic platform.
  • Cooperating with some essential authorities in order to assist and develop this promising industry.
  • Adopting a variable wage pricing system and a risk coverage ratio that is based on the funding agency's performance and the program's objectives.

The procedures to do in order to get the program's guarantee

If the facility owner/owner wishes to secure funding from one of the Kafalah program's cooperating financing agencies, he or she must submit an application to one of the collaborating financing agencies, obtain a financing request under the program's sponsorship, and complete all of the information stored in the application, as well as attach copies of all necessary paperwork related to the activity. The financing authority examines and assesses the client's financing request in light of the standards that apply to the funding authority. If the financier agrees to provide the necessary funding, it conveys with the system and provides the documents, as well as the approvals to grant the required funding and request the client's signature on the program guarantee. The program then studies and analyzes the application, and if approval to release the guarantee is granted, the program informs the funding authority and the client, who approves the issuance of the assurance to complete the transaction.

Crucial information

  • The Kafalah program will not provide funding to small and medium-sized business owners; rather, it assists them in obtaining finance by providing the requisite guarantees if the funding authority so desires.
  • The funding bodies that work with the initiative are in charge of deciding whether or not to give funding.
  • According to the credit terms of the financing authority, the terms and conditions for issuing funding vary from one funding body to the next.
  • Because the financing authority, not the client, makes the choice to request the program guarantee, the facility acquires it through the financing authority.
  • Because the program is a potential destination for design features that will allow by the Kingdom's Vision 2030 for small and medium sized businesses, the establishment's activity must be compatible with the vision's intended economic activities.

Requirements which must be fulfilled:

  1. Any small or medium profit activity that is founded in compliance with the Kingdom's legislation and is compatible with the General Authority for Small and Medium Enterprises' definition.
  2. The existence of a legal entity for the facility.
  3. Based on the financing body's and program's perspectives, the operation should be economically, financially, technically, and administratively possible.
  4. To provide a constructive contribution to economic growth in terms of:
  • Saudi nationals are being recruited and trained.
  • Producing high-quality, innovative goods and service

Guaranteed Activities

  • All types of industrial activity, particularly those that serve the military industry.
  • Recreational and tourist activities
  • commercial pursuits
  • Services in the medical field 
  • All types of educational services
  • Activities that promote the exportation of local goods.
  • Innovative financial solutions, clever software, and creative activities
  • Activities that are beneficial to the agricultural industry 
  • Seafood farms, as well as fishing, are all examples of fishing activity.
  • Transportation and services related to transportation
  • activities related to business services
  • Activities such as cleaning, maintenance, and social services
  • Franchise businesses that can be regarded as autonomous projects, based on the sort of activity as defined in the preceding paragraphs.
  • Construction and building: maintenance and operation of construction projects - all types of subcontracting
  • As long as these operations directly promote Saudization projects and provide new employment options for qualified Saudi cadres, they are acceptable.

Activities not to be guaranteed

  • Operations that do not come under the criteria of a small or medium-sized business.
  • Activities that are in opposition to the Kingdom's Vision 2030 and higher-level policies.
  • Finance ventures, as well as economic or real estate speculation.
  • Activities that are in violation of Saudi Arabia's laws and regulations.
  • Private and property investment loans are available.

Additional Facts

  • Riyadh is at the top of the list of territories benefiting from the "Kafalah" program to help small and medium businesses, with almost two thousand establishments, and the retail trade sector is the main beneficiary, with guarantees totaling $30 billion until last year.

With over two thousand enterprises, the retail trade sector was the largest beneficiary sector, with a 254 percent growth in comparison to 2019, followed by construction industry and then industries of all types. The volume of beneficiary establishments in the Riyadh region was the highest, with 1,850, trailed by the Eastern region with 1,211, and the Makkah Al-Mukarramah region with 1,050.

  • Small and medium businesses have been supported by Saudi banks, SABIC, and Aramco.

Hammam Hashem, the Program's General Manager, praised the program's successful collaboration with government agencies such as the General Authority for Small and Medium Enterprises, the Saudi Central Bank, and the National Development Fund, as well as strategic partners, who provided all financial resources and support to the program's beneficiaries.

Saudi banks, as well as more than 18 finance firms and five business accelerators, including Saudi Aramco Entrepreneurship Incubator as well as the SABIC initiative, played a significant role in the program.

  • During the Covid-19 outbreak, Kafalah requests increase by 106 percent, and its team responses to 5,720 requests

After the program management did agree to assure more than 1,432 funding applications during the fourth quarter of fiscal year 2020, particularly in comparison to 667 requests during that period the previous year, the proportion of requests from sponsorship recipients increased to 106 percent, with a total value surpassing 3,775 million riyals.

Initiatives to alleviate the (Covid-19) virus's economic consequences

  1. To support organization with High Saudization


Supporting Small and Medium Businesses in the Face of Coronavirus's Economic Consequences (Covid-19)

Supporting financial guarantees for working capital for small businesses with green Saudization ratios of platinum or higher, in order to maintain Saudi jobs and support businesses in the trading and distribution industry, administrative and professional services, and strategic industries.

Contributing to the accomplishment of Vision 2030 via promoting employment.

  1.  Reducing the initiative's requirements to support distribution network facilities


In order to support the funding of supply chain activities, guarantee guarantees should be strengthened.

To support distribution networks activities, as well as the logistics and storage sector for small and medium businesses.

  1. Reducing the initiative's conditions for supporting Hajj and Umrah businesses


Introducing a guarantee program to help fund activities and services of  Hajj and Umrah

Assisting small and medium businesses in dealing with the economic consequences of the Coronavirus (Covid-19)

Providing assistance and support for Hajj and Umrah operations and programs

Contributing to the accomplishment of Vision 2030 via promoting employment

  1. Reducing the Technological Facilities and Institutions Initiative's requirements

Description of the initiative: 

Launching a new initiative, ensuring that scientific initiatives and schools are supported.

Assisting small and medium businesses in dealing with the economic consequences of the Corona virus (Covid-19)

Contributing to the accomplishment of Vision 2030 via promoting employment.

  1. Funding Guaranteed with the support of the Monetary Agency


Establishing a guarantee program with a coverage level of 95% of the financing's value.

assisting small and medium businesses in dealing with the economic consequences of the Corona virus (Covid-19)

Encourage employment and contribute to the achievement of Vision 2030.

The firms that profit from the initiatives are eligible to get essential funding from Saudi Arabian Monetary Agency-licensed banks and non-bank financial organizations, as well as participate in the Kafalah Program.

The request is evaluated by the Kafalah program. If the initiative is accepted, the financing organization receives a guarantee based on the products submitted and approved. The maximum amount of money that can be borrowed:

  • 2.5 million riyals will be allocated to international Microenterprise facilities
  • Small businesses will receive a total of 5 million riyals.
  • 15 million riyals for small and medium-sized businesses

Cost: The overall earnings and fees levied by the financing agencies do not exceed 4% of the total value of the financing each year.

Recognition from World Bank

The World Bank has invited the Saudi Industrial Development Fund's Small and Medium Enterprises Finance Kafalah Program to visit him at his headquarters in Washington, USA, to introduce the bank's highly specialized employees in the small and medium enterprise sector and the bank's advisory bodies to the program's experience, which the bank defined in the invitation letter as a "distinguished model case study."

In a special workshop organized by the National Bank in the Washington, United States of America on Monday, March 2, 2015, a team from the programme reviewed the program's expertise in ensuring funding risk for small and medium firms. The leader of the Kafalah Program was introduced during the visit. Engineer Osama bin Abdul Rahman Al Mubarak, the designee, the program's history, development, and role in empowering cooperating banks to increase the funding granted to small and medium enterprises by assuring a percentage of the funding provided by banks for the advantage of those small and medium enterprises, as well as the program's results since its inception. The Saudi Industrial Development Fund's Director General, Ali Al-Ayed, expressed his delight in the program's invitation from an international organization such as the World Bank, and complimented the World Bank's assessment of the project as a "distinguished and outstanding case study."

Al-Mubarak went on to say that the Kafalah Program marked a quantum leap forward in the Kingdom's finance system for small and medium businesses. Today, the initiative has evolved into one of the most effective forms of collaboration and partnership between the Saudi government and banks, resulting in such a rich experience that the Country has become a unique model for many to emulate. From rising markets within the region, the program’s credit jumped to attain 3,612 assurances in 2014, in comparison to the 51 guarantees in 2006, the year that witnessed the start of the program, at the same time as the wide variety of guarantees that had been authorized as the program’s interest started out till the end of the year 2014. 10,892 guarantees worth amounting to 5.28 billion riyals and general financing from banks amounting to 10.65 billion riyals, a total of 5,579 institutions within the Kingdom. These prominent outcomes are a clean indication of the increase of the program’s interest and the wide variety of beneficiaries. As a result of growing know-how of its benefits and the financing possibilities it presents for proprietors of small and medium enterprises.

The Director of Small and Medium Enterprises Financing Affairs of the World Bank expressed his desire to join the Kafalah Program. On the presentation he have done at the workshop, wherein he touched upon the rules and mechanism of the Kafalah Program, its achievements and its energetic position in serving the SME companies of the Kingdom, stressing the significance of the position performed via way of means of credit score threat assure packages in encouraging industrial banks to address the SMEs need.

He concluded his speech that the successes executed by the Kafalah Program in helping the small and medium establishments industry within the Kingdom and the development in its overall performance affirm that those establishments nevertheless want greater financing strength from industrial banks, so as to be capable of attain their powerful position in financial development.

Best Development Fund for the Year 2013 in the Arab World

The Mohammed bin Rashid Award for Supporting Youth Projects for the category Best Development Fund for the Year 2013 in the Arab World went to the Small and Medium Enterprises Finance Kafalah Program.

This award, given by the Mohammed bin Rashid Establishment for Small and Medium Enterprise Development, recognizes the Kafalah Program's efforts and accomplishments in developing the Kingdom's small and medium enterprise sector, as well as involving the Saudi banking industry and increasing its impact to supporting and financing this vital and important sector over a record period.

Small and medium-sized businesses play a central role in the growth of society and the attainment of social justice. With the continued backing of the Khadim government, the Kafalah program is working to achieve the aim of improving the environment for small and medium sized businesses and enhancing the effectiveness of the Saudi economy in line with the Kingdom's economic strategy.

The Kafalah Program is a practical and effective guarantee for financiers or lenders to the beneficiaries, and its effects were visible by growing the base of recipients of small and medium enterprises, resulting in the creation of new jobs and a decrease in rates of unemployment in the Kingdom.

Sheikh Mohammed bin Rashid Award

Sheikh Ahmed bin Saeed Al Al Maktoum, Chairman of Emirates Airlines, recognized the businesses and initiatives that managed to win the Mohammed bin Rashid Establishment for Support and Development of Small and Medium Enterprises Award on Monday morning at the Dubai Exhibition Center and conferences, under the sponsorship of His Highness Sheikh Mohammed bin Rashid Al Maktoum, Prime Minister of The Uae and Ruler of Dubai.

The Mohammed Bin Rashid Establishment for Small and Medium Enterprise Development established the "Mohammed Bin Rashid Award for Supporting Youth Enterprises" in 2003 to recognize and reward outstanding entrepreneurs in the UAE and the Arab world.

Many of the area's greatest entrepreneurs have received this distinguished award in appreciation of their accomplishments to the local area and other businesses in recent years. The accolade is not limited to those in the upper crust; it also includes persons and institutions who have contributed to the rise of businesspeople in the United Arab Emirates and throughout the Arab world.

 Sheikh Mohammed bin Rashid Award for the finest government projects supporting small and medium firms went to the Saudi Industrial Development Fund's support program for funding small and medium enterprises. Eng. Osama Al-Mubarak, the chairman of the Kafalah Program, stated in a message to Al-Riyadh that the program has won this prize for the second time, adding that it is one of the most renowned government programs in the Mideast and the Arab world, having been founded in 2006. The program was a trailblazer in assisting young entrepreneurs and providing the necessary funding for their initiatives, and it insures a portion of the financing risks taken on by banks, making it easier for young people and entrepreneurs to secure loan facilities from private financing organizations.

In terms of the number of people who have benefited from the program's services, Al Mubarak stated that the initiative has insured about 6000 businesses and given guarantees totaling 11 billion riyals, as well as 35,000 job possibilities. We have committed to providing guarantees to approximately 20,000 investors by the year 2020.

According to the chairman of the Kafalah Program, Kafalah has formed relationships with most of the Kingdom's banks, and they are also working to cut down on the amount of charge that banks charge on loans issued, with positive outcomes. He further stated that the initiative gives facility owners with suitable training as well as technical advice if the investor requires it. For facility owners, a technician.

The winner of the Sheikh Mohammed bin Rashid Award for the greatest initiative in the Arab world in the services sector was given to the Custodian of the Two Holy Mosques, King Salman bin Abdulaziz, by Engineer Muhammad Makki, CEO of Expo Supply Services Company.