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Director SME Financing Guarantee Program, SIDF (K.S.A)
Mohammed Hammoudah
KafalahSME Financing Guarantee Program
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Conference Topics
• The reality of the SME’s sector in Saudi Arabia.
• The role of Kafalah Program in supporting SME’s.
• Kafalah Program Achievements during the period from 2006 till the 3rd Quarter of 2011.
• The challenges and difficulties which faces the program.
• Promoting the program.
The reality of SME’s sector in Saudi Arabia
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The reality of the SME’s sector in Saudi Arabia.
First : procedural, administrative and technical- difficulties :-
• Bureaucratic procedures by some government agencies when approached for the necessary permits.
• Lack of proper organizational structure and management experience.
• The owner-manager pattern, which usually combines the management, finance and marketing functions.
• Lack of advanced production methods.
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The reality of the SME’s sector in Saudi Arbia.
Second : marketing difficulties:-• Lack of marketing awareness and marketing inefficiency.
• Random pricing policy that does not take into account the prices of competitors as well as the production costs.
• Difficulties in marketing local products, while the consumer prefers foreign products.
• Shortage in research and marketing studies within the sector.
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The reality of the SME’s sector in Saudi Arabia.
Third : financial difficulties : -
Funding is the SME’s spirit, especially in the initial stages. The funding difficulties which faces SME’s are as follows: -
– High cost of finance (lending rate).
– banks and lending institutions refuse to lend SME’s for several reasons, mainly because:-
• SME’s high risk.
• Lack of sufficient collateral.
• The absence of regular accounts of the existing projects.
The need of a new source in SME’s sector to reduce the funding risk, creates
Saudi Banks
SME Financing
Guarantee ProgramKafalah
The role of Kafalah program in
supporting SME’s.
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Kafalah Financing Guarantee program
Kafalah Program :-
• Kafalah Program was established in January 2006, to guarantee the banks financing for SME’s, by guaranteeing a percentage of the banks loans to encourage them to lend SME’s.
The SME’s definition according to the program :-
• Any profitable SME , established in Saudi Arabia, with annual sales not exceeding SR 30 million.
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* Compatible with the Islamic Regulations.
Credit facilities types *Types of financing
Fixed Assets Working Capital
Kafalah percentage
80%
Murabahaloan
Tawaroy trade
Letters of guarantee Tawaroy
Loan Letters of Credits
Others Murabah
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• For any one project the program guarantee 80% of the value of the loan for a maximum of 426,000 US $ while the minimum is 21,000 US $.
• For the client who owns more than one activity (individual institution), the total value of guarantees granted to all individual institutions must not exceed 1,3 million US $.
• Companies who own more than one project can get guarantees up to 2,6 million US $, provided each project will not get more than 426,000 US $ in guarantees.
Amount of guarantees provided by the program
Kafalah Achievements during the period
from 2006 till the 3rd Quarter of 2011.
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The program achievements during the period from 2006 until the 3rd Quarter of 2011.
YearsThe Value Of
Funding *The Value Of
Guarantees*
Number Of
Guarantees
Number Of Beneficial
Projects
2006 49 22 51 36
2007 278 128 263 211
2008 279 118 292 207
2009 464 181 504 315
2010 716 271 777 480
2011** 935 437 873 536
Total 2,721 1,157 2,760 1,785*conversion rate 1 US $ = 3.75 SR.
** the 3rd Quarter of 2011.
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Relative importance of the guarantees according to the economic sectors
Service22%
Industrial19%
Commercial10%
Others4% Contracting
45%
15
95
5
0
20
40
60
80
100
Men Women
Percentage of the guarantees according to gender
95
320
20
40
60
80
100
Nationality
Saudi Non Saudi Mix
Percentage of the guaranteesaccording to nationality
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The program achievements in the field of training and education• In the context of expanding the base of clients with the program,
and increase awareness of the role of SMEs in economic development, the program accomplished the following: – Organized (26) seminars under the name of (the day of SME’s) in
cooperation with the Chambers of Commerce and Industry and the participating banks to promote the program.
– Organized (22) training courses across the Kingdom in cooperation with the World Bank, IFC and Chambers of Commerce and Industry under the name of (the basics of starting and managing new business) targeting owners of SME’s, (trained 567 trainees, including 402 male and 165 female) .
– The program organized in collaboration with the Institute of Banking (13) workshop about the program targeting the staff of the participating Saudi banks.
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The program achievements in the field of training and education
26
22
13
0
5
10
15
20
25
30
seminar training course workshope
The challenges and difficulties which faces
the program
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The challenges and difficulties which faces the program
First : Challenges and difficulties of the founders (banks): -– Slow progression in the interaction of participated banks
with the program’s objectives.
– Lack of advertising and promoting the program by the banks.
– The large number of securities required.
– The high cost of lending.
– Centralization.
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The challenges and difficulties which faces the program
Second : Challenges and difficulties of the investors (SME’s owners) :-
1. Misunderstanding of the SME’s owners about the program and its objectives and mechanism.
2. Failure to meet credit standards.
3. Lack of knowledge in how to prepare and complete a funding request including the preparation of a feasibility study for the project.
4. Lack of seriousness of some clients.
5. Some clients think that Kafalah is a grant from the government.
Promoting the program
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Promoting the program
• The program executed 4 campaign to activate the program in all the KSA areas.
0.010.65
2.30
5.00
0.00
1.00
2.00
3.00
4.00
5.00
6.00
2008 2009 2010 2011
M.SR
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Promoting the program
• Regular meetings with banks to activate the program.
• Activating the role of bank branches in supporting SME’s .
• Focusing on increasing the advertisements and promotions of the program
• Training courses for the banks employees, in cooperation with the Institute of Banking.
• Training courses for investors in how to manage SME’s.
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Thank you for listening