SME FINANCING

Saudi Arabia 2018-19 | FINANCE | B2B

Those noble spirits giving much-needed financing to scrappy, soulful SMEs are going where no other banks dare to tread.

Paul Melotto
PAUL MELOTTO
CEO
AlRaedah Finance
Abdullah Abdulrahman Alnamlah
ABDULLAH ABDULRAHMAN ALNAMLAH
Former General Manager
Social Development Bank (SDB)

What types of financial products do you offer SME clients?

PAUL MELOTTO In general, small businesses require access to cash quickly. To facilitate this, we have created a product called Fast Cash that provides small businesses with up to USD80,000 within two business days. Another challenge most SMEs face is the need to provide significant documentation and financial statements to be considered for a loan by most banks and lending institutions. AlRaedah reduces these documentation burdens for our clients through cash flow financing, which eliminated the need for financial statements and three years worth of operating history. AlRaedah also offers large loan sums, but when lending up to USD2 million, real estate collateral is required from our clients to qualify. All these products provide diverse options from which SMEs can choose, creating a dynamic environment for the ecosystem to thrive in the Kingdom.

ABDULLAH ABDULRAHMAN ALNAMLAH We have two different types of loans: social and productive loans, where the latter are delivered to entrepreneurs with well-structured development plans. SDB provides three types of social loans: marriage loans, family loans, and housing loans—not for purchasing, but for renovation. With these social loans, we are dealing with the low-income segment, where salaries are lower than USD2,666/month and families' incomes should not exceed USD533 per family member. These services are almost completely automated, which makes it easier to be geographically inclusive throughout the Kingdom. Young people want different types of social loans and can fill in the information through the web and send the physical file to any Saudi post office. If all the conditions are met, the application will be approved within a week and they will receive the funding. We have 27 branches across the Kingdom for our beneficiaries to obtain these loans. The mandate of SDB extends to segments such as the non-employable and elderly, who merely receive subsidies rather than loans, and, therefore, are not in the ecosystem. Another program we launched is microfinancing. We work with NGOs to reach out to the related citizens. Microfinancing is different from supporting SMEs; it does not require much to kick-start a small and productive family business, which is where we can come in. We see it as our task to up-skill the NGOs' resources and train them in the culture of the lending system, to convey the message of building small businesses rather than giving out goods, which is a major cultural change. For this program, we have provided a portfolio of USD266.6 million, which represents the commitment we and similarly minded-partners have to the segment.

What kind of entities do you like to loan to?

PM We finance all types of SMEs working in many different sectors: retail, food and beverage, lodging, education/training, agriculture, car showrooms, spare parts, medical and pharmaceutical, cosmetic, and so on. We also take a unique approach to SME financing, which allows us to fund SMEs that usually do not qualify under bank underwriting guidelines. The company does not ask for three years of audited financial statements, but requires only one year of operations and bank statements showing the real cash flow of the business. Many SMEs are sole proprietors in the Kingdom and around the world and many have comingled their personal finances with their business finances, which makes it difficult to underwrite. In addition to this, the company has signed with a technology organization and implemented the use of artificial intelligence (AI) that allows us take a lot more information, both traditional and non-traditional, to determine the credit worthiness of the SME, in a lot less time than a traditional lender.

AAA Our productive loans are exactly what Vision 2030 aims for: they encourage start-ups, create employment, and add to GDP. Access to funding for entrepreneurs and SMEs via private banks is limited, as they have to show income statements and other parameters that are hard to meet. The SDB does not take profits, which encourages entrepreneurs to apply. In doing this, we have become the main engine for the start-up scene in the Kingdom. We go where no bank can go and have many success stories to share. When we compare failure rates of start-ups in an international context, it shows how we have advanced. The global range in the studied countries is usually high and ranges from 40-90%. For SDB, on the other hand, the rate is 37%.