The number of Small and Medium Enterprises (SMEs) in Saudi Arabia reached 1.27 million by Q3 of 2023 as per a report by the Small and Medium Enterprise General Authority (Monsha’at) driven by the Kingdom’s efforts to diversify towards a non-oil economy. Private sector investments in SMEs experienced a YoY growth of 18.8% according to the report, surpassing SAR 260 Bn., and thereby playing a significant role in fueling the Saudi economy, and driving ambitious Vision 2030 targets. The Monsha’at Report also highlighted the crucial role played by the National Industrial Development and Logistics Program in bringing more SMEs into the industrial and manufacturing sectors during the reporting period.

This robust non-oil economic growth is a sign of a rapidly maturing entrepreneurial ecosystem that continued to be supported by Al Rajhi Bank during the year in review, with the Bank’s dedicated Micro and Small Business (MSB) Unit offering tailored products and financing solutions to a growing MSME market.

Al Rajhi Bank’s MSME Portfolio – inclusive of medium-sized enterprises – successfully grew 22.8% from SAR 25.5 Bn. in 2022 to reach SAR 31.3 Bn. at the close of the 2023 financial year, with a steadily increasing market share.

Qualitative disclosure of micro, small and medium enterprise for financial services

The approved definition of micro, small and medium enterprises and initiatives adopted by the Bank follows the classifications published by Monsha’at:

• Micro (Ultrafine): 1-5 full-time employees with annual revenues less than SAR 3 Mn.
• Small: 6-49 full-time employees with annual revenues between SAR 3 Mn. to SAR 40 Mn.
• Medium (Average): 50-249 full-time employees with annual revenues between SAR 40 Mn. to SAR 200 Mn.

Al Rajhi Bank services businesses classified as “Micro” through structured lending products offered by its MSB unit, and collectively serves businesses classified as “Small” and “Medium” through its SME unit, both under the Corporate Banking Group with different policies for lending due to their varying financing requirements.

The Bank routinely monitors the progress and growth of MSB clients, to better service them in terms of products, and cross sell relevant financing solutions as businesses show the potential to transition through its categorisation as they scale up.

Strategic initiatives taken to support the MSME segment

With the aspiration to become the Bank of Choice for MSMEs in the Kingdom, Al Rajhi Bank continued to build and implement strategic initiatives to support the growth of MSMEs in a dynamic operating environment:

• Focusing on programme and product-based lending to ensure a greater reach across a diverse and fast-growing MSME sector.
• Utilising all available channels including direct sales, corporate sellers and branches to onboard MSME customers and increase market share.
• Introducing e-commerce financing as a new product to the MSME segment.
• Introducing financing options for POS Finance, E-Commerce, and Business Instalment Finance through digital channels.
• Taking measures during the reporting period to ease the approval process, primarily for the MSB segment while maintaining good portfolio quality.
• Enhancing the acquisition and service delivery model to improve customer acquisition, supported by digitised and automated processes that supports better turnaround time and faster/instant approvals.
• Focusing on structured products and secured lending for SME clients to improve non-performing loan (NPL) ratios, while also improving remedial infrastructure to manage and improve recovery activities.
• Maintaining a dedicated call centre for MSB customers, and allocating two dedicated toll- free numbers for MSB as well as SME customers for customer queries and servicing, thereby providing an unrivalled customer experience.
• Implementing more efficient account planning techniques and improving the Bank’s MSME portfolio management process, to better understand and serve clients.

Ahead of the competition

The main objectives of the MSB Unit for 2023 was to grow its lending portfolio and market share by onboarding new customers, especially focused on its service delivery model. Given the promising nature and growth potential of the Kingdom’s MSME Sector, the Business Unit faced stiff competition during the reporting period, which was further compounded by the increased cost of funding (COF).

In order to face these market challenges, the MSB Unit expanded the MSME lending portfolio and services, introducing a number of new borrowing as well as non-borrowing products in 2023. The Unit also launched multiple promotional campaigns to provide MSME customers with discounts, bundled offers and other promotions to fulfil their financing needs.

The MSB Unit, in alignment with the final phase of Al Rajhi’s Bank of the Future (BOTF) Strategy, enhanced its core systems that contributed towards greatly improving efficiencies and reducing turnaround times during the year in review, further enriching its customer experience. The Business Unit also continued to digitise its product portfolio, with the end-to-end digitization of three products completed at the close of the financial year, and the digitization of the remaining products is on track to be completed on schedule in 2024.

Aligning with Vision 2030

A number of ambitious metrics have been established for small and medium enterprises – including microenterprises – under the Financial Sector Development Programme of the Kingdom’s Vision 2030. This highlights the pivotal role played by the MSME sector in creating a more diverse and resilient economy, one that enables innovation, and the growth of home-grown businesses. Al Rajhi Bank’s MSB Unit continued to align with Vision 2030 objectives, and contributed to the progress of these set targets during the year in review by expanding its MSME lending portfolio, and servicing a growing customer base.

Al Rajhi Bank continued its partnerships with semi-government as well as private sector entities during the year under review; key among these partnerships was the formalisation of the agreement with the Small and Medium Enterprises Bank of Saudi Arabia, to provide more inclusive financing for MSME businesses, along with ongoing agreements with the Real Estate Development Fund and the Tourism Development Fund.

Additionally, the MSME Unit conducted a number of financial guidance seminars and awareness sessions to benefit MSME customers during the period under review. Through ‘Support Centers’ initiative, Al Rajhi Bank’s MSME Unit was able to address inquiries and advise entrepreneurs on financing and banking matters in Riyadh – known for its growing SME ecosystem, as well as across Jeddah, Al Madinah Al Monawarah, and the Eastern Region.

MSME Financing Breakdown for 2023

	Micro and Small		Medium		Total
Loans to MSMEs	2023	2022	2023	2022	2023	2022
On balance sheet (SAR ‘000)	17,434,097	12,863,559	13,893,524	12,644,010	31,327,621	25,507,568
On balance sheet loans to MSMEs as a % of total on balance sheet loans	2.9	2.3	2.3	2.2	5.3	4.5