The Small and Medium Enterprises Finance Guarantee Program (Kafalah) and “Sawahel Al-Jazeera” Media Company have signed a Memorandum of Understanding (MoU) which aims to explore ways of joint cooperation between the two parties.
Both Kafalah and “Sawahel Al-Jazeera” seek to facilitate the development of a broad framework of roles and tasks in news dissemination and coverage of the program’s highlights.
The MoU was signed by H.E. Mr. Hamam Abdul Aziz Hashim in his capacity as the Director-General of Kafalah Program, and Her Excellency Prof. Al Jawhara Bint Turki Al-Otaishan, Chairman of “Sawahel Al-Jazeera”.
The MoU includes the respective roles of Kafalah Program and “Sawahel Al-Jazeera”. Kafalah news and articles will be shared for publication by the media firm. It will entail discussions on the mechanism and details of news dissemination via websites and social media platforms owned by “Sawahel Al-Jazeera”.
The MoU also incorporates a mechanism to cover the most prominent official events, symposiums, and conferences that Kafalah participates in. “Sawahl Al-Jazeera”, through its media mechanisms and tools, will cover the symposiums and conferences.
In accordance with the MoU, the mechanism for sending a weekly periodic bulletin, as well as the monthly press releases issued by the media firm and presented to Kafalah staff on a regular basis, will be discussed. The duration of the MoU is one year.
It is worth mentioning that Kafalah will help in mitigating the risks of financing Small and Medium Enterprises (SMEs) as well as encouraging finance providers to support Micro Small and Medium Enterprises (MSMEs) by providing financial guarantees that cover part of MSME’s financing risks.
“Sawahl Al-Jazeera”, with more than 15 years in the Saudi media market, specializes in electronic publishing and advertising. It owns several media platforms, including Rowadalaamal Magazine, Entrepreneurship KSA Magazine, Al Eqtisad elyoum Magazine, Alam El-Technologia Magazine, AlJawhara Magazine, and Leaders Magazine. It is one of the integrated content execution firms carried out by its public relations division.
Kafalah and Its Objectives
What distinct feature of the Kafalah program is that financial institutions do not directly provide funding but issue a guarantee in favor of the company in need of funds to ensure a proportion of the activity’s funding risks. This facilitates the access of Small and Medium Enterprises (SMEs) to adequate funding from financiers who are collaborating with the program.
The program’s objective is not to profit but to sustain its services, and to provide support and aid to SMEs so that it can play a role in boosting the national economy.
What is Kafalah?
Kafalah was established to extend finance to SMEs in pursuant to the Minister of Finance’s Decision No. 1166 of 04/05/1425H. The program aims at overcoming economically viable SME financing constraints that do not have the ability to provide the required guarantees to the financial institutions.
The program aims to assist SMEs in obtaining the necessary Islamic finance to develop and expand their activities. It also encourages financial institutions to engage with the SME sector by granting credit facilities in exchange for issuing finance to eligible clients (SMEs) not exceeding SAR 15 million.
The program also seeks to attract a new segment of SME owners that are not used to dealing with finance providers in order to develop the SME sector and boost its important role in the national economy. The sector is expected to create new jobs and to contribute in developing less economically active governorates.
The program wishes to overcome the financing constraints of SMEs that have the potential to be successful but do not have the necessary guarantees to acquire finance. The financial institutions will cover a proportion of the client’s risk in the event that the client fails to pay or part of the financing. Moreover, it encourages banks to finance such potential enterprises.
Objectives of the program
The objectives of the Kafalah program are:
-Enable micro, small, and medium enterprises to access the Islamic finance necessary to develop and expand their activities.
-Contribute to the improvement of the competitiveness of local enterprises, which will reflect positively on the national economy.
-Boost the micro, small, and medium enterprises sector to play its important role in supporting the national economy and increasing its contribution to domestic output.
-Increase career opportunities to train and employ Saudi nationals.
-Expansion and development of SMEs’ businesses in promising areas in the Kingdom.
-Encourage financial institutions to engage with the micro, small, and medium enterprises sector.
How to get their financial support?
Steps to obtain funding under the Kafalah Programme are summarized as follows:
-The client directly applies to the bank for funding under Kafalah program, with all required documents attached to his application.
-The bank studies and analyzes the client’s request according to the bank’s policies
-After approval, the banks apply for the issuance of Kafalah guarantee, along with written approval from the business client accepting the Kafalah program (from the bank’s branches or can be downloaded from the website)
-After evaluating the business client’s request and verifying that it adheres to the policies of the program, the bank will issue or refuse the required Kafalah
-The last step- the bank and the client will sign the credit line agreement so that the latter get the finance
Banks Cooperating with Kafalah
The following are Saudi banks collaborating with the Kafalah program:
National Commercial Bank
Earlier, the SME Financing Guarantee Programme signed the updated Cooperation Agreement with the National Commercial Bank as the first financier in a new initiative aimed at encouraging financial institutions to offer finance to a larger segment of SME owners’ beneficiaries. The agreement includes increasing bail coverage of Kafalah, according to legitimate funding formulas. This is essential due to the sector’s importance and its economic and social impact.
This agreement includes many incentives that contribute to the realization of the Kingdom’s Vision 2030 and raises domestic lending rates for SMEs to 20% by 2030. It also includes the boosting of the micro-, small, and medium-sized enterprises segment with a sales limit above SAR 200 million instead of SAR 30 million.
Bank Al Bilad
The Bank Al Bilad is also cooperating with Kafalah program in an initiative aimed at encouraging financial providers to finance a larger segment of SMEs’ beneficiaries by increasing Kafalah coverage ratios in accordance with legitimate funding formats due to the importance of this sector and its economic and social impact.
The agreement contributes to the realization of the ambitious objectives of the SME sector and the financing of enterprises operating in the sectors targeted by “Vision 2030” as well as in promising regions in the Kingdom.
This trend reflects efforts to implement the bank’s strategy to provide all diverse financing options to clients that will help finance micro, small, and medium-sized enterprises in order to increase economic and development activities.
Al Rajhi Bank
Al Rajhi Bank has also entered into an agreement with the SME Kafalah Program to provide a number of effective new benefits in SME development in line with the aspirations and requirements of Vision 2030, such as raising the lending ratio for this segment and expanding the range of SME beneficiaries to include tourism sector activities, business women and start-ups.
This agreement is one of the fruits of the Private Sector Stimulus Plan launched by the Local Content Unit and Private Sector Development. It aims to raise the capital for the Kafalah program.
It reflects the program’s vision of boosting cooperation with commercial banks and the SME sector in order to support, strengthen and stabilize this sector by offering high funding rates.
Riyad Bank has signed a cooperation agreement with the SME Kafalah Programme to launch a portfolio guarantee which aims to facilitate financing for SMEs, with a Kafalah rate of up to 80% of the value of financing, in addition to accelerating and facilitating Kafalah procedures.
The program seeks to continuously develop performance, facilitate access to finance and adopt new initiatives that meet the needs and requirements of the SME sector and support entrepreneurs through cooperation programs and agreements signed by all stakeholders.