Saudi central bank sets minimum capital limit for microfinance firms

Companies offering smaller loans must have at least 20 million riyals of paid-up capital

The PMI's of Saudi Arabia, the UAE and Egypt improved in May with the gradual easing of lockdowns. Bloomberg

Saudi Arabia's central bank, the Saudi Arabian Monetary Authority, has set minimum capital limits for companies looking to offer small consumer and business loans.

In an announcement on its website, the central bank set the minimum paid-up capital for a microfinance company at 20 million riyals (Dh19.5mn), reserving the right to raise or lower the amount according to market conditions. It also said microfinance companies cannot offer consumer loans of more than 50,000 riyals.

"The issuance of these rules is part of Sama's efforts to enhance financial inclusion by providing more financing products to meet consumer’s needs; in line with the central bank’s role in enhancing financial stability as well as supporting the growth and economic development in achieving the goals of the kingdom's Vision 2030," it said in a statement.

Vision 2030 aims to create job opportunities for citizens by supporting SME entrepreneurship, privatisation and investment in new industries. The kingdom has established the SME Authority and aims to encourage young entrepreneurs with business-friendly regulations, easier access to funding, international partnerships and a greater share of national procurement and government bids.

In the statement, Sama said that it is looking to achieve several objectives through these rules, including attracting a new segment of investors and companies to work in this sector under its supervision.

Companies operating under this umbrella will also be required to adhere to certain requirements issued by the central bank on security of information, corporate governance, internal regulation, risk management, compliance and internal audit.

Companies are also required to provide consumer finance products that meet the needs of consumers, within a supervisory framework that ensures consumer protection and according to protection of consumer rights standards.

Under Vision 2030, Saudi Arabia has set a target to increase the contribution made by SMEs to 35 per cent of GDP, from 20 per cent when the plan was launched in 2016.

Last month, the kingdom launched an instant small business visa for people looking to set up new firms. The visas will be housed on the kingdom's new Qiwa employment visa platform and are aimed at making it easier for Saudi nationals to start their own small firms.