The strong economic growth that is being seen in Saudi Arabia today is driven by a number of factors, not least of which are the government’s active investment programmes and the rise in purchasing power of an emerging middle class. But away from the spotlight, one particular sector is increasingly acting as an engine of sustainable growth. Small- and medium-sized entities (SMEs) are fast emerging as creators of economic value and their impact is already being seen as both employers and suppliers to larger entities (see Fig. 1). Their proven ability to adapt quickly and act flexibly has cemented their significance to the economy.
While the digital economy and other technological advances are providing many opportunities for these businesses, one challenge they face is access to financial services, which remains severely constrained for many of them. This issue is no different in Saudi Arabia than it is in any other country, but the government here is taking a very active role, streamlining the procedures for registering a business, supporting bank lending and providing training as part of a package of incentives and support. Especially visible is the Kingdom’s Kafalah credit guarantee scheme. This loan guarantee programme approved 2,515 facilities in 2013, 51 percent more than the year before, and loans provided by participating commercial banks to SMEs last year amounted to SAR 2.3bn ($0.6bn), an increase of 33 percent over the previous year.
For our part, we understand the unique characteristics of SMEs and have developed straightforward and easy-to-use products and services, underpinned by a simple application and approval process and standardised documentation that address this segment’s specific banking needs. We have put in place a specialised risk acceptance framework for assessing SME credit, which helps us to better serve these customers in a prudent, yet progressive way. We also know that face-to-face dealings are important for the owners of these businesses, so we have broadened our outreach by opening SME business centres at places where we know these companies cluster, like those we see in the Balad area of Jeddah, for example.
Our offerings not only include plain lending, but they also encompass liquidity management, transactional banking services and treasury solutions to ensure that we build a complete relationship. Innovation based on speed, simplicity and accessibility is our key to successfully servicing SMEs, an approach that has received strong endorsements: we recently won awards for “Best SME Customer Service” and “Best SME Account Proposition” from Banker Middle East, while achieving a high position among banks in terms of the underwritten value of Kafalah guarantees. We were also named “Best SME Bank in Saudi Arabia for 2013” by Capital Finance International.
By combining institutionalised processes that we recognise in corporate banking with a service model deployed in retail banking, we have been able to become one of the market leaders in this crucially important segment.
Middle-market leaders driving industry
Too big to be considered SMEs, but smaller than big, exchange-listed businesses, mid-market corporate businesses also play a key role in the growth of the Saudi economy. By our definition, on average these companies have a turnover of between SAR 75m ($20m) and SAR 500m ($135m). They collectively employ more people than large companies, and usually have a less formal structure.
Middle market firms showed great resilience during the recent economic downturn. According to GE Capital, some 96 percent of European mid-market companies survived the worst financial crises in history, becoming a stable part of the economy, having been in business an average of 33 years. Around the world, mid-market companies have already established themselves as significant contributors to GDP, with those in the top four European countries generating some $1.5trn, a sum that together would make them the world’s 12th-largest economy.
These middle market firms are challenged by different issues to those of SMEs. For example, mid-market companies face mounting pressure to become smarter and more agile enterprises. And to sustain their growth they need to stay ahead of key trends, from evolving consumer behaviour and new technology, to changing supply chain dynamics and the impact of ‘big data’ on manufacturing and innovation.
Despite the greater maturity of this sector, it is still relatively underserved by Saudi banks. These companies need access to growth finance in order to fund new opportunities or expand export activities. Recognising this, we have segmented our overall corporate banking offering, differentiating between mid-market corporate and institutional banking clients, establishing specific businesses to focus on these important client segments.
Mid-market companies need a wide range of products and services including term loans, trade finance, guarantees, corporate finance and advice. In addition to providing such services, we also offer a full range of sharia-compliant corporate products under Islamic structures, an area of continuously growing demand. We are proud that our work has in this area been acknowledged with an Excellence in Corporate Banking award from International Alternative Investment Review, a leading observer in this area.
One common requirement for resources
There is one area where SME and mid-market company needs are identical: that of support partners with specific experience and knowledge of their issues. Nowhere is that more important than in the finance and banking services that are essential to their growth. As more banks turn their attention to helping these companies, a differentiating factor will be the quality of interface – both human and technological – that they offer. Although more mature than many of Saudi’s industries, banking is still relatively young so the provision of carefully crafted training and development programmes is essential to building a sustainable and deep pool of resources.
At Saudi Hollandi Bank we have established specialist training programmes, largely provided from our own training centres, for employees at all levels, from experienced relationship managers to junior clerks. We understand how important it is that all of our people are up-to-date with the latest thinking in their areas and are able to talk to our customers about their issues and offer thoughtful solutions to the problems they face.
Arguably our most important training programmes are those in which we recruit, train and develop fresh graduates, our so called management trainee programmes. Our newest management trainee programme is one focused on providing world-class training to develop bankers dealing with SME customers. Our first group of alumni is already having an impact on the bank’s SME relationships. In addition, we are committed to supporting the Saudi government’s drive to provide more and more employment for the Kingdom’s nationals – a process called Saudisation – not only in SME and mid-market banking, but across all of our business and support and control areas. Our training programmes are essential elements in widening the banking talent pool in the Kingdom and the makeup of our workforce now stands at 90 percent Saudi.
Over 88 years, we have built a reputation as a bank with a strong position at the heart of Saudi Arabia. From backing the first ever issue of Riyals to our role today supporting the Kingdom’s corporate and retail customers, we have grown a strong and influential presence. There will be many opportunities for our SME and mid-market customers to grow in the coming years and we are investing in our ability to be able to help those today, and prepare for those that will arise in the future.
