Small and medium-sized enterprises (SMEs) are apparently the central player of most economies, mostly in terms of generating micro employment and largely due to their contributions and development impacts as quantified by increasing growth potentials towards sustainable development. The perception that the significant collaboration of SMEs within the supply chain or pipeline industry of larger companies has engaged the consensus for social responsibility that links with corporate governance.
The performance of SMEs in Western and Asian countries could have revolutionized the flow of investments that lead to emergence of new industries. In this paper, the patterns of SMEs’ performance “to propel the engine of economy” will be discussed in relation with its current situation in the Kingdom of Saudi Arabia. Collective situational indicators This section of the paper aims to collectively situate the key economic development of Saudi Arabia as a brief indicator that can link to the current situation of SMEs.
As recent information, we cite Saudi Arabia as one of the world’s top reformers and the “easiest” countries to conduct business that raised 15 places to rank 23rd out of 178 countries. The World Bank quoted, “Saudi Arabia to be belonging from the global top ten most competitive countries by 2010” (World Bank, 2008). In similar report from prominent online business magazine, it cited that Saudi Arabia is “even ahead” to other Middle Eastern countries and can be compared to European economies like France and Austria (AME info, 2008).
Meanwhile, Switzerland’s World Economic Forum (WEF) observed that Saudi Arabia must realign its educational system to adequately develop the foreseen potentials of the private sector, contingent to boost the economic diversification process as a strategic procedure of “weaning” from the Kingdom’s mother-industry of petroleum products. To cite, adequate skilled-labor are needed to totally ensure continuing employment and to be self-reliant from being dependent with foreign-owned companies that represents about one-third of the industry (WEF, 2007). Critical consideration
The SMEs in Saudi Arabia comprise about 93% of total enterprise units that absorbs an estimated employment of 24. 7% Saudis. The study conducted by the Council of Saudi Chambers of Commerce and Industry (CSCCI) and the United Nations Industrial Development Organization (UNIDO) has accounted the primary problem of small-medium entrepreneurs as “deficient in credit-finance-capital facilitation”. (SIDF, 2008) Realizing the SMEs’ role The Saudi Industrial Development Fund (SIDF) has established a “loan guarantee scheme” aim to facilitate the SMEs application for commercial bank loans.
To avail commercial bank loans, the SMEs’ applicants must be under the category of “small company” that has “lesser asset” of SR. 50 million and required to employ 250 workers, and to generate annual revenues of SR. 10 million. (SIDF, 2008) As cited, the loan guarantee scheme has specifically outlined the guidelines, such as (1) initial infusion of SR. 200 million representing equities of 50% from 10 commercial banks and another 50% from the government; (2) guarantee fees for SIDF handling charges or facilitation of 175 basis points; (3) guarantee maximum amount of SR.
1. 5 million and 75% of the outstanding or current loan; (4) loan period from 7 years for fixed assets and 4 years for working capital; and (5) proposed imposition of bank loan rates at 400 “basis points” above the Saudi Interbank Offer Rate (CSCCI, 2008). The “divestment” of the financing scheme has been proposed to future investments by SIDF to access more funding support and produce substantial returns on investments. (CSCCI, 2008)
On the other hand, the Saudi Arabian General Investment Authority (SAGIA) has proposed ruling on “collateral loans” to exclude fixed assets on owner-occupied-residential housing which is under the SIDF. Whereas, shall effect the collateral in pursuance with the Public Collections Act that implement accelerated collateral enforcement procedure with no restrictions of the Shariah (law of Koran) Islamic court. The lending bank shall collect 75% from lent amount upon failure to pay in 3 consecutive months. (SAGIA, 2008)