SMEs: The backbone of economic recovery
With the world still reeling from the effects of the coronavirus pandemic, the importance of restoring confidence in economic growth in a safe, sustainable and inclusive way has never been more critical. Small and medium enterprises (SMEs), including very small and micro firms, have always been a key engine of economic growth and a backbone to past recoveries. As a matter of fact, the higher the income level of countries, the higher is the contribution of SMEs to economic growth. These enterprises play a crucial role in employment creation and product innovation.
It is, therefore, necessary to devise a coordinated plan to mitigate the impact of the pandemic on SMEs. Saudi authorities have responded accordingly, as was the case in many other countries around the world.
The Saudi Arabian Monetary Authority (SAMA) continues to support the expansion of the private sector and to boost economic growth through numerous approaches, such as the deferred payments program, the funding for lending program, the loan guarantee program, and the points of sale (POS) and e-commerce service fee support program.
These have all proved to be valuable tools to mitigate pandemic-related shocks to SMEs by protecting their working capital while ensuring cash flow stability and enabling them to grow.
Micro, small and medium enterprises (MSMEs) have benefited from the deferred payments program, and the amount of deferred payment has exceeded SR79 billion ($21 billion). Moreover, banks and finance companies extended more than 3,000 loans that amounted to more than SR2.5 billion to MSMEs through the lending program. In addition, more than 1.1 billion POS transactions and 97 million e-transactions were exempted from fees worth SR1 billion and over SR270 million respectively.
Globally, even in normal times, SMEs feel hampered
Dr. Fahad Al-Dossari is the deputy governor for research and international affairs at the Saudi Arabian Monetary Authority. by insufficient access to finance. Excluding the informal sector, the current finance gap for SMEs in emerging markets is estimated at $5 trillion, about 1.3 times the level of SME lending.
The Middle East and North Africa (MENA) region faces a significant challenge in promoting stronger financial inclusion for SMEs. According to the World Bank, as a percentage of total financing demand by region, MENA has the largest global finance gap for SMEs, estimated at 84 percent. Better financial inclusion is, therefore, a prerequisite for unlocking economic opportunities and enabling inclusive and strong development.
The G20 under the Saudi presidency has provided a set of policy guidelines that target SME finance gaps by promoting affordable and responsible access to digital financial services.
The guidelines identify the need to promote digital and innovative SME financing, focusing on developing a strong base for digital infrastructure, fostering financial literacy, supporting digital capabilities among SMEs, and building open and competitive markets in which partnerships accelerate responsible innovation.
Promoting digital and innovative SME financing will also help build a resilient digital infrastructure supported by inclusive regulatory frameworks, which can create conditions to better serve vulnerable and underserved groups.
In Saudi Arabia, as part of the Vision 2030 plan, we have undertaken initiatives to increase the share of SMEs in gross domestic product by 2030.
Digital financial service providers are strongly encouraged to accommodate the increased demand for rapid and innovative digital solutions.
The Saudi G20 presidency, in partnership with G20 members, will continue to lead the way in implementing a framework for a financial infrastructure that enables growth and development of SMEs, and will spare no effort in promoting an inclusive economic recovery for all.