By their nature and makeup, financing entities are averse to risk and always seek to reduce the degree of risk in any financing operation. One of the main aims of this is to raise the creditworthiness of the entity requesting financing and to avoid its default, and we see this in their successful and continuous dealings with large companies, which have the experience and credit competence to manage their projects. But this situation poses a fundamental dilemma for one of the most important components of the Saudi national economy, the SME sector, which carries a high degree of risk and, at times, a lack of experience and management in no small part of this type of project, in addition to the lack of sufficient collateral to obtain financing. There has always been a deep gap in the nature of the collateral an enterprise holds to guarantee repayment of a loan, and this gap has a major effect in slowing the pace of economic growth, lowering the level of creativity, and slowing the hiring process, which reflects negatively on the modern goals and aspirations the Kingdom is pursuing.

From this standpoint, the Kingdom has sought over the past period to raise awareness of the solutions available to narrow the distance between financing entities and the SME sector. Perhaps the most prominent of these effective solutions is the SME Loan Guarantee Program (Kafalah), a guarantee tool that plays a fundamental role in solving the dilemma of the collateral that commercial banks require when an SME wishes to obtain the financing it needs, shortening the time and removing the obstacles facing many ambitious enterprises in achieving their development goals.

Since its inception, the Kafalah Program has relied on the foundations and procedures on which several successful experiences around the world were built. Awareness of the importance of this sector and the extent of its contribution to developing countries’ productivity and increasing job opportunities was one of the main motivations that led to the formation of such initiatives concerned with supporting the SME sector. The world has seen more than 80 financing risk guarantee programs, most notably the American experience through the Loan Guarantee Program, established in 1953 and run by the Small Business Administration, alongside the Indonesian experience, which began with Bank Indonesia in 1971.