Plugging the region’s SME funding gap

28 April 2022
The small and medium-sized enterprise (SME) sector is a key driver of growth, jobs and diversification across Gulf economies, but is also a sector often impacted by a lack of access to finance

In conversation with Abdullah al-Mejhem, chief private banking and acting chief consumer banking, Boubyan Bank

What are the main challenges for SME financing in Kuwait?

SMEs face a number of challenges despite the assistance provided by the government. These challenges occur during each development phase and generally involve an internal lack of managerial expertise among proprietors and inadequate access to finance.

The SME sector’s access to credit remains low in the GCC region with some of the highest rejection rates for SME loan applications. In 2018, 70 per cent of credit requests were rejected. SMEs in Kuwait received only 4.7 per cent of total gross loans in 2019.

Reasons for the low acceptance rate from banks for SME loan applications include the absence of a SME credit rating bureau, the poor quality and unavailability of financial statements to underpin SME businesses submitting feasibility studies to the bank, a lack of asset collaterals to back lending needs, and the low usage of formal banking services. 

On this last point, the Kuwait Institute of Banking Studies (KIBS) estimated in 2018 that only 25 per cent of SMEs in Kuwait had obtained credit facilities and that only 48 per cent of SMEs in Kuwait were using banking services.

All of this contributes to low visibility on the creditworthiness of SME applications and hence increased credit risk for banks, leading to an unwillingness to lend to SMEs.

How important is collaboration between the government and private financial institutions in ensuring greater access to finance for the SME sector? 

Government regulatory and financial support frameworks are a vital component in fostering a conducive business environment for SMEs. 

SMEs are important for creating new jobs. Their current and potentially high growth rates have proven the superior ability of SMEs to influence a country’s future. 

However, there are many barriers that impede the growth of SME projects and limit their development – for example, difficulties in terms of financing and marketing, and a lack of specialised workers.

Cooperation provided by private sector companies to entrepreneurs will be more sufficient with a government backer to support it. This cooperation comes in line with Kuwait’s 2035 vision to transform the country into a regional and international financial and trade hub. The goal is to support the local economy and reduce dependence on the state.

Click here to visit Boubyan Bank

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