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GCC SME Lending Ecosystem - 2025 Outlook & Opportunities

GCC SME Lending Ecosystem - 2025 Outlook & Opportunities

March 20, 2025

Regulatory Landscape

Six Nations, One Goal – Empowering SMEs

Saudi Arabia

The Kingdom has made SME development a pillar of its Saudi Vision 2030 economic plan. Authorities have set an ambitious target for banks – at least 20% of loan portfolios to be directed to SMEs by 2030. Progress is evident: by Q3 2024, Saudi MSME credit had surged 22.6% year-on-year to SR329.2 billion (≈$88bn), reaching 9.1% of total bank loans. Key enablers include the state-backed Kafalah | كفالة credit guarantee program, which issued SAR 13.9 billion ($3.7bn) in SME loan guarantees in 2024 – a 17% increase over the prior year. Kafalah’s guarantees helped over 5,300 businesses secure financing exceeding SAR 18 billion, reflecting robust demand as smaller firms scale up. To broaden funding access, Saudi Arabia launched an SME Bank in 2021 as a one-stop shop for debt, equity, and guarantees, with SAR 10.5 billion ($2.8bn) allocated over its first three years. Another innovation is Tamweel Gate, a digital platform connecting SMEs with 47 lenders for fast-track loans – often delivering decisions within days. These efforts, alongside reforms to business laws and a new bankruptcy code, signal Riyadh’s commitment to an SME-friendly ecosystem.

“The government wants financial institutions to allocate 20% of their lending to this critical sector” in order to spur diversification, notes Saudi Central Bank – SAMA

United Arab Emirates 🇦🇪

SMEs constitute 95% of companies and 86% of private workforce in the UAE, and contribute over 63% of non-oil GDP. Recognizing their importance, the UAE enacted a federal SME Law in 2014 and formed a National SME Program and Council to harmonize policy support. Under the Operation 300bn industrial strategy, the government empowered the state-owned Emirates Development Bank (EDB) to catalyze SME financing – targeting AED 30 billion by 2025 and supporting 13,500 SMEs. EDB provides subsidized loans and, crucially, partial credit guarantees in partnership with 11 commercial banks. Through these bank partnerships, EDB covers up to 50% of the risk on SME loans (capped at AED 5M per firm), effectively incentivizing banks to lend more.

“We look forward to bridging the funding gap for SMEs…facilitating easy access to finance and supporting the UAE’s goal of a robust, knowledge-based economy,” said Ahmed Alnaqbi, EDB’s CEO, upon signing a major guarantee deal.

In addition, local governments run complementary programs – Dubai’s SME initiative and Abu Dhabi’s new SME Finance Facilitator launched in 2023 streamline business bank account opening and loan applications by guiding entrepreneurs on documentation. From federal training schemes to emirate-level incubators, the UAE’s multi-tiered approach is building an enabling environment so that more of the nation’s 557,000 SMEs (mid-2022 count) can access growth capital.

Bahrain 🇧🇭

Bahrain has cultivated an SME-friendly financing ecosystem grounded in public-private collaboration. Tamkeen, the quasi-government Labour Fund, subsidizes loan costs and shares risks with lenders through its flagship Financing Program, enabling banks The Kingdom of Bahrain has cultivated a supportive ecosystem for SME finance grounded in public-private collaboration. The quasi-government Tamkeen (Labour Fund) plays a central role by subsidizing loan costs and sharing risk with lenders. Through Tamkeen’s flagship Financing Program, banks like National Bank of Bahrain partner to offer Sharia-compliant loans at reduced profit rates – with Tamkeen covering a portion of the interest/profit on behalf of the SME. This effectively lowers borrowing costs and encourages banks to extend credit to smaller firms. Tamkeen also provides guarantees; recent reforms allow it to shoulder up to 50-70% of loan defaults, giving banks additional comfort (per a 2023 Central Bank circular). Beyond traditional banking, Bahrain fosters fintech alternatives: notably, Tamkeen partnered with crowdfunding platform Safaghat to support micro-enterprises. Under a 2023 scheme, Tamkeen helps high-potential startups raise funds via crowdfunding by paying part of the profit rate to investors.

“Tamkeen is dedicated to helping Bahraini entrepreneurs access the financial solutions needed to scale their ventures, particularly when traditional banking options might be out of reach,” CEO Maha Mofeez explained.

The Central Bank of Bahrain complements these efforts with a well-regarded regulatory sandbox (one of the first in the region) and by mandating a comprehensive credit bureau. Collectively, Bahrain’s strategy of interest subsidies, credit guarantees, and fintech integration has been a lifeline for its SME sector. Over the past decade, the Bahrain Development Bank and Tamkeen have financed thousands of SMEs, contributing to over 1,000 entrepreneurs receiving ~BHD 220 million in funding support since 2016.

Kuwait 🇰🇼

Kuwait’s SME sector historically lagged peers – accounting for only about 3% of GDP and 23% of employment (as of a few years ago). To change this, Kuwait established the National Fund for SME Development in 2013, dedicating a massive KWD 2 billion ($7bn) in capital to fuel small business growth. This Fund consolidated what in other countries might be multiple agencies into one, providing entrepreneurs with integrated support from financing to training. In its initial years, however, disbursement was cautious – by 2024 the Fund had financed around 760 projects with ~KWD 220 million total, indicating significant unused capacity. After pausing new lending during the pandemic, the Fund is now ramping up again, with renewed emphasis on tech startups and young Kuwaitis. Commercial banks in Kuwait have also been nudged to do their part. The Central Bank of Kuwait offers regulatory incentives for SME lending (such as lower risk-weighting of SME loans), and banks have set up dedicated SME units. There remains room for improvement – only about 2% of Kuwaiti bank credit went to SMEs as of the last survey – but ongoing reforms aim to streamline licensing and reduce red tape for entrepreneurs, which should spur credit demand. With abundant public funds earmarked for SMEs, Kuwait’s challenge is less about liquidity and more about effective deployment. Plans are underway to relaunch the National Fund’s programs with faster approvals and mentorship, to ensure more small businesses actually benefit from the $7bn war chest waiting to be tapped.

Oman 🇴🇲

Oman has taken a regulatory mandate approach to stimulate SME lending. In 2013, the Central Bank of Oman issued a landmark directive requiring that at least 5% of all banks’ lending be to SMEs. Banks were given until 2015 to hit this quota, and most met the target (up from a baseline of only ~2% previously). This rule – motivated by the need to combat high youth unemployment through entrepreneurship – ensured that even conservative lenders opened their books to smaller clients. In parallel, Oman strengthened support institutions: the government’s SME Development Authority and Oman Development Bank (ODB) provide subsidized loans (often at 0–3% interest) and credit guarantees for priority sectors like manufacturing and agriculture. Bank Muscat's Al Wathbah program is a case in point – it pioneered collateral-free SME loans in Oman, backed by ODB guarantees, allowing entrepreneurs to borrow without traditional asset security.

Such schemes have “broadened financial access for entrepreneurs to avail SME finance without collaterals,” notes Ilham Al Hamaid, Bank Muscat’s head of SME banking.

Oman has also invested in training: initiatives like SANAD and Al Raffd Fund (now merged into the SME Authority) offered grants and microloans to young Oman is starting businesses. While Oman’s SME sector is still nascent, these measures have borne fruit in gradually increasing the share of bank credit to SMEs and fostering a culture of entrepreneurship beyond the oil sector. Importantly, Oman has signaled it may raise the SME lending quota above 5%in coming years if banks do not voluntarily accelerate financing to meet growing demand.

Qatar 🇶🇦

Qatar’s SME financing strategy is spearheaded by the Qatar Development Bank. Through its Al Dhameen program, launched in 2010, QDB provides guarantees to local banks for SME loans, targeting businesses that lack sufficient collateral. Over the past decade, Al Dhameen has facilitated significant credit flow – by late 2018 it had disbursed QAR 1.6 billion ($440M) in guaranteed loans to 298 SMEs.

The program helps “SMEs that are unable to provide the necessary guarantees or collaterals” by having QDB insure a large portion of the loan, explains Jawaher Al-Noaimi-EMBA, Al Dhameen’s manager.

In 2022, Qatar enhanced Al Dhameen by raising the guarantee coverage to up to 100%for certain categories (previously 85%), in order to encourage lending to startups in sectors like manufacturing, education, and healthcare. QDB itself also extends direct financingto SMEs, and ran special low-cost loan programs during COVID-19 to keep small firms afloat. Meanwhile, Qatar’s Qatar Central Bank (QCB) has eased regulations for fintech lenders and introduced an SME definition to standardize support eligibility. Qatar’s approach heavily benchmarks global best practices: it has studied models like Malaysia’s credit guarantee corporation and Germany’s KfW. The result is a robust public support system – credit guarantees, subsidized interest, and a network of incubators (e.g. Qatar Business Incubation Center (QBIC)) – that together help Qatari SMEs punch above their weight. Still, SME lending in Qatar remains very low as a share of total credit (historically under 2%), mirroring the dominance of corporate and government lending in its banking sector. Going forward, QDB’s focus is on integrating more private capital: for instance, co-funding loans with commercial banks and launching a venture fund to provide equity alongside debt. This multipronged strategy is intended to close the sizable financing gap that Qatar’s entrepreneurs continue to face despite the nation’s wealth.

Fintech Innovations – AI, Alternative Data & New Lending Models

Traditional banks in the GCC have long been cautious with SME lending due to limited financial histories and perceived risks. This has opened the door for fintech disruptors to re-imagine SME credit using technology. Artificial intelligence (AI) and alternative data are at the heart of this transformation. Rather than relying solely on audited financials or collateral, new fintech platforms leverage machine learning to analyze non-traditional data – from point-of-sale transactions to online ratings – to assess creditworthiness. For example, Magnati, a UAE-based payments firm, uses an embedded finance model that evaluates a merchant’s real-time transaction history to approve loans quickly. Such cashflow-based lending flips the script on legacy underwriting and can extend credit to businesses that would otherwise be deemed “unbankable.”

Abwab.ai similarly offers AI-powered loan underwriting that automates data collection and risk analysis to speed up SME loan decisions. It aims to bridge a $250 billion financing gap for underserved GCC SMEs through AI-driven credit assessment. By tapping into granular data (e.g. retail footfall, supplier payments), these platforms create a more precise risk profile and often report lower default rates than traditional methods.

One of the most notable fintech developments is the rise of peer-to-peer (P2P) lending and crowdfunding for SMEs. Beehive Fintech, launched in 2014 in the UAE, became the region’s first regulated P2P platform connecting investors directly with small business borrowers.

“By using our innovative online platform, we’ve been able to streamline many of the processes in the SME funding journey,” says Craig Moore, Beehive’s founder.

The result is faster credit approval and lower cost of finance for SMEs, while giving investors attractive returns. Beehive’s success (over half a billion dirhams lent to UAE SMEs as of 2020) has inspired others across the GCC. In Saudi Arabia, for instance, Beehive partnered with a major bank to launch digital SME financing – the first fintech-bank tie-up of its kind in the Kingdom. Other Saudi platforms like Lendo | ليندو and Funding Souq | فَندِينق سوق are using crowdfunding to finance invoices and purchase orders, providing vital working capital to businesses that might wait months for customer payments. Crowdfunding and P2P lending have thus emerged as a viable alternative – and a complement – to bank loans, especially for mid-sized enterprises that need growth funding beyond what microfinance offers. Regulators have generally encouraged these innovations: Dubai and Abu Dhabi established fintech hubs that helped sandbox platforms like Beehive, and Saudi Arabia’s Capital Market Authority issued crowdfunding licenses to integrate such financing under the regulatory umbrella.

Another fintech trend gaining momentum is “buy now, pay later” (BNPL) and revenue-based financing tailored to SMEs. In the UAE and Saudi Arabia, specialized fintechs (e.g. FlapKap and HALA) offer short-term financing for small merchants to buy inventory or advertise, to be repaid from future sales. This model, akin to Square Capital or Shopify Capital globally, funds businesses based on their payment activity rather than credit scores. It’s essentially an advance on future revenue – very useful for SMEs with strong sales but limited credit history. By splitting repayments as a percentage of daily sales (or via installment plans), these solutions help SMEs manage cash flow without the hurdle of formal loan applications. “Fintech lenders are shifting the focus to real-time business performance instead of outdated financial statements,” notes one industry expert, highlighting how cash-flow lending is filling gaps left by conventional banks. Indeed, veteran investor Fadi Ghandour observes that banks are often too conservative and collateral-driven to serve small borrowers, leaving a space that fintechs are eagerly occupying. The GCC’s high smartphone penetration and digital payment adoption make it fertile ground for these data-driven lending models, which can reach even micro-entrepreneurs selling on Instagram or through market stalls.

Crucially, traditional banks are not standing still – many are partnering with fintechs or launching digital SME services of their own. For example, Emirates NBD in the UAE has integrated fintech solutions to allow instant loans against point-of-sale receivables, eliminating the need for audited financials. Several GCC markets (Bahrain, Saudi, and most recently the UAE) have implemented open banking frameworks, which let SMEs securely share their bank transaction data with third-party fintech apps. This enables a richer credit analysis and faster loan decisions. “Open banking simplifies credit processes by using alternative data, like transaction history, to expand access to credit for SMEs,” an International Monetary Fund analysis noted, underscoring the transformative potential of data-sharing initiatives. We are also seeing the advent of digital-only banks focused on entrepreneurs – for instance, Bahrain’s ila Bank and the UAE’s Wio Bank and YAP platforms offer tailored digital accounts, bookkeeping tools, and invoice financing to small business customers entirely through mobile apps. These neo-banks aim to solve the pain points SMEs face with traditional banks (lengthy paperwork, slow approvals) by providing a one-stop digital solution for daily banking and credit on the go.

In summary, fintech innovation in the GCC is making SME financing faster, more flexible, and more inclusive. AI-driven underwriting is proving that credit risk can be managed with low default rates when you harness the right data. P2P and crowdfunding platforms are directly channeling the region’s ample investor liquidity to fund SME growth. And digital banks and BNPL providers are addressing niche financing needs in ways banks never did. Policymakers see fintech as an ally in closing the SME financing gap – a view reinforced by pandemic experiences, where digital lenders kept credit flowing even as some banks retrenched. As these fintech solutions scale up (often in collaboration with traditional lenders), GCC SMEs are gaining unprecedented access to capital on demand, which bodes well for a sector that forms the backbone of economic diversification plans.

Key Market Trends – Rising Demand, Persistent Gaps, & the Road Ahead

The demand for SME financing in the GCC is on a strong upward trajectory, driven by economic diversification initiatives and post-pandemic recovery. Across the six countries, governments have set explicit goals to grow the SME sector – Saudi Arabia aims for SMEs to contribute 35% of GDP by 2030 (up from ~30% now), while the UAE projects having 1 million SMEs by 2030 (nearly doubling from ~557k in 2022).

This push is translating into greater credit uptake as businesses expand. In Saudi Arabia, SME lending growth has exceeded 20% annually recently, and medium-sized firms in particular have seen credit volumes balloon – reflecting banks’ growing comfort in this segment. Similarly, UAE banks extended AED 81.2 billion ($22.1bn) to SMEs in just the first half of 2024, a sign of accelerating momentum. Even in smaller markets like Oman and Bahrain, central bank reports note an uptick in SME loan applications as entrepreneurs take advantage of new support programs.

Yet, despite this progress, the funding gap remains wide. Historically, the Middle East has had one of the world’s lowest SME credit penetration rates. Recent data shows only about 8% of total bank lending in MENA goes to SMEs, compared to ~18% in middle-income countries and ~22% in high-income economies. Within the GCC, the share is even lower – a The World Bank survey found SME loans comprised a mere 2% of bank portfolios in GCC countries (as of the mid-2010s). A large portion of this unmet demand is concentrated in the GCC’s micro and small enterprises that lack collateral or credit history. Banks’ risk aversion and stringent lending criteria continue to exclude many viable small businesses, especially in sectors like trade, services, and agriculture which have traditionally been viewed as risky or non-strategic in oil-rich economies.

On the positive side, adoption of fintech and alternative financing is beginning to chip away at the gap. SMEs across the GCC are increasingly turning to non-bank options – whether it’s an online invoice financing platform or an Islamic crowdfunding campaign – when traditional loans are out of reach. According to the Saudi SME Authority, more than 5,400 SMEs obtained loans in 2023 with Kafalah guarantees, up sharply from prior years, implying thousands of firms that previously couldn’t borrow are now being served. Likewise, survey data in the UAE indicates only 28% of SMEs had ever received bank financing, meaning the vast majority either self-finance or seek alternative credit. That majority is the target of new fintech offerings and government programs. The COVID-19 pandemic also forced a rethink – as banks pulled back in early 2020, governments rolled out emergency soft loans and guarantees that kept many SMEs solvent. This experience demonstrated both the vulnerability of SMEs to credit shocks and the importance of a diversified financing ecosystem. It also accelerated regulatory support for digital financial services (e.g. digital KYC onboarding, e-signatures for loans), which is now making it easier for SMEs to apply for financing remotely and for lenders to assess them efficiently.

Experts note that a cultural shift is underway in how SMEs approach financing. Historically, many small Gulf businesses were family-run and avoided external debt; now, younger entrepreneurs are more willing to leverage credit to grow. “There is a significant funding gap across the region, but SMEs are increasingly seeking alternative solutions to fuel their growth,” observes a regional fintech CEO. Banks, too, are changing their stance. Where they once saw risk, they now see opportunity – not least because SME banking can be highly profitable when done at scale and with technology to lower cost-to-serve. Several large GCC banks have reported double-digit growth in their SME loan books and are integrating more SME-centric services (like cash management tools, supply chain finance products) to attract these clients.

Looking globally, the GCC’s SME finance landscape is evolving toward international benchmarks but isn’t there yet. For instance, SMEs account for 20–25% of bank lending in OECD countries on average; no GCC country has hit that range so far (Saudi Arabia’s 9% is the current high-water mark). On the other hand, the GCC outpaces many emerging markets in the quality and quantity of government support for SMEs. The World Bank analyses show almost all Arab Gulf states have established public credit guarantee schemes (Saudi’s Kafalah, Qatar’s QDB Al Dhameen, etc.), whereas such programs are patchier in other regions. Additionally, Gulf governments frequently inject capital into SME funds and offer subsidized interest, a level of direct support not commonly seen in Western economies. The challenge – as always – is to ensure these resources are utilized effectively and reach the businesses that need them most.

Expert Insights – Challenges & Opportunities Ahead

Despite the strides made, SME lending in the GCC still faces challenges that experts believe must be addressed to unlock the sector’s full potential. A recurring issue is information asymmetry – banks struggle to evaluate SMEs due to limited financial records, and SMEs struggle to meet banks’ documentation demands. Adeeb Ahamed, a Gulf fintech executive, points out that only 8% of MENA bank lending goes to SMEs, and attributes this partly to “the lack of an organized framework to gauge SMEs’ creditworthiness and risk”. He advocates for auniform “credit readiness” system in which SMEs adopt standardized bookkeeping and transparency, making it easier for lenders to extend credit confidently. This perspective is gaining traction – policymakers are indeed working on unified SME reporting standards and credit bureaus are expanding coverage of small business data.

From the banking side, leaders emphasize that mindset shifts are underway. Shayne Nelson, Group CEO of Emirates NBD , notes that banks must proactively support the SME segment for the broader good of the economy. “As a leading bank in the country, Emirates NBD has always championed the needs of homegrown SMEs… enabling more entities to access credit easily to grow their businesses,” Nelson said, underscoring a long-term commitment to financing small firms. His bank’s partnership with EDB on guarantees is one example of lowering barriers. Other bank executives echo that digitalization is key: automating loan approvals, using AI for risk management, and partnering with fintechs can dramatically cut the cost and time of serving SME clients, making them a more attractive segment. Essentially, banks are learning that what was once seen as a high-risk, high-effort business can be made efficient and profitable through technology and smarter risk-sharing with public programs.

Fintech founders, for their part, see a huge opportunity in the “white space” left by conventional finance. Nizar Almaree who leads P2P lender Beehive Fintech in Saudi Arabia, observes that many GCC SMEs are robust businesses that simply don’t fit the banks’ traditional criteria. “Banks will never do microlending – they don’t even like SME lending. They’re too conservative, too demanding of collateral,” notes veteran investor Fadi Ghandour, highlighting why private fintech players have stepped in. Ghandour adds that banks often prefer lending to the intermediaries (like microfinance institutions or fintech funds) who then on-lend to SMEs, so “everyone participates in their area of comfort” in the ecosystem. This layered model is emerging in the GCC: large banks finance smaller financing companies, which then deploy credit to micro and small enterprises more nimbly. It’s a symbiotic arrangement that regulators are watching with interest, as it can multiply the reach of formal credit.

Policymakers and regulators stress that while access to finance is improving, it must be accompanied by capacity-building. Many SME owners need training in financial management to make the best use of loans and to present bankable proposals. Initiatives like Bahrain’s SME Development Center and Oman’s incubator network aim to raise financial literacy and business planning skills. Dalal Al Qais, CEO of Bahrain Development Bank, has highlighted the importance of combining financing with advisory support: banks and funds are increasingly providing mentorship, training, and market linkages alongside capital, to ensure SMEs not only receive loans but also grow sustainably. This holistic approach is seen as the way forward – moving beyond just “lending” to building lasting SME resilience.

Looking ahead, experts see the GCC SME financing landscape in 2025 and beyond as one of collaboration between traditional and new players. Banks, fintechs, government agencies, and even capital markets (through SME-focused bonds or stock market segments like Saudi’s Nomu) will all have a role. The consensus is that no single channel can close the SME funding gap alone, but together they can make a dent. As Tariq Fancy, an executive at Emirates Development Bank (EDB), noted at a recent summit, bridging the SME finance gap requires “tailored solutions, financial literacy initiatives, and partnerships” across the industry.

The future thus holds a blend of innovation and reform: more data-driven lending, deeper credit guarantee pools, and continued regulatory refinements (such as strengthened insolvency laws and secured transactions frameworks to make lending safer). The opportunity is enormous – SMEs in the GCC are poised to be engines of job creation and innovation if their financing needs are met. With abundant liquidity in the region, the task is mainly one of allocation and risk management. Fortunately, the trajectory is positive. As we have seen, governments are committed, financiers are evolving their models, and SMEs themselves are adapting to be “credit-ready.” This dynamic ecosystem gives reason for optimism that by 2025 and beyond, the GCC’s small businesses will find it easier than ever to obtain the capital they need to thrive, driving diversification and inclusive growth across the region.