In 2017, the Council of Economic and Development Affairs (CEDA) in Saudi Arabia launched 10 delivery programmes to realise the Kingdom’s Vision 2030. The most prominent of these programmes is the Financial Sector Development Programme (FSDP) that aims at developing the national economy.
By 2030, the sector is expected to grow large enough to fund Vision 2030 objectives, offer a diverse set of products and services through traditional and newly emerging players, give citizens thus far excluded from the financial system access to it with an inclusive structure, achieve a high degree of digitisation and maintain financial stability.
Currently, financial services are mainly driven by bank financing. The share of equity capital markets, measured in terms of domestic market capitalisation, and debt capital markets, measured in terms of registered debt at the exchange, stood at 78% of GDP in 2016.
In terms of diversity, a transformational change is expected to occur. On one hand, the share of capital markets assets as a percentage of financial assets (total domestic market capitalisation and outstanding debt issuances registered at the exchange) is expected to increase. On the other, emerging players (i.e. FinTechs) are expected to stimulate innovation and competition by 2030.
Also, a significant improvement toward an inclusive structure will be realised by providing greater access to productive financing assets such as SME lending and mortgages. Accordingly, it is anticipated that the share of SME financing will increase. To enhance inclusiveness and productive financing, the program commits to increasing the share of SME financing at banks from the 2% level currently to 5% by 2020.
The initiatives being rolled out as part of the FSDP include:
- Open Financial Services to new types of players
This will enable market entry of new types of players (e.g., Fintech, telcos) to foster development of an innovative ecosystem in Financial Services, encourage entrepreneurship / job creation and bolster private sector competition to drive innovation and service quality. The expected impact is to increase the number of licensed Fintech players to minimum of three by 2020.
- Incentivise financial sector to finance SMEs
The idea is to nudge private sector (e.g., banks) to increase share of lending to SMEs by first improving existing ecosystem (e.g., restructuring of Kafalah program, enablement of Bayan and SIMAH to collect SME data) and then potentially considering incentives for SME lending. The expected impact if that SME loans as a % of bank loans will be 5% by 2020.