What Kafalah is, and isn't
Kafalah is the Kingdom's loan guarantee programme for small and medium enterprises. It is part of the SME Bank, one of the institutions under the National Development Fund, and it has supported more than 27,000 enterprises with total financing of around SAR 135 billion.
It does not lend money. It guarantees part of the risk on Sharia-compliant facilities that participating banks and finance companies grant to SMEs. The guarantee lowers the lender's risk, which makes it easier to say yes to a business with limited collateral or a short trading history.
How an application moves
- The enterprise applies for financing to a participating bank or finance company, or through the finance portal supervised by the SME Bank.
- The lender studies the financing application.
- If the lender wants a guarantee to cover the risk, it forwards the case to Kafalah, which studies the guarantee request.
- Kafalah notifies the lender of its decision.
So the first and most important reader of your feasibility study is the bank's credit officer, not Kafalah. If the bank isn't convinced, the guarantee request never gets made.
Are you eligible?
The programme is for micro, small and medium enterprises as Monsha'at defines them. Monsha'at classifies a business on full-time employees and annual revenue, and where the two point to different sizes, the larger one applies.
| Size | Full-time employees | Annual revenue |
|---|---|---|
| Micro | 1 to 5 | Up to SAR 3 million |
| Small | 6 to 49 | SAR 3 million to 40 million |
| Medium | 50 to 249 | SAR 40 million to 200 million |
Kafalah also runs sector products with their own limits. Its tourism product, for example, caps the guarantee at SAR 2.5 million for micro enterprises and SAR 5 million for small ones.
What the bank will ask for
Each lender keeps its own checklist. Bank Albilad's published requirements for Kafalah financing are typical. Alongside the standard company documents, they ask for:
- The foundation contract, if the enterprise is a company
- A feasibility study for new projects, or a business plan
- Audited or in-house financial statements for three years, for existing projects
The bank will also run its usual credit checks on the company and its owners. For a new project there are no past accounts to rely on, so the feasibility study carries most of the weight.
What makes a study credible to a credit officer
Bank credit teams read many SME studies and they recognise a template quickly. The ones that get through tend to share a few features.
It answers the bank's questions in the bank's order
What is the money for? Who are the owners and what have they done before? Who will buy, and why from you? What does it cost to set up and run? When does it break even? Can it repay, and what if things go slower?
Demand is local and specific
A national market size tells the bank very little about a single clinic, workshop or bakery. The catchment, the named competitors nearby, the customers already in discussion and the prices they pay tell it a lot.
Costs are quoted, not guessed
Equipment, fit-out and rent backed by quotations or draft leases. Salaries that reflect Saudi market rates and the Saudisation the activity requires.
The cash flow is monthly for the first year
Annual figures hide the months when cash runs low. A monthly first-year cash flow, with the bank's repayment schedule and grace period built in, shows the bank you have thought about it.
There is a downside case
Show debt service cover in a base case and in a case where sales come in later or lower. A project that still covers its repayments in a reasonable downside is far easier to approve.
The owners' contribution is clear
State how much the owners are putting in, in what form, and where it comes from.
Common mistakes
- A long, generic study with a short, thin financial section
- Projections that reach full capacity in month one
- No working capital in the funding request
- Rent, salaries or prices from another city or another country
- Loan repayments missing from the cash flow