By Asad Ahmed, Managing Director, Alvarez & Marsal
Micro, small and medium-sized enterprises (MSMEs) form the economic engine of the Gulf Cooperation Council (GCC). In the United Arab Emirates (UAE) alone, MSMEs account for more than 95 percent1 of registered businesses, employ 86 percent2 of the private-sector workforce and contribute more than 64 percent3 to non-oil gross domestic product (GDP). Saudi Arabia has an ambitious—but achievable—target under Vision 2030 to raise the SME-contributions-to-GDP ratio to 35 percent4 by 2030. Despite their central role in driving innovation, employment and non-oil GDP diversification, access to financing remains a critical barrier. According to estimates, the GCC-wide SME financing gap exceeds $250 billion5, leaving thousands of growth-ready businesses undercapitalized.
The issue is not merely the availability of credit but also access and suitability. A 2020 CBUAE (Central Bank of the United Arab Emirates) survey revealed that while 75 percent6 of SMEs identified themselves as financially constrained, only 17 percent had approached a bank for credit, and among those, only half were successful in obtaining it. This paradox underscores a deeper misalignment between traditional banking models and the realities of modern SMEs, particularly those in asset-light, service-oriented sectors, such as technology, logistics and digital media.
In Saudi Arabia, similar dynamics are at play. SME credit reached SAR 351.7 billion7 (US$93.8 billion) in 2024, representing a 27.62-percent year-over-year growth. Yet, SMEs still account for just over 9 percent8 of the total loan book, far below the target set under Vision 2030. While governments are setting ambitious goals, banking systems continue to operate largely within legacy frameworks ill-suited to serve this diverse and growing segment.
Traditional bank lending to SMEs remains dominated by collateral-based models. Banks typically require fixed assets, such as property or equipment, as security; the fallback to personal guarantees continues to be a feature. This poses a major hurdle for many SMEs, especially newer or tech-driven ones that operate with limited physical infrastructures. Even those with steady revenue often struggle with credit access due to opaque risk-assessment criteria and complex application procedures. Presumptions of being “more risky” and “let’s start with cash management” are often the starting position of the lender. Processing delays, unclear rejections and requirements for an overload of financial information further complicate access, discouraging many from applying at all.
There has been a plethora of analysis about the funding gap for SMEs in the region and globally, so this is not new. What is also not new is that the general approach to SME lending has not broadly evolved over the last two decades that I have been involved with this vertical.
SMEs are far from a monolithic group. A micro-enterprise employing five individuals with modest revenues has different financial needs and risk profiles than a medium-sized company engaged in cross-border trade. Yet, many institutions continue to apply generalized frameworks that fail to reflect this diversity, further widening the service gap. A one-size-fits-all approach cannot adequately address the specific needs of different business segments.
What’s needed—and what is indeed happening in pockets—is a shift in perspective: away from simply extending more of the same type of credit and towards reimagining what SME banking should look like in a digital, service-oriented economy. This begins by revisiting how we assess risk. Alternative data—ranging from point-of-sale (POS) transactions and e-commerce activity to payroll trends and utility payments—can paint a far richer picture of SME performance than traditional financial statements alone. Platforms such as the UAE’s Al Etihad Credit Bureau9 and SIMAH (Saudi Credit Bureau) in Saudi Arabia10 have made strides in centralizing credit information, but coverage for younger or informal enterprises is a work in progress.
Artificial intelligence (AI) can process these alternative datasets at scale, enabling dynamic credit-scoring models that adapt to real-time performance rather than historical lag indicators. In doing so, financial institutions can expand credit access to viable businesses previously excluded under conventional risk models.
Technology also presents a powerful channel for streamlining customer journeys. The successes of digital banks, such as Wio11 and Mashreq NEOBiz12, and fintech (financial technology) lenders, such as CredibleX13, in the UAE—to name a few—demonstrate the growing appetite for mobile-first, paperless onboarding and rapid loan disbursal. These challengers often differentiate themselves through speed, user experience and a willingness to lend without traditional collateral, relying instead on proprietary scoring algorithms.
The rise of embedded finance is another paradigm-shifting trend. By integrating financial services directly into operational platforms, whether retail POS systems or supply-chain networks, SMEs can access contextual credit without disrupting their workflows. For example, a merchant using a digital POS terminal may receive pre-approved working capital based on real-time sales data, with repayment automated through future transaction flows. This model, already piloted in partnerships such as Tarabut Gateway with EazyPay14 in Bahrain and Geidea15 in the KSA (Kingdom of Saudi Arabia), offers a comparatively smoother path to credit, particularly for underserved micro and small businesses.
Globally, compelling case studies illustrate how digital-native finance models can succeed. In Southeast Asia, Funding Societies has disbursed more than $4 billion16 in SME loans using AI-driven underwriting. In India, Kinara Capital17 offers collateral-free loans with digital KYC (know your customer) and cashflow-based scoring. TymeBank18 in South Africa serves millions without physical branches, using retail partnerships and smart kiosks. Japan’s Minna Bank19 operates entirely in the cloud, offering simplified services to tech-savvy consumers. These models not only prove feasibility, but they also highlight the competitive advantages of user-centric, tech-led design.
So, what does this mean for the GCC? It signals a timely opportunity to leapfrog legacy systems by building an ecosystem that is truly digitally native. Open-banking frameworks, already being rolled out in Saudi Arabia and Bahrain, provide the backbone for consent-based data sharing, allowing SMEs to share financial data across institutions securely. Combined with cloud-native banking infrastructure and robust cybersecurity, the GCC has the technical foundations for transforming SME finance at scale.
But success hinges not only on technology; it also requires ecosystem alignment. Financial institutions should invest in agile core systems, adopt open APIs (application programming interfaces) and recalibrate internal incentives to prioritize SME clients. Governments must go beyond top-down mandates and focus on implementation: simplifying application processes, creating centralized funding portals and raising awareness of existing schemes such as Monsha’at’s Kafalah20 loan guarantees or the UAE’s Targeted Economic Support Scheme (TESS).
Equally critical is the role of financial literacy. Many SMEs lack the know-how to navigate formal credit processes or digital platforms. Targeted education campaigns, advisory services and mentorships can improve engagement and credit readiness, particularly among women-led and early-stage businesses. In Saudi Arabia, for instance, women now own 45 percent21 of SMEs—a remarkable statistic that points to both social progress and a need for gender-aware financial strategies.
There’s also room to rethink the instruments on offer. While debt is the dominant mode of SME finance, equity, leasing and revenue-based finance can offer more flexible structures, especially for start-ups and high-growth enterprises. Saudi Arabia’s Nomu parallel market, for example, allows SMEs to raise equity capital via a dedicated exchange, complementing credit channels.
The challenge is significant, but so is the opportunity. Globally, the estimated financing gap for formal MSMEs stands at around $5.7 trillion22, which is expected to be $8 trillion when informal enterprises are included. This represents a significant portion of economic potential left untapped, estimated at 19 percent23 of GDP in emerging market and developing economies (EMDEs). For the GCC, achieving even a fraction of this would translate into meaningful gains in employment, innovation and resilience.
In the post-pandemic economy, with digital behaviors entrenched and national visions laser-focused on diversification, there has never been a better time to reimagine SME banking. The goal should not be to tweak legacy models but to build a fresh architecture—one that views SMEs not as risks to be managed but as partners to be empowered.
Banks, fintechs and regulators must now come together to write the next chapter of SME finance in the GCC—one that is inclusive, intelligent and built for the future.
The road to a digitally native SME banking ecosystem requires dismantling decades of conventional financial architecture. This doesn’t simply mean adding a digital layer to physical processes but also reengineering the entire journey—from onboarding to credit-lifecycle management. For instance, onboarding processes should no longer take days or require in-person verification; instead, biometric KYC verification and API-based document validation can achieve this in minutes.
Regulatory bodies in the GCC are already making strides to create fertile ground for these innovations. The Saudi Central Bank (SAMA) has launched regulatory sandboxes that allow fintech firms to test and refine products with temporary regulatory relief. Likewise, the UAE’s FinTech Office and ADGM’s (Abu Dhabi Global Market’s) Digital Lab are setting standards for interoperability and consumer protection. The UAE also implemented the Small to Medium Sized Enterprises (SME) Market Conduct Regulation to ensure fair treatment by financial institutions.
Given history, an accelerated expansion of SME lending by well-established large banks is unlikely. These institutions are more corporate and/or retail-focused and may have less time for SMEs. Relationship managers can be responsible for up to 100 accounts, with deposits and fee income being primary targets. A practical approach that goes some way towards making a difference involves specialized SME banks that understand the differential approach needed for this sector and respond with tailormade asset and liability products. A degree of specialization in key industries would be a helpful add-on. There are several global examples of success—Judo Bank24 in Australia, BTG Pactual25 in Brazil and Business Development Bank of Canada (BDC)26 in Canada are institutions that have varying, but very successful, approaches to SME banking.
Despite these advancements, structural challenges persist. Credit penetration remains disproportionately low in the region compared to its global peers. According to the World Bank27, SMEs in MENA (Middle East and North Africa) countries receive just 8 percent of total bank credit, compared to 22 percent in high-income economies. SME financing in the KSA was 9.4 percent of total loans (2024)28, while the corresponding number in the UAE was 9.5 percent29 (first half of 2024). This underperformance is a result of entrenched systemic-risk aversion, compounded by limited credit histories, fragmented financial records and the historically low financial inclusion of micro-businesses and foreign-owned entities.
Using technology and specific incentives can also further the growth of SME financing. In this context, the value of financial identity becomes paramount. By enabling SMEs to build digital-credit footprints through everyday business activities, such as payroll, supplier transactions and customer payments, GCC financial systems can transition from exclusion to inclusion.
Another high-potential frontier is sustainability-linked SME finance. With GCC nations committed to net-zero targets and climate-aligned economic growth, there’s an opportunity to tie SME credit access to ESG (environmental, social and governance) outcomes—for example, offering preferential terms to SMEs that reduce emissions, adopt green technologies or achieve sustainability certifications. This would mirror developments in Europe, where green-loan principles are guiding SME-banking transformations.
Moreover, supply-chain finance represents another scalable solution for SME liquidity. Large corporates in the region—many of which are state-owned or multinationals—can play an enabling role by integrating supply-chain finance platforms, allowing SMEs to access early payments on receivables, often at lower interest rates due to the creditworthiness of the anchor buyer.
The fusion of financial services with ecosystem partnerships will define SME banking’s next chapter. Telecom (telecommunications) operators, e-commerce platforms, logistics providers and even ride-hailing applications hold troves of actionable data on MSME activity. Partnering with these entities for distribution, underwriting and repayment offers an unprecedented way to reach thin-file customers. In China, MYbank30, under the Alibaba umbrella, already issues loans based on online store sales.
Looking ahead, the GCC has a chance not just to close the financing gap but to leapfrog older models. This will require coordinated efforts across the value chain—from digitally savvy policymakers and regulators to open-architecture fintech platforms and digitally mature banks. And it will also depend on the MSMEs themselves embracing digital practices, formalizing their operations and cultivating financial discipline.
What is at stake is more than just improving access to loans. It’s about unlocking a wave of entrepreneurial activity, powering job creation and building economic resilience across sectors that will define the GCC’s future beyond oil. The time for SME Banking 2.0 is not just now; it’s overdue. And it must be architected not as a patchwork of fixes but as a digital-first foundation for inclusive prosperity.
References
1 Arab News: “UAE banks extend $22bn in loans to SMEs in H1 of 2024: CBUAE,” Miguel Hadchity, October 24, 2024.
2 Ibid.
3 WAM: “557,000 SMEs operated in UAE at end of 2022: Minister of Economy,” April 6, 2023.
4 The Embassy of the Kingdom of Saudi Arabia: Vision 2030.
5 Kearney: “Small but mighty: why banks need to rethink how they serve SMEs GCC Retail Banking Radar,” July 3, 2024.
6 Central Bank of the UAE: “UAE MSMEs Business Survey Report 2020,” December 2020–February 2021.
7 Arab News: “Saudi MSME lending hits $94bn driven by government-backed reforms,” Dayan Abou Tine, April 1, 2025.
8 Ibid.
9 Gulf News: “Al Etihad Credit Bureau’s customer data surges to 3.71 million amid expanding services,” Khitam Al Amir, May 3, 2024.
See also:
Zawya: “Instant access to Etihad Credit Bureau Credit Report and Score through Abu Dhabi Government’s Tamm platform,” June 4, 2024.
10 Arab News: “Saudi Credit Bureau issued 116m reports in 16 years,” Rashid Hassan, April 10, 2021.
11 Fintech Futures: “UAE’s Wio Bank goes live on Mambu’s cloud banking platform. The challenger says it chose Mambu’s API-led cloud platform to achieve a ‘faster’ time to market,” Shruti Khairnar, November 9, 2022.
12 The Fintech Times: “Mashreq Biz Launched to Streamline UAE SME Processes and Improve Financial Management,” February 25, 2025.
13 Wamda: “CredibleX secures $55 million Seed in both equity, debt,” December 17, 2024.
14 Zawya: “Empowering Bahrain’s SME’s with access to game changing financing opportunities on Eazypay POS: EAZY Financial Services ‘Eazypay’ partners with Tarabut to deliver SME POS financing in Bahrain,” January 19, 2025.
15 Open Banking Expo: “Tarabut partners with Geidea to deliver financing for Saudi Arabia’s SMEs,” Ellie Duncan, November 19, 2024.
16 Funding Societies: “Maybank Announces Strategic Investment in Funding Societies, SEA’s Largest MSME Digital Finance Platform,” September 11, 2024.
17 Kinara Capital: Small Business, Big Dreams!
18 TymeBank: “TymeBank reaches 10 million customers as it attracts record deposits for 2024.”
19 Accenture: “Minna Bank: Japan’s first digital bank,” Minna Bank Case Study.
20 Arab News: “Monsha’at sees 884% increase in Saudi SMEs borrowing,” George Charles Darley, January 13, 2022.
21 Arab News: “How Saudi women are redefining entrepreneurship in the Kingdom,” Abdulelah S. Al-Nahari, February 4, 2025.
22 International Finance Corporation (IFC): “MSME Finance: Micro, Small and Medium-sized Enterprises (MSMEs) are vital to economic growth, job creation, provision of goods and services, and poverty alleviation in emerging markets.”
23 Global Partnership for Financial Inclusion (GPFI): “G20 Global Partnership for Financial Inclusion: Action Plan for Micro, Small, and Medium Enterprise Financing,” December 2024.
24 Judo Bank: We’re boldly backing business.
25 BTG Pactual: Investment Bank.
26 Business Development Bank of Canada (BDC): We are the bank for Canadian entrepreneurs.
27 World Bank: “Overcoming Constraints to SME Development in MENA Countries and Enhancing Access to Finance IFC Advisory Services in the Middle East and North Africa,” Qamar Saleem, 2011.
28 Arab News: “Saudi MSME lending hits $94bn driven by government-backed reforms,” Dayan Abou Tine, April 1, 2025.
29 Zawya: “Banks provide $22.1bln in financial facilities to SMEs by end of H1-24: CBUAE. Loans to SMEs accounted for 9.5 percent of the total cumulative balance of financial facilities provided to the commercial and industrial sectors in the UAE,” October 23, 2024.
30 Fortune: “Jack Ma’s Online Bank Is Leading a Quiet Revolution in Chinese Lending,” Bloomberg, July 29, 2019.