Financing programs are programs that aim to provide the necessary funding for individuals and organizations to develop their business activities and achieve their goals. For this reason, these programs are among the main incentives that contribute to supporting the local economy and stimulating growth in any country. However, financing companies often require a “guarantor” to grant borrowers the necessary financing from these programs.
A guarantor is a person or institution that pledges to repay the financing value in the event that the borrower is unable to repay. The presence of a guarantor is an important factor in reducing financing risks and increasing the borrower’s chances of obtaining the necessary loan or financing.
In some cases, it may be difficult for the borrower to secure a guarantor to obtain the financing. In this case, the borrower can use programs that do not require the signature of a guarantor. However, they must be aware of the terms and conditions of these programs before applying for them. The conditions for granting loans and financing often follow strict standards that the borrower must adhere to.
For this reason, there is now a demand for an entity that plays the role of a guarantor, facilitating borrowing from financing companies, and at the same time bearing some of the financial risks of the borrower’s late payment.
To meet this demand, the Saudi Industrial Development Fund launched the Kafalah Programme. So what is it? What is the difference between the Kafalah program and financing companies?
You will learn about all this and more in the lines of our article, which we will formulate in a question-and-answer manner to give more clarity to the topic of the article.
What is the sponsorship program?
The Kafalah Program is a government program that aims to support small and medium enterprises in accessing the necessary financing to develop and expand their commercial activities. It does this by providing guarantees to financial institutions that wish to lend to SMEs.
This program helps financial institutions feel comfortable lending to small and medium enterprises, making it easier for enterprises to obtain the financing they need.
The Kafalah Program also aims to attract a new segment of small and medium enterprise owners who are not accustomed to dealing with financing agencies, by providing support and guidance to these enterprises, which helps them prepare financing applications and manage their business more effectively.
The program contributes to the growth and development of the small and medium enterprises sector. By facilitating these enterprises’ access to financing, they can develop their activities and expand their scope of work, which creates new job opportunities and increases gross domestic product. The program also contributes to the development of cities and regions that are less economically active by supporting small and medium enterprises operating in these regions.
What are the requirements for obtaining Kafalah financing?
To obtain financing through the Kafalah program, small and medium enterprise owners must follow these steps:
- Apply for financing to one of the financing agencies cooperating with the program, attaching all required documents.
- Here the application is studied by the financing body.
- If the financing party needs guarantees, the application is transferred to a sponsorship program to study the guarantee request.
- The Kafala Program checks the application.
- If approved, a guarantee is issued in favor of the financing party, and written approval is obtained from the borrower to accept registration in the Kafalah program.
Owners of small and medium enterprises can view the list of financing agencies cooperating with the Kafalah program on the program’s website.
It is worth noting that there are no specific conditions for obtaining financing from the Kafalah program, as each financing party cooperating with the program determines its own conditions for obtaining the required financing. Therefore, it is better to contact the funding agencies cooperating with the program to inquire about the conditions for obtaining funding from the Kafalah Program.
But in general, most financing companies share some conditions that must be met by small and medium enterprises that wish to obtain financing, including:
- The facility must be registered in the Kingdom of Saudi Arabia.
- To work in one of the sectors targeted by the program.
- The establishment must have a valid commercial register.
- The facility must have an annual financial plan and budget.
- The business must have an implementable business plan.
- They must be able to repay the loan.
What are the benefits of applying for the Kafala program?
The program seeks to achieve multiple goals: Some of them are related to individuals who own projects themselves, and some are related to supporting the local economy. These goals are as follows:
- Contributing to the development of the national economy; This is done by supporting and developing all small and medium enterprises.
- Increase the volume of local production.
- Supporting individuals’ projects increases individual income, thus improving their standard of living.
The Kafalah program contributes to reducing unemployment rates and increasing the labor force by supporting those who want to work but cannot find a suitable source of financing for their existing projects, or even those who have ideas for new projects and are seeking to implement them.
The difference between the Kafalah program and financing companies is that the program achieves these goals by helping small and medium enterprises obtain the necessary financing to develop and expand their businesses. It also provides support and guidance to business owners, which helps them manage their businesses effectively and achieve success.
What about the failure rate of the sponsorship program?
Hammam Hashem, Director General of the Kafalah Program, revealed that the failure rate of projects sponsored by the program does not exceed 1.6 percent. This is a very reasonable percentage when compared with other guarantee programs, and he pointed out that the guarantee may reach 80% of the value of one loan, which may be worth up to a maximum of 1.6 million riyals.
What if the program guarantees a business, and it defaults on payments?
The difference between the Kafalah program and financing companies is that the program is a government development program that does not aim to achieve profit, but rather to achieve sustainability in providing its services.
In the event that the program includes an establishment and the establishment defaults on payment, the program works to overcome financing obstacles by covering or guaranteeing a percentage of the risks of the financing entity in the event that the guaranteed activity fails to repay the financing or part of it.
This means that the program bears part of the financial risks resulting from the facility’s default, and therefore works to compensate the financing party with part of the value of the financing due.
What is the difference between the Kafalah program and financing companies?
The Kafalah Program is a program that provides the necessary guarantees to financing agencies with the aim of helping micro, small and medium enterprises and entrepreneurs obtain the necessary financing to develop their activities. Therefore, the difference between the Kafalah program and financing companies is evident in several aspects, including:
- The Kafalah program does not provide financing directly, but rather provides financial guarantees to enhance the opportunities for small and medium enterprises to obtain the necessary financing.
- The Kafalah program works in conjunction with various financing agencies, while financing companies work independently.
- The Kafalah program aims to encourage financing agencies to deal with the small and medium enterprises sector without making any profits, while financing companies aim to achieve profits by providing financing.
Why is Al Raedah the best source of financing for small and medium enterprises?
Since its founding, Al Raedah has become the main financing company for small and medium enterprises in the Kingdom of Saudi Arabia, serving the local economy and empowering business owners by providing appropriate online loan solutions that reflect positively on their businesses.
Away from the usual complexities and lengthy financing procedures, Al Raedah offers a package of facilities that make the process of obtaining financing faster and more flexible, and among these facilities are:
- The process of obtaining financing is very fast. Once you complete the required documents, you may be able to obtain the financing amount within 7 working days.
- There is no need to go through the hassle of paying monthly installments, as SME financing will be repaid through daily sales.
- Flexibility in the repayment period, which starts from one year and lasts up to three years, so you can choose the time period that suits you.
- Obtaining the ideal financing for your facility; The financing amount starts from 50 thousand Saudi riyals and goes up to 7 and a half million Saudi riyals. Therefore, whatever the financing amount that is compatible with your ambitions and the circumstances of your facility, you will find Al Raedah ready to provide it whenever the necessary conditions are met.
- Al Raedah Company understands well the needs of customers, so it deducts the financing fees from the financing amount itself, and does not ask the customer for amounts that are added to monthly burdens. It also deals with this matter transparently and clearly and does not deduct any hidden or surprising fees.
- You may be able to obtain financing regardless of the location of your facility in the Kingdom of Saudi Arabia.
- The procedures for applying for an online loan are quite easy; It can be completed online via the website, and there is no need to submit financial statements. Account statements are sufficient to obtain financing for small enterprises.
So, as we have seen, the Kafalah program provides solutions that help many people obtain financing from numerous companies. We also learned the difference between the Kafalah program and the individual financing companies. So, what if you want to obtain financing without a guarantor?
In this regard, Al Raedah is distinguished as the best non-banking financing institution in Saudi Arabia. Through the financing services it provides, you can obtain financing that meets your needs in the best possible way. So what are you waiting for? Find out how Al Raedah can help.