Financial Support for SMEs and their Development Role in Saudi Arabia - Dissertation Example

Isenberg (2011) has stressed the fact that role of SMEs in developing economies increases in a manifold manner for those countries where the scope for other large and capital intensive industries is small. Szabo (2006) has pointed out that Saudi Arabia is the largest economy Gulf Cooperation Council (GCC) and the government of the country has extended its support to the development of SMEs in the last couple of years. The surprising fact is that, despite being the fact that there is huge potential for growth for SMEs in Saudi Arabia but SMEs still contribute less than 30% of total employment (Isenberg, 2011).

Although SMEs contribute almost 90% of the business of Saudi Arabia the industry contributes only 33% of Saudi Arabia’s gross domestic product (GDP) (Isenberg, 2011). Historical analysis of the research paper shows that to date less than 1% of research papers are presented by focusing on the business condition in Saudi Arabia (Ahmad and Xavier, 2011). Hence, there is no surprise that there is large research gap exists in the field of business operation of SMEs in Saudi Arabia. The existence of such gaps has influenced the researcher to take on this paper and conduct research to fill the gap up to a certain scale.

Gulf areas in general and Saudi Arabia in particular, are oil-rich regions with the economy being driven by the large oil-producing organizations. The required financial support for the SMEs, to strengthen their capability to further contribute towards the progress of Saudi Arabia’s economy, is however somewhat lacking. Research scholars have tried to establish a common definition of SMEs but it is very difficult to establish a common definition of Small and Medium Enterprise (SME) in the context of gulf countries.

Ahmad (2012) has defined SMEs as an enterprise that employs 1 to 100 workers and revenue of up to 20 million Saudi Riyals. However, other researchers have argued that it is not possible to classify SMEs based on revenue because the nature of business differs from SMEs to SMEs in the Saudi Arabian region. Hence, it can be evaluated that it is very difficult to establish a standard definition of SME in the Arabian context.According to the above discussion, it is very difficult to establish a concrete definition of SMEs which can be used as a standard for SMEs across the globe.

In such context, the perplexity of defining characteristics and criteria of SMEs has increased to a further extent when Fu (2011) argued that defining SMEs differs from country to country and is based upon different variables such as the number of employees, revenue, nature of trade, etc. Hertog (2010) has also pointed out that there is no official definition of SMEs in Saudi Arabia. Shalaby (2004) has stated that Saudi Arabian government uses various quantitative criteria to define SMEs such as the number of workers, revenue, types of business, etc.

Although there is a conflict of opinion regarding the definition of SMEs in Saudi Arabia researchers have agreed with the fact that SMEs in Saudi Arabia face challenges regarding accessing finance. Although SMEs signifies the spirit of entrepreneurialism within the society and outlines as to how the new startups result into the creation of economic capital for the country but still a financial institution of Saudi Arabia perceive SMEs as a high-risk borrower. Hence, these financial institutions show reluctance to lend money to small business owners.

Hence, it can be evaluated that SMEs of Saudi Arabia are facing challenges in terms of lack of economic and government support.