Global lending market
In recent years, the global lending market has expanded substantially due to rising levels of education, increased disposable income, and relaxed loan controls. According to projections, the lending market is set to experience significant growth, with an expected increase from $10,505.27 billion in 2023 to $11,325.13 billion in 2024, achieving a compound annual growth rate (CAGR) of 7.8%.
The market is expected to continue this momentum by growing to $15,283.24 billion by 2028, maintaining a CAGR of 7.8%. It is believed that digital technologies, including artificial intelligence and blockchain, will significantly contribute to this growth, as financial institutions strive to enhance customer satisfaction through the optimization of their operations and product offerings. On a global level, companies such as Industrial and Commercial Bank of China Ltd, China Construction Bank Corporation, Agricultural Bank of China, Bank of China, JP Morgan Chase, and CitiGroup are expected to be the leading players in the lending market.
The global fintech lending market is expected to reach a staggering 1862.64 billion USD in 2032, up from 200 billion USD in 2022, a remarkable compound annual growth rate (CAGR) of 25%. There is widespread agreement that fintechs will significantly affect the growth of the lending market. However, their principal goal will be to foster innovation and reshape market dynamics.
Technologies such as artificial intelligence, blockchain, cloud computing, and big data are expected to drive growth in the market and reshape the lending industry. Some examples of Fintech applications are Google Pay, Venmo, P2P Lending, Mobile Banking, and Trading Platforms. Fintech lending is expected to grow at a higher pace than lending by traditional financial institutions. This is because of the willingness of Fintechs to take on more risks and offer a better product, which ultimately results in higher customer satisfaction. These lending companies use various digital tools and technology to streamline the loan application, approval, and repayment processes.
North America is the leading global fintech lending market, with a 40% market revenue share in 2022. Some of the key market players poised to lead the global fintech lending race are Funding Circle, Tavant, RateSetter, Avant, and Kabbage Funding.
Lending market in Saudi Arabia
As a result of Vision 2030 and the government's increasing involvement in the economy, Saudi Arabia is poised to become an important player in the global economy. To diversify its economy and open the kingdom up to the world in a way it has never done before, the KSA government is bolstering mega-projects, modernization programs, reforms, and development plans as part of the strategy. Whether it's for individuals' discretionary spending or small enterprises, the need for finance will rise as the economy achieves new heights.
- Market Overview
The lending market in Saudi Arabia is valued at over $200 billion. In January 2024, Saudi banks extended loans totaling SR2.62 trillion ($700 billion), an impressive 11 percent increase compared to the previous year.
A significant portion of the growth was fuelled by a rise in personal loans, contributing to 33 percent of the overall increase. The remaining 67 percent was contributed by corporate lending, specifically in real estate activities, as well as electricity, gas, and water supplies. Lending in the Kingdom is predominately structured around significant real estate giga-projects, which include both commercial and housing infrastructure.
The KSA government is providing more incentives and better opportunities for business lending with specific funds and easy financing options available to such enterprises. One notable example of this is the Kafalah programme, through which the KSA government has provided funding for 5,476 SME initiatives. As of December 2023, the SMEs under this program have received a total funding exceeding SR15.6 billion.
Saudi Arabia’s banking sector saw a 3.74 percent quarterly increase in aggregate net income in the third quarter of 2023 with corporate and wholesale lending as the primary driver of a 2.9 percent quarter on quarter increase in loans and advances. Real estate loans made up 29 percent of Saudi Arabia's bank loans, with 21 percent going to corporate entities and the remaining 79 percent allocated for retail. Despite a higher allocation for individuals, corporate loans exhibited a higher growth rate during this period, increasing by 17 percent compared to 12 percent for retail.
The personal loan market in Saudi Arabia was valued at $146.54 billion in 2021 and is projected to reach $670.58 billion by 2031, registering a CAGR of 16.3% from 2022 to 2031. The emergence of Fintechs and growth in demand for personal loans with lower interest rates are driving the personal loan market in Saudi Arabia. Currently, the personal loan market in Saudi Arabia is said to be in a nascent stage that is expected to grow further with better credit history records, the adoption of advanced technologies such as AI, and blockchain, and a rise in the need for operational efficiency & transparency in providing personal loans product lines.
Saudi Arabia is another country where digital lending is expected to grow, with a market value of $41.68 billion in 2022 and a compound annual growth rate (CAGR) of 15.33% to reach USD 98.09 billion by 2029. Increasing convenience by Fintechs, better loan accessibility, and low documentation requirements are expected to drive digital loans in the Kingdom.
Overall, the lending market in Saudi Arabia is on the path to major growth thanks to a multitude of favorable factors.
- Competitive Landscape
The lending ecosystem in Saudi Arabia is comprised of 3 players: Banks, NBFCs, and Fintech Companies. Advisory and consulting firm Ken Research highlighted that while banks hold the lion’s share of the finance ecosystem in Saudi Arabia, NBFCs and Fintech companies are expected to challenge these financial institutions in a big manner.
Key players include banks like Al Rajhi Bank, Saudi National Bank, and Riyad Bank. Competition among financial institutions is higher with each institution serving different customer segments. Traditional banks rely on their branch networks and brand value, while Islamic banks cater to customers seeking Sharia-compliant financing. Fintech startups focus on innovation and efficiency, and non-banking financial companies offer specialized lending services. Each player plays a key role in contributing to the growth of the lending market in Saudi Arabia.
- Key Growth Drivers
- Buy Now Pay Later
The Buy Now Pay Later (BNPL) is expected to grow at an impressive CAGR of 25.76% from 2024 to 2029 with Gen Z and millennials being the early adopters. BNPL is slowly eclipsing credit cards due to its high convenience and better transparency to fund transactions. A rising e-commerce sector is key to the growth of BNPL. Some of the key players in BNPL are Tamara, Tabby, and Spotti.
- Home Loan Market
The Saudi government has been working to boost homeownership rates to 70% by 2030 from 47% in 2016. As a result, the home loan market has a huge potential to grow in the coming years.
- SME Financing
The government of Saudi Arabia has placed high importance on the growth of the SME Sector with the set up of various specialized agencies to offer targeted support to SMEs. Since 2017, Forsa, a government-backed platform, has allocated over SR1 billion ($270 million) to support small and medium enterprises in Saudi Arabia. In its vision 2030, the government wants SME’s contribution to national GDP to from 20% to 35 % by 2030.
- Role of Lending in the overall development of Saudi Arabia
Lending in any country boosts economic growth and improves the prosperity of its citizens. However, financial institutions need to ensure proper risk-management strategies while prioritizing growth. With time, the financial institutions in Saudi Arabia will lead to better financial equity and better access to finance for all of its citizens. Ultimately, all of this will translate into higher economic growth along with increased revenue and profits for financial institutions.
- Future of Saudi Lending Market
The Saudi Lending Market has great potential with both personal and digital lending expected to grow in double digits. Increased importance by the government along with a young tech-savvy population and innovating financing options by Fintechs makes the industry attractive for growth.
About Tanmeya Capital and Finmal Fintech Fund
Several high-profile investment funds have already stepped up to address the funding gaps in the fintech sector, including Sanabil Investments and Shorooq Partners. Fintech funds launched by Tanmeya Capital also offer exposure to the growing Saudi Arabian fintech sector. Tanmeya is focused on bridging the financing gap in Saudi Arabia’s SME sector along with the support of several government initiatives. In the Vision 2030 scenario, the credit gap in the SME sector will improve dramatically from a shortfall of SAR 372 billion in 2020 to just SAR 94 billion by 2030. To offer investors attractive risk-adjusted returns through exposure to financing solutions for eligible SMEs, Tanmeya has launched the Finmal platform with a rigorous credit scoring of SMEs to evaluate the financing eligibility of SMEs. Leveraging its robust data analytics platform, the Finmal platform is designed to reduce credit repayment risk while partnering with strategic financial partners for disbursing secured loans. Finmal’s edge is its access to a massive pool of robust SME data. Funds will be deployed for various means, including supply chain financing, POS financing, and consumer financing that help SMEs to overcome their operational financial challenges and scale beyond.
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