RIYADH: The number of companies, investment funds, and individuals, as well as insurance firms investing through Saudi Arabia’s “Sukuk Capital” crowdfunding platform has reached around 800,000 over the past five years, with investments totaling SR11.6 billion ($3.1 billion), according to the company’s CEO of Investment.
Speaking to Al-Eqtisadiah, Saud Al-Muhanna said the number of companies benefiting from the financing provided through the platform has exceeded 600, adding that 36 percent of Sukuk Capital’s financing portfolio has been allocated to real estate projects backed by mortgages, while financing extended to industrial companies accounted for 20 percent.
Al-Muhanna noted that expansion financing provided to education and healthcare companies represented 15 percent of Sukuk Capital’s financing portfolio, highlighting the high level of investor confidence in the company, which accounts for 60 percent of the market share in the crowdfunding financing sector.
This financing has enabled companies to expand by increasing student capacity in educational institutions, growing hospital bed capacity, and boosting production capacity at factories producing basic materials, petrochemicals, and metals, contributing significantly to the Kingdom’s economic development.
Regulatory oversight and market expansion
On July 28, the Saudi Central Bank, known as SAMA, announced that it had licensed Himma for Financing to conduct debt-based crowdfunding activities, bringing the total number of licensed finance companies in Saudi Arabia to 78.
Debt-based crowdfunding is a financing method used by some institutions, where a digital platform enables companies to obtain direct loans from a large group of investors – either individuals or institutions – through an intermediary electronic platform.
The borrower commits to repaying the financed amount along with the agreed financial return, without the need to rely on traditional financing providers.
How it works
Crowdfunding companies receive financing applications electronically from businesses seeking funding. Then, the platform assesses creditworthiness and evaluates risks before presenting the project to individual and corporate investors to raise the required amount.
Once the funding is collected, it is transferred to the beneficiary company, which repays the amount according to a predetermined schedule.
The activity is supervised and regulated by SAMA and the Capital Market Authority, as it is an electronic financing activity based on collecting funds from individuals and institutions through digital platforms.
Returns and risks
Financing mechanisms vary depending on the type of project, as some companies finance real estate projects or asset purchases, with investment periods ranging from one to two years, while others focus on short-term invoice financing, with investment periods ranging from 50 days to one year.
On the returns side, they range between 10 percent and 18 percent before deducting fees, which average 1 percent of the total invested amount. The return is determined based on the nature of the company, its financial classification, and its risk profile. Company data indicates that default rates remain low, ranging between 1 percent and 1.5 percent only.
However, defaults are classified in two cases: the first occurs when the beneficiary company is unable to repay the amount even after enforcement of collateral, while the second occurs when the firm delays repayment for more than 90 consecutive days, according to the regulatory rules governing the activity imposed by SAMA.
