Role of Microfinance and Informal Finance in Stabilization of Saudi Arabian Economy

Running head: ROLE OF MICROFINANCE AND INFORMAL FINANCE IN
STABILIZATION OF SAUDI ARABIAN ECONOMY
Role of Microfinance and Informal Finance in Stabilization of Saudi Arabian Economy
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ROLE OF MICROFINANCE AND INFORMAL FINANCE IN STABILIZATION OF
SAUDI ARABIAN ECONOMY
1
Table of Contents
Introduction................................................................................................................................2
Background of the study............................................................................................................2
Literature Review.......................................................................................................................3

ROLE OF MICROFINANCE AND INFORMAL FINANCE IN STABILIZATION OF
SAUDI ARABIAN ECONOMY
2
Introduction
Industries and businesses need investments to start operation and remain functional
and these investments come from different modes of finance. Finance is thus one of the
primary necessity for a business that needs to be fulfilled. Recognizing the need for monetary
assistance banking and non-banking financial institutions emerged. However, the service of
the financial sector had been limited to the big businesses. The micro, small and medium
enterprises are not always be able to get finance from banks and other formal financial
institutions. This led to the emergence of informal financial sector. Informal financial sector
contrarily charges higher rate of interest that formal sector. In every developing or emerging
economies both formal and informal financial sector exists. In Saudi Arabia both these
previously mentioned financial sectors exists. Micro finance is thus extended to the small
businesses through informal and formal sectors. Understanding the importance of micro
finance for the small businesses Saudi Arabia has implemented several micro finance
encouraging policies.
Background of the study
Microfinance is related to the financial support to the poor people who are deprived of
financial services and supports from the mainstream financial institutions. Mainstream
financial institutions are mostly interested in lending to big business firms and try to lend all
their designated amount of money for loan to them. Thus, in Saudi Arabia the policy for
financing poor and micro, small and medium enterprises have been implemented and this
policy of finance is known as the microfinance (MSME). Previously, the poor had no options
other than taking loan from informal but with the introduction of microfinance, the financial
conditions of the poor and MSMEs has improved. However, there occurred a change in the
financial sector with the introduction of microfinance in Saudi Arabia. The impact of the