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This article is based on discussions during the Private and Alternative Credit sessions at Global Banking & Markets’ flagship Middle East festival in Dubai in late June, as well as conversations with private-credit specialists in Saudi Arabia throughout May and June.
Saudi Arabia’s private-credit market is unlikely to develop as a simple replica of the US or Europe.
In more mature markets, private credit has expanded largely by moving into areas from which banks have withdrawn. Regulation, capital requirements and changing risk appetites have created space for alternative managers to finance leveraged transactions and mid-sized companies that might once have depended on conventional bank lending.
A financing gap with different origins
The Saudi opportunity starts from a different point. Private credit is not simply replacing an established source of finance. It is beginning to provide institutional capital to a section of the economy that has historically been underserved.
Saudi banks remain highly active, particularly across government-related entities, major projects and larger companies. But balance-sheet capacity is finite, while conventional lending processes inevitably favour borrowers that meet established requirements around scale, collateral, financial information and credit history.
That leaves a significant gap in the mid-market. Many privately owned companies possess viable businesses, recurring revenues and credible growth plans but have limited access to institutional debt. Some have traditionally relied on shareholders, family capital or bilateral relationships rather than a competitive and professionally managed financing market.
Private credit can address that gap through more individualised underwriting. Managers can structure facilities around particular assets, contracts or cash flows and provide expansion, acquisition or working-capital finance that does not fit comfortably within standard bank products.
A hybrid market is taking shape
The institutions developing this market are likely to be diverse. Independent regional managers and international private-credit funds are examining Saudi opportunities. Advisers are connecting global capital with potential transactions in areas including last-mile financing, residential developments supported by off-plan sales and structures involving insurance capital.
Alongside them, a number of Saudi investment and capital-markets businesses are developing private-credit capabilities of their own. Some are considering direct lending as well as indirect participation through funds and specialist managers. One proposed strategy discussed with GBM was considering individual transactions of approximately SAR20m–SAR30m and targeting returns of 12%–15%.
The involvement of bank-owned capital-markets platforms does not mean that they will dominate the industry. It does, however, illustrate the potentially hybrid character of the Saudi model. Banks, investment firms, independent managers, advisers and international funds could participate through different parts of the financing chain rather than dividing neatly into incumbents and disruptors.
Expertise will determine the pace of growth
There are still important constraints. Private credit requires specialist expertise in origination, documentation, structuring, portfolio management and workouts. Market participants identified a shortage of experienced practitioners, particularly when compared with the much more heavily populated private-equity industry.
Legal certainty, reliable borrower information and confidence in enforcement will also influence how quickly international capital can participate. Managers will need to demonstrate that they can assess borrowers properly, negotiate adequate protections and remain actively involved throughout the life of a transaction—not simply provide expensive capital where bank financing is unavailable.
Nevertheless, the underlying opportunity is significant. Saudi private credit is emerging not merely as an alternative to bank lending, but as a new institutional financing channel for an underbanked mid-market. Its defining feature may be the breadth of institutions helping to build it—and the creation of structures designed specifically around the financing needs of the Saudi private sector.
This document reflects the views and observations of Global Banking & Markets based on market discussions and is provided for general information purposes only. It does not constitute investment advice.
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