SAUDI ARABIAN ENTREPRENEURSHIP ECOSYSTEM AND MICROFINANCE Muhammad

How to cite this paper: Rahatullah, M. K. (2023). Saudi Arabian entrepreneurship ecosystem and microfinance . Corporate & Business Strategy Review, 4 (4), 43–53.


INTRODUCTION
An ecosystem in a business context is a set of interdependent, interconnected, and interacting coevolving stakeholders including agents and channels, sellers of complementary products and services, suppliers, and the firm itself (Kandiah & Gossain, 1998;Moore, 1996;Rahatullah, 2013).Microfinance plays an important role in bringing sustainability to the livelihoods of millions of households across the globe.This study identifies the microfinance landscape of the Kingdom of Saudi Arabia (KSA) in its entrepreneurship ecosystem.
The paper discusses microfinance in several ways that are linked to the main topic starting with the history of microfinance and the big impact that Dr. Muhammad Younus made when innovating the small loan that help a lot of poor to improve their way of living and to reach financial sustainability.
This resulted in observing how microfinance works in Saudi Arabia and how it was beneficial to improve small and medium-sized enterprises (SMEs) by providing these loans, showing its effect on society and economic growth.The problems faced by SMEs were discussed and three problems as enumerated by Naidu and Chand (2012) were financing, operational, and administrative problems; and sales and debtor problems.Provided in the end is a view on the impact of SMEs on job creation and its benefits for the community.
The literature below shows prominent models of microfinancing in practice providing a tailor-made recipe in a particular country or a community.The models cater to specific needs and geographic regions and their replication is difficult because of the diversity of culture, traditions, norms, and business practices.
This provides a need to identify current microfinance lending practices in Middle Eastern settings and amalgamate these into one common lending model.Saudi Arabia is one the largest economies of the Middle East and normally the practices are alike as in the region.
However, we can identify that the information is scarce and, in most cases, unavailable.Therefore, in this study, we will endeavor to explore the microfunding available, bring these into perspective, and enumerate their characteristics to the available models discussed above.This will provide a thorough understanding of the status quo of micro-funding in the Kingdom in particular and in the Middle East in general.
Therefore, we will answer the following research questions: RQ1: Which institutions are providing microfunding in Saudi Arabia?And what are the characteristics of these institutions?RQ2: Is there a microfinance lending model in Saudi Arabia?And if does exist what are its characteristics?
RQ3: What are the similarities and differences in the money lending and recovery models of Saudi and international institutions?
Answering these research questions is pertinent both time and need.It will also provide an understanding of the shortfalls, make recommendations for KSA model adaptability to the already available models and help the government realize its coveted vision 2030.
The rest of the paper is structured as follows.Section 2 reviews the literature and examines the main models of microfinance.Section 3 is devoted to methodology, which discusses the research methods used to answer the research questions.Section 4 discusses the results.Section 5 contains the conclusions.

LITERATURE REVIEW
This section discusses the literature on microfinance institutions, models, and benefits of this lending process.
An entrepreneurship ecosystem is defined as "loose networks of suppliers, distributors, outsourcing firms, incubators, accelerators, financial institutions, coaches, consultants, research institutions, related governmental bodies, makers of related products or services, technology providers, and a host of other organizations affecting and affected by, the creation and delivery of a company's offerings" (Wiklund et al., 2003, p. 5;Peltoniemi & Vuori, 2008).Microfinancing is a major activity in an entrepreneurial ecosystem and contributes to the development of businesses like franchising (Rahatullah, 2014;Wu et al., 2009).
Table 1.Literature summary on operational models of selected microfinance institutions (Part 1)

MC2 Cameroon
MC2 is a micro-bank owned and managed by the members incorporating socio-cultural, traditions, and religious habits of the community.It functions on the principle of one man, one vote.In other words, building from the bottom

Grameen Bangladesh
Centrally managed dedicated microfinance institution, groups of five, highly disciplined organizational structure.The focus is primarily on lending, but every group member must save a certain amount.

Palli Karma
It is an autonomous microcredit fund facilitating the channeling of funds to microcredit institutions from both government and non-government sources.

India
Investors-driven centrally managed credit company, with resources from lenders and investors.A megastructure that recruits and trains loan officers in charge of disbursing loans to villages.Scheduled banks and investors provide loans to SKS institutions.

CBDIBA Benin
For destitute women, less than 10 members in a group, small loans, motivation created for savings, and weekly deposits of 10 cents, members meeting savings plan get loans, and after one year of successful savings and loan repayment behavior, members are then graduated into the normal village banking system.

MATA MASU DUBARA Niger
Women-centered 6,000 self-help groups (SHGs).Around a million dollars are generated each year in savings and 3 million in aggregate lending.Self-managed individual groups in 8 months with the help of the technical assistance provided.More than 85% of the groups assisted are able to function autonomously.A remote outreach approach is used.

Pro Mujer Bolivia
It is a women's development organization serving more than a quarter of a million poor women in Latin America.It provides financial services, life-saving preventative healthcare, education, and business training.
Table 1.Literature summary on operational models of selected microfinance institutions (Part 2) Institution/NGO Country Summary

Akhuwat Pakistan
Akhuwat derives its name from 'mwakhaat' or brotherhood, taken from the example seen in the fraternity formed by citizens of Medina and the immigrants of Makkah who had migrated to Medina to escape religious persecution.It charges no interest rates and operates on the principle of Qarz-e-Hassn (an Islamic tradition to help someone in need with interest-free loans).With initial success, the Akhuwat model began to feature in the curriculum of renowned international and national universities.

FINCA Nigeria/Pakistan
FINCA works with groups of 30-60 members, usually all women.As soon as the village bank is inaugurated, it receives its first loan from the implementing agency (the local headquarters of FINCA or its affiliate) for lending to the individual members of the village bank.

UNRWA United Nations
The UNRWA microfinance department provides sustainable income-generation opportunities for Palestine refugees, as well as other poor or marginalized groups who live and work near them.It extends credit and complementary financial services to households, entrepreneurs, and small-business owners.These investments create and sustain jobs, reduce poverty, and empower our clients, particularly women.Many of the microfinance program's clients operate small, often informal businesses on the margins of the economy.They include anglers and garage owners, at-home tailors, and vegetable stall owners.

WEEC Kenya
Women Economic Empowerment Consort (WEEC) is a non-governmental organization targeting grassroots women providing financial service that empowers economically active women in Kenya through savings mobilization and training with credit and information, dissemination to enable women to meet their social and economic.

SEND-Ghana Ghana
The organization identifies the need for the poor, especially, women to have a strong and consistent voice informed by evidence during policy discussions.The budgetary decisionmaking at national and district levels is its primary agenda.
Table 1 identifies the major microfinance institutions with service delivery models, summarizing their activities.
Countries across the world practice a number of microfinancing models including associations/ bank credits, including green credits when banks consider both economic benefit and environmental factors in the credit issuance process, to arrive at appropriate loan decisions (Zhou et al., 2022;Yao, et al., 2023).These include Cooperatives, Group, Individual, Peer Pressure, Rotating Saving and Credit Associations (ROSCAs), Village Banking, and Philanthropic (Hoda & Gupta, 2015).Hoda and Gupta (2015) compared different microfinance models.All the models aim to provide sustainability to financially deserving and offer financial and accounting services to borrowers and productive families except the SKS.SKS's main objective is to maximize profits for the investors in a short time through increased outreach and serving more customers.
The modalities of programs offered are different among almost all but with a focus on alleviating poverty through financial assistance (Backer et al., 2006;Misbah et al., 2022).MC2 is a rural micro development bank, Grameen is a micro-credit institution, and FINCA and SKS are village banks and microcredit institutions.FINCA targets villagers of both genders (Eriksson et al., 2009) with a preference for women (van Hulten, 2012).SKS targets economically active poor with tangible collateral to support the loan request.MC2, Grammen, and FINCA models offer similar financial services by providing savings accounts, microinsurance, and credits.
SKS performs door-to-door loan collection services.The average loan size varies from organization to organization.MC2's average loan size is $150 with 10-15% interest.Grameen Model allows less than $100 with above 30% interest.FINCA lends $75 with above 46% interest.Whereas, SKS provides $160 with above 45% interest.This shows that the interest charged is very high for loan terms of six months to one year, except MC2 where the borrower is given 18 months to repay and FINCA asks for money back in 16 to 24 weeks.The Grameen borrower would pay $130 in one year; however, the FINCA loan would pay back $110 in a year for $75 borrowed.This shows that the business models of all these organizations allow reasonable profits.The loan repayment guarantee at different organizations varies from social to asset collaterals.MC2 depends on culture and tradition and in order to ensure loan repayment, the organizations have developed a number of models of operations to ensure timely repayments.The loan is lent to a small community and not an individual and the group takes the loan and allows a certain person to pay back to MC2, Grameen, and FINCA through peer pressure.

Microfinance and its benefits
Access to financial services has become an important element of the social fund and community-driven development projects because the poor must have continuous and permanent access to strong, stable financial systems in order to build their family's economic security.Grameen Bank was established in 1976 and a couple of decades later its microfinance started attracting the attention of the financial world (Shane, 2003).The guiding principle of Grameen Bank is that a loan is better for the poor than charity and recognizes that the 'poor' have specific skills to utilize with loans and would alleviate poverty (Nghiem, 2002 Between 1997 and 2002, the total number of microfinance institutions grew from 618 to 2,572 (Tripathi, 2014).Khan et al. (2019) argue that microfinance assists the needy to find new opportunities; whereas, Hertog (2010) suggests that micro scale businesses in the market earn income through investments in both farm and nonfarm activities.The evolution of microfinance in the 1970s provided access to capital by low-income individuals.Microfinance is the provision of financial services for low-income, poor, and very poor self-employed people (Otero, 1999).Berger and Udell (1998) suggest that SMEs are an important engine for economic growth.Iansiti and Levien (2004) argue that women enterprises control about $20 trillion in global consumer spending and earn about $18 trillion extending their circle of economic influence.Van Hulten (2012) suggests that women have an impact on sustainable economic growth, e.g., in Sub-Saharan Africa women comprise 50% of the population and produce more than 80% of the food for the continent.
Ledgerwood et al. ( 2013), state that women small farm holders drive less than 12% of agribusiness investments.According to Emine (2012) and Heino (2006), microfinancing has a greater effect on profitability, productivity, growth and expansion of women-owned enterprises when it comes in sufficient quantities.The study would be important in reformulating women's business, and credit policies, for improving financial services to entrepreneurs.The women entrepreneurs lack training, especially in developing countries.However, Nassuna et al. (2022) postulate that micro, small, and medium enterprises (MSMEs) are a vital source of developing human capital by learning and finding opportunities that improve their skills, attitudes, and abilities (Maru & Chemjor, 2013;Nghiem, 2002;Shane, 2003).The institutional intervention provides a number of benefits other than financing as shown by a study of Grameen Bank, i.e., women are more aware of their rights, able to resolve conflicts, and able to be decision-makers at the household and community levels after they participate in credit programs (Chen, 1996).Ekpe et al. (2010) and Bamata and Phiri (2022) suggest that independent income gives them more bargaining power in their relationship with male family members.The models have some similarities such as targeting poor people.Another similarity is that they only provide financial services.These studies map the entrepreneurship ecosystem and its evolution in Saudi Arabia.Since there are five organizations in Saudi Arabia providing microfinance to start-ups, these formed the sample size.Requests to conduct interviews from these organizations resulted in an affirmative response.It was decided that a limit on our questions be imposed on the elements of existing models available in the literature.Interview time was from March to April 2021.Organizations including Bab Rizq Jameel, Riyadah, Nafisa Shams, and Majid Society obliged for an interview and these meetings helped us understand that these institutions support people who have a good idea but lack finance or might need training to improve their business skills.Nafisa Shams provides different types of support not by money but by providing training in crafts.Majid Society provides help either financially or by providing training.

RESEARCH METHODOLOGY
Interview transcription is the process of converting an audio or video interview to a verbatim written document (McMullin, 2023).Hence, interview transcription was carried out.The following benefits and features of such transcription were kept in mind.According to Blaxter et al. (2001), this process is crucial in qualitative research as it ensures that every detail of the interview is captured and can be analyzed later.
Bryman (2016) suggests various methods for transcription, including manual and automated.Since manual transcription is considered to be more accurate than automated transcription, it is also time-consuming and can be expensive.Therefore, careful consideration of our resources and needs was given before deciding on this transcription method.
Special attention was laid to the fact that after transcription, it is important to review the transcript for accuracy and completeness (Dodds & Hess, 2020).A standardized format for the transcript was also established manually.It included labeling speakers and noting non-verbal cues.
After conducting the interviews, the answers' recording on the elements commenced for the identified and researched renowned models.Mapping of similarities in the lending process of each of the lenders helped create an Excel sheet record.
After the information from all lenders was recorded on the elements and style of the models identified in the literature, a cautious and meticulous approach was adopted to place the summarized common information of each lender in one element in one table.Upon completion of this step, the Saudi Arabian microfinance model takes its shape.The discussion regarding the comparison to other models is carried out by comparing and contrasting all the models.
An extensive literature review assisted in identifying the methodologies employed by different microfinance models, trade presses, and magazines.In completing this study, the company's websites, and company's reviews were quite useful.Thus, the project used a wide range of academic literature that incorporates the institutional design, operations, successes, and failures of different microfinance models in the world.Drawing from existing comprehensive literature, the author was able to form the core of the research methodology that yielded relevant data.In addition, the methodological design of this research project tapped into the wealth of practical experience that exists in the MC2 micro-bank model, the Credit Union, and followers of the Grameen Bank philosophy in Cameroon.This includes a wide range of providers that vary in their legal structure, mission, methodology, and sustainability but share the common characteristic of providing financial services to a clientele poorer and more vulnerable than bank clients provide.An organization-credit union, downscaled commercial bank, or financial cooperative that provides financial services to the poor is another way of defining it.This section examines popular models of microfinance.
We will use the mixed method approach to investigate the role of microfinance in achieving sustainable growth and investigate how this mode of financing can help develop entrepreneurs.The secondary sources assisted in gathering data and were used as primary quantitative methods to secure information from microfinance lenders and micro and small entrepreneurs.Senior academics and experts verified findings and conclusions.
Since the number of organizations providing microfinance in Saudi Arabia is only five, therefore, conducting data through interviews was considered best as for most of the other sources the sample size has to be large.Hence, alternative sources were not considered.

RESULTS AND DISCUSSION
The research showed six institutions actively performing in the Saudi Arabian microfinance landscape.These include the following: Bab Rizk Jameel (Male), Bab Rizk Jameel (Female), Riyadah, Nafisa Shams Academy, Majid Society (Kick-off), Majid Society (Skills).
The Bab Rizk Jameel has two sections, i.e., male and female sections where its men section offers to young people who have good ideas but lack of finance.It aims to support individuals who want to start their own business and have a financial problem.The female side assists productive families lacking finance to start their businesses.
Similarly, Riyadah is a nonprofit organization and an initiative of the Ministry of Petroleum and Mineral Resources and the General Organization for Technical and Vocational Training under the name of (leadership of the National Business Institute).Its objective is to develop and implement a program for start-ups and small/micro-enterprises.
Table 3 provides details on several attributes of these organizations, which are discussed below for each organization.The Nafisa Shams is also a part of Bab Rizk Jameel aiming to qualify Saudi women through training leading to an increase in their job opportunities in arts and crafts.It aids in the form of raw materials and training to develop the skills of artisan women.The Majid Society also has two main programs, i.e., 'Kick-off' and 'Skills'.Through its 'Kick-off' program individuals are supported to start their own small -micro-enterprises and attain selfsufficiency through different programs.Whereas, the 'Skills' program contributes to raising the crafts sector and professional level through intensive developer training curriculum to suit the character and requirements of the market needs.It supports Saudi women by delivering crafts training and bringing sustainability.

Contrasting the major international models and Saudi microfinance institutions
Microfinance is relatively new to the Kingdom; comparing and contrasting it with famous models practiced around the world would provide an opportunity for the 'strategic stakeholders' in the Saudi entrepreneurship ecosystem to understand and develop policies and laws for further effectiveness of microfinancing and help thousands of families to be more productive and sustainable.It would reduce the pressure of financial assistance provided by the government.Four microfinance models practiced internationally provide a source of comparison.MC2, Grameen, SKS-Microcredit, and FINCA are widely used and famous for their effectiveness.MC2 is a micro-credit bank owned and managed by the members incorporating socio-cultural, traditions, and religious habits of the community.It aims to bring economic and financial sustainability to the individuals and group members.Its work also has a social dimension and involves targeting the poor, micro, and small-scale activities and consequently restoring dignity to target beneficiaries to see the importance of being masters of their destiny.It emphasizes savings and credits.Grameen on the other hand operates on a centrally managed formula.It is a dedicated microfinance institution functioning with a highly disciplined organizational structure.The focus is primarily on lending, but every group member must save a certain amount.The bank's aim is to assist economically active but poor people who cannot benefit from official lending sources due to various reasons including nonavailability of collateral.
FINCA on the other hand works with groups of 30-60 members, usually all women.Soon after the village bank commences functioning from a particular village it disburses the first loan instalment the individual members of the village bank.It grants credit to rural communities to improve their livelihood through entrepreneurial activities.SKS-Microcredit is an investors-driven, centrally managed credit model with resources from lenders and investors.It recruits and trains loan officers in charge of disbursing loans to villages.Scheduled banks and investors provide loans to SKS model institutions.The beneficiary microfinance institution gives out the money through loan officers to recipients at a very high interest rate.The focus is primarily on credit and investors profit maximization objective.The SKS microfinance model optimizes profit in a short time through increased outreach.

Charting Saudi Arabian microfinance model (SAMFIN)
An effort to bring together features of all the microfinance and development institutions in Saudi Arabia to construct a model of microfinance provides interesting findings.The reason for combining the features of all the organizations is that their number is less (four and six programs) and the phenomenon is relatively new to the kingdom.Putting them all together, comparing, and contrasting these features with models will offer insight into future needs.
SAMFIN is a combination of microcredit institutions supported by investors to help the Saudi community with finance, develop skills, and start a business.The highlighting feature is lending and business development to achieve financial sustainability.
Its aims and objectives are similar to other models.

CONCLUSION
The differences between the SAMFIN and other models are following and quite significant.
The loan limit in Saudi Arabia is substantially high and equals $2666.Whereas, among other models, the SKS-Microcredit model provides $160 which is the highest among all (Rambaud et al., 2023).
The Saudi lending institutions have put an age limit on borrowers between 21 and 65.
The global models do not seem to have any age-related restrictions.The loan repayment period by Saudi institutions has a longer-term orientation and entrepreneurs can pay back in a maximum of five years with a minimum time of two years.
The models in practice elsewhere limit the repayment period to a maximum of one year and it could be a few weeks in some cases.The sponsors of the Saudi microfinance organizations normally provide money as philanthropy; however, other models have investor support requiring a payback with profit for them as well.
Microfinance in Saudi Arabia is evolving and two organizations have taken the lead, i.e., Bab Rizk Jameel, the philanthropy project of Abdul Lateef Jameel company, which owns several businesses and most prominent being resellers of Toyota car manufacturers.The other prominent stakeholder is the Majid Society which is sponsored by Prince Mishaal bin Majed bin Abdulaziz.
Saudi Arabia ranks among the top 20 economies in the world and ranks 48th in population size (Statistics Times, 2021) The existence of microfinance in a country that has a per capita gross domestic product (GDP) of $23491 and is categorized as the 18th largest is extraordinary.
Normally microfinance is attributed to relatively poorer economies.There could be several factors responsible for out including the unemployment rate and the value-added skill gap.However, the study has suggested that there might not be any more institutions taking to the market as the number of borrowers could be less.
The differences identified and discussed above also imply that the SAMFIN and global models are quite different in approach and modalities.Perhaps this explains the reason for the very existence of the microfinance.
The Small & Medium Enterprises General Authority (2022) reports that the micro-enterprise employs 1-2 people according to Saudi standards.According to the International Finance Corporation (IFC, https://www.ifc.org/en/what-we-do), the criteria for defining microenterprise differs from country to country; however, the number of employees and annual turnover are the main gauges.The UK's Financial Conduct Authority (FCA, n.d.) and European Commission (n.d.) define micro-enterprise as a employing fewer than 10 persons; and a turnover or annual balance sheet that does not exceed €2 million.
This shows that the Saudi Arabian microfinance model (SAMFIN) dynamics would be different from those of countries, especially the popular models identified and discussed in this study.These models are practiced in low-income countries, hence the criteria are different.This seems to hold because the Bab Rizk Jameel -BRJ has started functioning in another relatively high-income country, i.e., Turkey.
The study provides insight into microfinancing in Saudi Arabia and concludes that the criteria for micro-enterprises could be different in particular economies.It is drawn on certain economic factors.It is recommended that the study be used to learn the similar models being practiced in other higherincome countries and that a new dimension to microfinance be developed.This would help the poorest section of these societies to be benefitted.It is also recommended that the future study encompass the whole of the Middle East or at least Gulf Cooperation Council (GCC) countries enabling a larger sample size.
The results of this paper can contribute to the development of a more practical model of microfinance incorporating the Vision 2030 of the Kingdom and assisting the entrepreneurs needing support.
Like any other study, this work also encountered some limitations.The respondent's time had to be respected and they allowed very restricted time for the interviews.Many times during the interview, the respondents would refer to events, etc. in Arabic, which needed explanations.The overall sample size is small as microfinance is a new concept in the Kingdom.

Saudi
Arabia is fast growing economically and has made strides in academia.However, challenges remain in exploring and securing research/survey responses.AsDimmock and Walker (2005) andHamdan (2015) assert in some countries and territories respondents do not feel confident of the anonymity of the responses and fear that their information might be utilized for unwanted purposes.In Saudi Arabia, it is a challenge to reach respondents, especially senior executives.We tried to find information on the websites of the government, chambers of commerce, and other institutions like banks to know about the microfinance practices and procedures but it was extremely difficult.As regards sampling according to Ledgerwood et al. (2013), innumerable microfinance NGOs and institutions are working in the field and mostly provide more than one service.However, few have gained a huge reputation owing to their excellent work performance and results achieved in poverty(Toindepi, 2016) reduction and skill enhancement of the microfinance target market.Therefore, the following countries and the operational microfinance models are added.Accordingly, 14 models were selected from 11 countries.The selected models and countries list were realized keeping in view the studies ofRahatullah (2013Rahatullah ( , 2014)), Dimmock and Walker (2005), Toindepi (2016), and Njtrijani et al. (2022).

Table 2
Most of these organizations operate in more than one country or geographic location.Table2also identifies salient features of the identified microfinance models practiced across the globe.It compares and contrasts MC2, Grameen, FINCA, and SKS models.It also identifies the objectives, targets, and services each model provides whether financial or non-financial.

Table 2 .
Mapping the leading microfinance models

Table 3 .
Microfinance institutions in Saudi Arabia

Table 4 .
Table 4 below provides further insight and contrasting data among SAMFIN and other identified models.Comparing and contrasting SAMFIN and leading models (Part 1) Be able and willing to pay the feesHave a sponsor to guarantee loans

Table 4 .
Comparing and contrasting SAMFIN and leading models (Part 2)