By Contributor,David Prosser

Copyright forbes

Saudi Arabia’s micro businesses often struggle to fulfill their growth potential because of a lack of funding
AFP via Getty Images

Saudi Arabia has very deliberately put small and medium-sized enterprises (SMEs) at the heart of its Vision 2030 strategy to diversify its economy beyond petrochemicals. With around 1.8 million SMEs in the country delivering 30% of its GDP according to the International Finance Corporation, the Government sees these businesses as central to its growth plans.

Still, there’s a problem. Many of these businesses, particularly at the micro end of the market, are struggling to raise the finance they need to expand. For Saudi banks, these firms are often too small and volatile to represent a decent trade-off between risk and potential return.

Fortunately, Saudi Arabian fintechs are rising to the challenge – led by HALA, which is today announcing it has raised $157 million of Series B financing. HALA is one of several fintechs leveraging technology to support SMEs – Nayla Finance raised a $4 million round earlier this year while Lendo has recently launched a crowdfunding platform and Aajil is targeting construction firms – but this is one of the country’s biggest ever fund-raisings in the sector.

HALA was launched in 2018 to target Saudi consumers interested in digital wallets, but the company very quickly pivoted towards the SME market. “We could see there was a huge gap in the market to serve these very small businesses that no-one else seemed to want to work with,” say Maher Loubieh, CEO of Hala, who co-founded the business with Esam Alnahdi, now chairman. “These are businesses that are so important to the economy, and to the Vision 2030 strategy, but banks and other institutions were really struggling to offer them the products and services they needed.”

HALA started out by offering point-of-sale terminals to small businesses and then added a slew of other services. Above all, the data it garners through its relationships with these firms enables it to make well-informed and speedy decisions about whether to lend to them, opening up a new source of finance to the SME sector.

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“Even small amounts of funding can make a huge difference to these businesses’ growth prospects,” adds Loubieh. “Maybe the money enables them to open up a new shop or branch, or maybe it helps them with cash flow and enables them to secure more inventory and increase sales.”

This year has also seen HALA expand its proposition beyond small businesses to Saudi Arabia’s growing community of freelance workers, who range from taxi drivers and photographers to lawyers and accountants. “Each one of these businesses has its own individual needs,” Loubieh says.

HALA is naturally keen to build its lending business but the provision of digital services also brings SMEs into the broader financial services ecosystem, enabling them to secure products and services more easily from other providers, including the banks which are finally beginning to lend more themselves. It’s a model that other payments specialists including STC Pay, Nearpay and Tamara have also followed.

The outsized nature of HALA’s Series B round reflects the company’s desire to continue expanding its range of services and to reach more of the market – and to do so as quickly as possible as competition mounts up. “It’s a huge opportunity,” adds Loubieh. “We’re growing very rapidly but we’re only scratching the surface.” Recent initiatives have seen the company move into embedded finance, enabling SMEs to offer buy-now-pay-later facilities to customers, and into revenue-based lending.

Revenues and client numbers are increasing accordingly. HALA now serves around 140,000 SMEs and says it is adding 6,000-7,000 businesses each month. Sales rose 60% last year and are on target to grow by another 40%-50% in 2025. That has enabled the business to break into profitability, with Loubieh expecting to finance further organic growth from the balance sheet, though he doesn’t rule out raising additional funding for M&A activity.

Investors have been keen to support the business since its outset, with HALA initially targeting local financiers to give it credibility in the domestic market and then raising further funding from venture capital backers with more institutional experience. Now that it is eyeing international growth, its latest funders bring global experience. Today’s Series B round is lead by The Rise Funds, the global impact investing strategy of private equity giant TPG, and Sanabil Investments, which is wholly owned by the Public Investment Fund, Saudi Arabia’s sovereign wealth fund.

Other backers include QED, Raed Ventures, Impact 46, Middle East Venture Partners (MEVP), Isometry Capital, Arzan VC, BNVT Capital, Kaltaire Investments, Endeavor Catalyst, Nour Nouf Ventures, Khwarizmi Ventures and Wamda Capital.

“HALA is uniquely positioned to empower micro and small businesses, a key pillar in the region’s economy, by delivering business owners and their customers a broad and growing set of payment solutions,” argues Yemi Lalude, a partner at TPG and head of Europe, Middle East and Africa for The Rise Funds. “Our investment underscores our belief in the growth potential of this market, the rising demand for robust digital banking solutions, and the critical role entrepreneurs play in shaping the next generation economy.”

At Sanabil Investments, a spokesman points to its optimistic view of “HALA’s potential to reshape the future of financial services for SMEs”.

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