Closing the Capital Gap: why Saudi Arabia needs non-bank Private Credit

The first in a thought-leadership series by Channel Capital, in collaboration with academics and students, on the role of finance in the innovation economy

Dr Walter Gontarek, Channel and Ziyad AlJabr, Prince Sultan University

Saudi Arabia is executing the most ambitious economic transformation in its history.

Vision 2030 demands capital at scale, speed, and across sectors where conventional banking is structurally constrained.

Non-bank private credit, and in particular Sharia-compliant asset-backed finance, is no longer an optional complement to the banking system. It is a strategic necessity.

“It is notable that, despite Saudi Arabia’s scale as a major global energy exporter, its non-bank credit market remains relatively underdeveloped outside commercial banking and specialist lenders.”

Ziyad AlJabr

The financing gap: Saudi Arabia’s $44bn Working Capital opportunity

PwC’s 2023 Middle East Working Capital Study, covering 424 GCC companies, identified US$44 billion of working capital: capital that should be financing growth, but is instead locked in inefficient cash conversion cycles. The estimated financing cost of this trapped liquidity alone runs to US$2.2 billion annually at prevailing rates.

The KSA picture is the most acute within the GCC. Saudi companies operate with the longest working capital cycle in the region, 158 days on average in 2022, compared to 51 days in Bahrain. KSA firms hold inventory for an average of 122 days, the highest across all GCC markets.

These dynamics are not simply a legacy of corporate inefficiency. They reflect structural features of the Saudi economy: longer government payment cycles, projects with extended supplier terms, a manufacturing base that requires deep inventory buffers against supply chain disruption, and a healthcare and pharmaceutical sector with complex receivables from government-linked payers.  The sectors most exposed are precisely those at the heart of long-term vision plans: industrial manufacturing (NWC days of 181 in 2022, deteriorating); construction and engineering (210 days); pharmaceuticals and life sciences (198 days); and technology (162 days). These are not marginal industries, but the pillars of Saudi non-oil GDP diversification. And they are underserved by conventional bank capital.

Key data points
• US$44bn excess working capital locked across 424 Middle East companies (PwC, 2023)
• KSA average NWC cycle: 158 days, the longest in the GCC (PWC, 2023)
• Short-term corporate debt: 15% CAGR since 2018 (PWC, 2023)
• EBITDA margins declining 2.5% per annum since 2018, limiting internal funding capacity (PWC, 2023)
• While currently small, Saudi’s private credit market reached $3.7 billion in 2024, growing 10x (S&P, 2025)
• Small and medium-sized SMEs are key drivers of growth in private credit (S&P, 2025)
• SMEs are expected to contribute 35% of GDP by 2030, up from 22% in 2023 (S&P)
• KSA bank lending is expected to hit $65bn in 2026, whereas financing needs are considerably higher
• The global trade finance gap stands at approximately US$2.5 trillion (ADB)

Sources: PWC, S&P, ADB

Some of the best statistics available are found in KSA SAMA data for SMEs. With Vision 2030 targets for SME lending noted at 15-20%, SME lending as of Q3 2024 was only 9.1% of total bank credit, implying a total gap of SAR 170bn. Bank support of the private sector has stepped up, from 61% to 69% by 2024, but such growth is likely not sustainable without non-bank private credit assuming some of this burden.

Further, while financial institutions and energy sectors access sukuk markets, other key segments are less prevalent, including telecom firms, capital goods, retail, transportation/logistics, technology and fintech, and consumer services. It is notable that, despite Saudi Arabia’s scale as a major global energy exporter, its non-bank credit market remains relatively underdeveloped outside commercial banking and specialist lenders.

Saudi banks, while well-capitalised and conservatively regulated, face structural limits on their capacity to fill this gap. Basel III capital adequacy rules constrain balance sheet deployment for sufficient levels of working capital and short-duration trade finance. The gap between what Saudi corporates need and what incumbents can efficiently provide runs into the tens of billions of dollars annually.

The right tools: Asset-Backed Finance instruments for the Saudi market

Closing this gap requires a range of capital market players and instruments that are suited to the working capital profile of Saudi corporates: short-duration, asset-backed, self-liquidating, and compatible with Sharia principles.

The good news is that these instruments are well-established in developed markets and increasingly deployed in GCC contexts, while Channel itself has participated in GCC working capital financing transactions and Sharia-compliant securitisation structures, including involvement in the 2025 FlapKap ABS transaction.

They include:

Receivables Finance and Factoring. The most direct instrument to address DSO inefficiency. Companies sell their receivables portfolios to release cash immediately, replacing 89–100 day collection cycles with same-week liquidity. PwC notes that receivables portfolio sales and factoring arrangements are already being pursued by more mature GCC companies, but penetration remains low. In KSA, the combination of government-linked obligors (typically investment-grade or sovereign-equivalent credit quality) and long payment terms creates a promising collateral base for receivables financing programmes at scale. Here, Channel’s role in leveraging insurance cover for this asset class can help mitigate certain investment risks for our LPs.

Supply Chain Finance (SCF). identifies SCF as one of the most durable instruments in an era of supply chain reconfiguration and geopolitical fragmentation. For Saudi Arabia, where Vision 2030 anchor buyers such as ARAMCO, SABIC, Saudi Telecom, NEOM, Riyadh Air and the giga-projects have extensive supplier ecosystems, approved payables finance programmes allow sub-investment grade suppliers to access liquidity at the credit quality of their anchor buyer. This is transformative for the SME supplier base that underpins local goals.

Inventory Finance. With KSA holding inventory for 122 days on average, financing goods in transit and warehoused stock through commodity Murabaha or Tawarruq structures is a natural fit.

Sharia-Compliant Asset-Backed Lending (ABL). For technology, healthcare, and industrial companies that have asset-light business models but strong recurring revenues, Sharia-compliant ABL against receivables, equipment, or contracted cash flow can provide non-dilutive growth capital unavailable from conventional banks. We believe the Sharia imperative is not a constraint: in the Saudi context, it can be a competitive differentiator.

Trade Finance in the Kingdom. As Saudi imports grow with Vision 2030 construction and manufacturing programmes, and as the KSA-Asia trade corridor (HSBC projects two-way goods trade to grow from US$800bn in 2024 to US$1.7 trillion by 2035) deepens, non-bank trade finance vehicles that operate outside bank balance sheet constraints can become essential infrastructure. AI-enabled risk assessment and tokenisation are already reducing friction in this space, as Citi’s SCF report notes, and private credit managers with data-driven origination capabilities can deploy efficiently at scale.

Mobilising institutional capital for Saudi Private Credit

The private credit market in Saudi Arabia remains nascent relative to the financing need.

Global private credit assets under management have grown from under US$500 billion in 2012 to over US$2.1 trillion today, but the Middle East accounts for a fraction of that deployment, while GCC SWFs support US- and UK-based asset managers in overseas allocations. The opportunity for capital allocators to enter early with strong and knowledgeable partners with Sharia capabilities – at attractive yields, with strong asset-level security, and in alignment with state economic priorities – is significant.

Government-Aligned Institutions (PIF, Sanabil, GOSI, PPA). The Public Investment Fund’s mandate includes catalysing private sector financing markets. Allocating to Sharia-compliant private credit funds that deploy capital into Vision 2030-aligned sectors achieves a dual objective: commercial return and economic development impact.

Family Offices and UHNW Capital. Saudi and GCC family offices have historically under-allocated to private credit relative to their global peers. With modest bank deposit rates, private credit funds offering 8–12% net returns with Sharia-compliant structures and short-duration profiles represent a compelling alternative. , and the same is true of private credit — the white space for early allocators is real.

Insurance Companies and Takaful Operators. Saudi Arabia’s insurance sector is growing rapidly, driven by mandatory health insurance expansion and DRG system reforms. Takaful operators and conventional insurers face the challenge of matching long-term liabilities with compliant, yield-generating assets. Sharia-compliant private credit, particularly shorter-duration ABF instruments, addresses both the yield gap and the Sharia requirement. Insurance-backed structures (such as trade credit insurance wrapping receivables portfolios) further enhance the risk-return profile for insurance investors seeking asset-liability matching.

Sovereign Wealth Funds and Pension Funds. Private ABF credit, with its low correlation to public market volatility and predictable cash flow generation, can be a natural fit for pension asset-liability management. The Corniche Strategy’s 0.55% annualised volatility profile, achieved with 100% positive months over 60 periods, is precisely what SWF and pension CIOs seek when diversifying beyond sukuk and ordinary fixed income.

We believe regulatory alignment will be central to successful private credit market development in Saudi Arabia. Strategies involving receivables finance, supply chain finance, asset-backed lending, and fund structures must be designed with careful consideration of CMA fund regulation, SAMA-supervised financing activity, Sharia governance, investor suitability requirements, and local partnership models. For international managers, the most practical route is likely to involve collaboration with licensed local institutions, banks, insurers, originators, and Sharia advisors rather than direct market entry alone. This would allow private credit capital to complement, rather than compete with, Saudi banks while supporting the broader development of the Kingdom’s capital markets infrastructure.

The role of specialist managers: how Channel Capital supports the Saudi opportunity

Developing a private credit market in Saudi Arabia requires more than capital. It requires specialist expertise in origination, structuring, risk management, and Sharia compliance.

This is where firms like Channel Capital can play a defining role.

Channel Capital is an FCA-regulated, London-based alternative asset manager specialising in asset-backed finance and short-duration private credit, with a Sharia-compliant investment platform operational since 2019.

Channel’s Sharia platform is not a marketing adaptation of a conventional structure — it is built from the ground up, independently certified, and recognised by GCC Sharia supervisory boards and regulated advisors. This matters significantly in a market where Sharia authenticity can be a prerequisite for institutional acceptance. In this, we are grateful to our partners at Khalij Global for their support over the past five years.

In practice, Channel’s activities in the Saudi market include working with local counterparties, insurers and banking relationships in connection with receivables, supply chain and asset-backed financing. These activities are supported by the application of Channel’s internal credit analysis and risk management processes, alongside structuring arrangements designed to meet relevant governance, compliance and reporting considerations.

We believe the broader private credit market ecosystem in Saudi Arabia will ultimately be built by a combination of local banks acting as originators, specialist non-bank managers providing structuring expertise and institutional capital, and investors willing to build a more substantial capital market than exists today, from PIF-aligned institutions to family offices, providing stronger funding.

The international manager’s role is not to compete with Saudi banks but to complement them: deploying capital where bank balance sheets are constrained, structuring instruments that banks cannot efficiently hold or have the experience to structure, and providing the risk management infrastructure and data-led monitoring that growing private credit markets require.

Conclusion: The window is now

Saudi Arabia’s non-oil economy is growing at its fastest pace in a generation, accelerated by Vision 2030 capital programmes, demographic expansion, and a global shift in trade patterns that places the Kingdom at the nexus of Asia-Middle East-Europe flows. We believe that growth requires capital at a scale and in forms that the incumbent financial systems alone cannot provide.

We believe private ABF credit, particularly Sharia-compliant, asset-backed, short-duration instruments, is not a niche solution for this challenge, it is a necessary pillar of the Kingdom’s capital markets infrastructure.

The financing gap is measurable, the instruments are strong, and the investor appetite is growing.

What we think the market needs now are the specialist managers with the origination capability, the Sharia expertise, and the institutional credibility to bring these two sides together.

For Saudi institutions, family offices, and international investors with GCC mandates, the opportunity to establish early positions in this market, alongside experienced managers who combine Western credit rigour and years of experience with genuine Islamic finance expertise and partners, represents what we believe is one of the most significant allocations in alternative credit today.

Sources:

PwC 2023 Middle East Working Capital Study; Citi Institute — Supply Chain Finance: Durable Global Trade in the Age of AI (February 2026); HSBC Guide to the GCC: Through Twists & Turns (June 2025); Bloomberg — The New World Order Will Be More Dangerous and More Cooperative (April 2026); ADB Trade Finance Gaps Report; IMF World Economic Outlook; HSBC ‘Secondary market liquidity the new chapter for GCC bourses’ (July 2025); Asharq Al-Awsat: ‘Growth of Non-Oil Sectors Position Saudi Arabia Among Leading Global Economies’ (April 2025)

This article has been prepared by Channel Capital Advisors LLP and Ziyad Aljabr for information purposes only. Channel Capital Advisors LLP is authorised and regulated by the Financial Conduct Authority. This does not constitute investment advice.