MENA banks pivot to AI-driven SME lending to close $5.2tn finance gap

By Puja Sharma

Finastra urges modernisation to unlock growth and profitability in SME lending

Small and medium-sized enterprises (SMEs) play a central role in MENA economies, yet many remain underserved by formal financial systems. According to the International Finance Corporation (IFC), 40% of formal micro, small, and medium enterprises (MSMEs) in developing countries face unmet financing needs amounting to $5.2 trillion annually. This is equivalent to 1.4 times the current level of global MSME lending. In the MENA region, the finance gap is particularly high, at 88% of potential demand.

“Banks often face structural challenges in addressing this gap,” said Carlos Teixeira, Head Business Dev and Strategy, Lending at Finastra. “Legacy infrastructure, high servicing costs, increased credit risk, and fragmented data make it difficult to assess SME creditworthiness and process loans efficiently. As a result, many SMEs rely on internal funds or informal sources to finance growth and operations.”

According to Finastra’s 2024 Financial Services State of the Nation Survey, 87% of financial institutions globally see improving access to finance as part of their responsibility. The report highlights growing adoption of cloud-native platforms, API-based architectures, and AI. Financial institutions in countries like UAE and Saudi Arabia are already taking steps to modernise their banking capabilities, which can help enable faster and more scalable lending, including to SMEs.

“Adopting a simplified servicing approach in lending is becoming a strategic priority for banks to better serve SMEs,” added Teixeira. “By automating workflows, applying data analytics, breaking down silos and integrating digital channels, banks can reduce costs, improve credit assessments and processing times, reduce risk and deliver more tailored, responsive support.”

“Simplified and scalable servicing models also present a commercial opportunity. Banks can serve more SMEs profitably, compete more effectively with fintechs and private credit providers, and unlock new revenue streams. At the same time, expanding access to credit allows banks to contribute meaningfully to closing the finance gap and supporting economic resilience across the region,” highlighted Carlos Teixeira.

To extend their reach and improve efficiency, banks in the region are also partnering with fintechs and third-party providers via digital ecosystems. These collaborations can, for example, improve risk modelling, access to alternative data sets, and processes for credit assessments. This, in turn, allows financial institutions to expand access to credit while maintaining prudent risk controls.

In 2024, SME credit in Saudi Arabia rose by 27.6% to $94 billion. In the UAE, SME lending reached $22.1 billion by mid-year. These developments reflect broader efforts to close the financing gap through technology-enabled servicing models. Finastra continues to support financial institutions across MENA with modernising their SME lending capabilities, while helping to expand financial inclusion.