Saudi Vision 2030: FSDP on track to fulfil its role in Kingdom’s economic diversification

Saudi Arabia has set ambitious targets under its ‘Vision 2030’ program to transform and diversify its economy. One of the critical pillars of ‘Vision 2030’ is the Financial Sector Development Program (FSDP), which aims to build a solid and diversified financial sector capable of supporting the country’s economic growth.

To help financial institutions promote the expansion of the private sector, create a developed capital market, and enhance and facilitate financial planning, the Financial Sector Development Program was introduced in 2017.

When the Saudi Stock Exchange “Tadawul” joined the global indexes “FTSE” and “MSCI” in the previous stage, the program had significant success, which influenced the 2019 Saudi Aramco IPO’s success. Additionally, the program enhanced start-up support in the financial technology sector and spearheaded numerous initiatives that substantially influenced residents, such as introducing the immediate payment system and shifting towards a cashless society; both achieved their objectives in less than a year.

In the following stage, the program will continue to improve financial institutions’ ability to support the Kingdom’s private sector by expanding the alternatives for planning and raising the proportion of SMEs that banks finance. The program will also create a strong and thriving insurance industry in the Kingdom by increasing the percentage of non-cash transactions from 36% in 2019 to 70% in 2025. In addition, FSDP complies with relevant international standards, including those set forth by the Bank for International Settlements and the International Organization of Securities Commissions, to guarantee the financial stability of the financial services sector.

Diversifying the financial sector: Saudi Arabia’s financial sector is dominated by banks. The FSDP aims to diversify the industry by developing insurance companies, asset management firms, and investment banks. It will provide more options for customers and increase competition in the sector.
Promoting financial inclusion: The FSDP also aims to increase access to financial services for all segments of society, including women, youth, and low-income individuals. It will be achieved by developing innovative financial products and services and expanding the reach of financial institutions.
Strengthening regulatory and supervisory frameworks: The Program aims to improve the regulatory and supervisory frameworks for the financial sector to ensure stability, integrity, and transparency.
Developing capital markets: The FSDP aims to develop the Kingdom’s capital markets to provide a more diversified source of funding for companies and support economic growth. This includes developing the debt market, equity market, and other capital market instruments.
Supporting financial technology (fintech): FSDP aims to promote fintech development in Saudi Arabia to increase efficiency, reduce costs, and improve access to financial services. It includes developing a regulatory framework for fintech and encouraging the adoption of new technologies by financial institutions.

Development of new financial institutions: The FSDP has led to the development of new financial institutions, such as the Saudi Arabian Mortgage Refinance Company (SAMRC), which was established to provide liquidity to the mortgage market and promote home ownership.
Expansion of Islamic finance: Saudi Arabia is a leader in Islamic finance, and the initiative aims to develop this sector further. The program has led to the development and expansion of new Islamic financial products and banking services.
Launch of new capital market instruments: The Program has led to the launch of new capital market instruments, such as exchange-traded funds (ETFs), which provide investors with diversified and flexible investment options.
Development of fintech ecosystem: The FSDP has supported the development of a fintech ecosystem in the Kingdom. It includes the establishment of regulatory sandboxes, which allow fintech companies to test their products and services in a controlled environment.
Strengthening of regulatory framework: It has strengthened the regulatory and supervisory frameworks for the financial sector. It includes the establishment of the Saudi Arabian Monetary Authority (SAMA) as the central bank of Saudi Arabia and the development of new regulations for financial institutions.

The FSDP is critical to the success of ‘Vision 2030’. A solid and diversified financial sector supports economic growth, attracts foreign investment, and promotes financial inclusion.

The program has already made significant progress, but much work still needs to be done. One of the challenges facing the FSDP is the need to balance the development of the financial sector with the risks associated with rapid growth. It includes the risk of economic instability, fraud and misconduct, and other threats.

Increasing the share of non-bank financial institutions (NBFIs) in the financial sector: The FSDP aims to increase the percentage of NBFIs from 5% to 30% by 2025. It will be achieved by developing the insurance, asset management, and capital markets sectors.
Expanding access to finance: The FSDP aims to increase the proportion of adults with bank accounts from 40% to 70% by 2025. This will be achieved by promoting financial inclusion by developing innovative financial products and services, expanding the reach of financial institutions, and increasing financial literacy.
Developing the debt market: The FSDP also aims to increase the size of the debt market from SAR 1.6 trillion to SAR 4.5 trillion by 2025. It will be achieved by issuing more bonds and developing new debt market instruments.
Developing the equity market: The FSDP aims to increase the equity market size from SAR 2.4 trillion to SAR 3.6 trillion by 2025. It will be achieved by increasing the number of listed companies, attracting more foreign investors, and promoting the development of small and medium-sized enterprises.
Developing the fintech sector: The FSDP aims to make the Kingdom a leading hub for fintech in the Middle East by 2025. This will be achieved by creating a regulatory framework for fintech, promoting the adoption of new technologies by financial institutions, and encouraging the development of local fintech startups.
Strengthening the regulatory and supervisory frameworks: The FSDP aims to improve the financial sector frameworks by implementing international best practices, enhancing transparency and accountability, and promoting a culture of compliance and risk management.
Developing human capital: The FSDP aims to create a highly skilled and diverse workforce for the financial sector by providing training and education programs, promoting gender diversity, and attracting talent worldwide.

Achieving these commitments will require a concerted effort from all stakeholders in the financial sector. However, the FSDP has already made significant progress towards achieving these objectives, and there is a solid commitment to continue building a substantial and diversified financial sector that supports Saudi’s economic growth.