Contributions made by small and medium sized companies in GCC economies are humble, said a report issued by Kuwait Finance House (KFH). Up to 40 percent of small and medium companies' sector in Kuwait work in retail where financing is the most formidable challenge facing the sector. KFH-Research prepared a report about the status of small and medium sized companies sector, in addition to its potential to develop. It noted that despite the high importance of this sector in the economies of countries, it still faces formidable challenges in providing the funding required for expansion and growth. It stressed that there is great potential awaiting Islamic banks in providing those institutions with the necessary funding; especially that the Islamic banking system has benefits that support those institutions. The report mentioned that Islamic banks should offer those institutions innovative funding batches to attract them. In addition, the report noted that the contributions made by small and medium sized companies in the total GDP of the GCC countries remain humble, while it serves as the backbone in advanced countries. In the GCC, the small and medium size enterprise sector - or SME sector – has been identified as one of the main drivers for future economic diversification in a bid to reduce their dependency on oil and natural gas revenues. The average SMEs in the region is mainly involved in the buying and selling of goods (trading), construction, services and industry. Trading contributes 60 percent of SMEs in UAE, 55 percent in Qatar, 42.4 percent in Saudi Arabia, and 42 percent in Bahrain. In Kuwait, approximately 40 percent of SMEs are active in the wholesale or retail trade, hotels, and restaurants segment. The overall economic weight of the SME sector is rather modest, although the number has been increasing over the years. In a recent report published by Kuwait Financial Centre (Markaz), the UAE's SME sector contributes 30 percent of GDP while in Saudi Arabia, the sector represents 28 percent of GDP. Recognising the importance of the SME sector to the economy and in creating employment, Kuwait undertook the following initiatives in 2010: "A draft bill was presented to Kuwait's Parliament to establish an independent SME authority to assist in creating new channels for employment and diversifying Kuwait's economic base. "The Deputy Prime Minister for Economic Affairs indicated that 400 SMEs will be established in Kuwait over the next four years. Historically, SMEs in the GCC mainly relied on individuals, families and friends for financial resources. The World Bank said recently in a report that only 2 percent of the region's banking loans are directed to SMEs.
