tax rates for businesses ( such as a maximum 20 % rate on foreign enterprises ) with no capital controls on remittances abroad. the government provides support for investment projects besides developing a supportive legal and arbitration structure. in summary, saudi arabia ’ s economic policy remains cautious and long - term and provides global investors with an ideal backdrop for allocating their capital to the different sectors of the saudi economy. 2. financial stability a sound financial system is the backbone of an economy. indeed, banking crises tend to be very costly to the exchequer and taxpayers. our recent experiences revealed that sovereign bis central bankers ’ speeches and banking crises are highly and tightly intertwined. in this context, sama as the commercial bank and insurance regulator will continue its conservative policy on banking and insurance supervision, and will fully implement the recommendations of the basel committee on capital requirements. 3. sources of finance : domestic in emerging / developing economies, banks are the most important source of finance. as is the case in most emerging markets, bank intermediation is still a favoured option in saudi arabia, with bank credit / gdp at about 50 %. the economy, in common with other developing economies, is relatively under banked, but bank penetration is increasing. similarly, borrowing by individuals is relatively conservative ( consumer loans / gdp is about 12 % ). the eventual passage of a mortgage law, along with increased lending to smes, should help to encourage responsible borrowing in these areas and improve banking penetration in the economy. the problem in the advanced economies is that banks are forced to retrench from an overleveraged position ; but that is not the situation here. the domestic banks have strong capital adequacy and liquidity ratios. this means they are well - placed to extend credit to the private sector ( corporates, households & smes ) without burdening their balance sheets. banks are now diversifying their revenue stream by widening their focus to include smes and households. in addition to bank lending, saudi businesses have access to funds through the tadawul stock market. the infrastructure of the market is at a high level in terms of listing requirements, ongoing supervision, as well as settlement and custody arrangements. ipos and capital raisings by local companies have been gaining pace, and this augurs well for corporate governance and operational efficiency. government specialized credit institutions ( such as the public investment fund, the real estate development fund, the saudi industrial development fund, the saudi credit & saving bank and the saudi agricultural development

muhammad al - jasser : diversifying sources of finance remarks by his excellency dr muhammad al - jasser, governor of the saudi arabian monetary agency ( sama ), at the euromoney saudi arabia conference, riyadh, 17 may 2011. * * * thank you padraic for inviting me again to this yearly event entitled this time “ diversifying sources of finance. ” it is a fact that finance and the financial sector have been at the centre of global attention since the financial market crisis in 2008. that crisis involved a temporary breakdown in the credit system which produced a global recession, and this example shows the critical role that finance plays in generating or undermining economic growth. this morning, i would like to address the role of government, including sama, in enabling the environment for private enterprises including the smes, and then describe the current situation in terms of local and global sources of finance for economic development. i will conclude with some lessons from the recent global financial crisis. the first source of finance is internal to the saudi economy, and the second is external. domestically there is credit intermediation by channeling local savings into productive investments. externally savings are allocated between economies, where saudi arabia competes with others for the global pool of savings. 1. role of government the government targets investment in social infrastructure ( education, health, housing, etc. ) to promote the wellbeing of the people, and is also pursuing diversification of the economy to create work opportunities for its young population. fiscal and monetary policies are but tools to achieve these goals. government policies can play a vital role in providing a stable and predictable macroeconomic environment for investors, which is why the policy horizon is long - term. monetary policy is anchored on the pegged exchange rate to the dollar, so interest rate risk premia over the dollar can be kept low and investors have confidence to commit long - term funds. the result of this long - term success is that riyal financing is available with no currency risk and at attractive interest rates. saudi arabia ’ s fiscal policy provides a stable background for investment. it works on countercyclical basis, so that it runs budget surpluses when times are good, as at present, so as to allow for deficit spending to keep the economy on a steady growth track when global demand for oil weakens. the result is that saudi arabia currently has a very low debt / gdp ratio ( less than 10 % ). saudi arabia also has favourable