A) These instructions aim to regulate the offering of investment fund units established for the purpose of engaging in financing activities, managing those funds, and their operations.

B) These instructions do not prejudice the provisions contained in the Capital Market Law and its executive regulations, including the provisions contained in the Investment Funds Regulations, and other related regulations.

• A) The term (the Law) wherever it appears in these instructions refers to the Capital Market Law issued by Royal Decree No. (M/30) dated 2/6/1424 AH.

• B) Subject to paragraph (D) of this clause, the words and phrases used in these instructions shall have the meanings assigned to them in the Law and in the glossary of terms used in the regulations and rules of the Capital Market Authority, unless the context dictates otherwise.

• C) The definitions of terms used in the Investment Funds Regulations contained in the glossary of terms used in the regulations and rules of the Capital Market Authority shall apply to the words and phrases used in these instructions, unless the context dictates otherwise.

• D) For the purpose of applying the provisions of these instructions, the words and phrases listed below shall have the meanings indicated opposite each of them, unless the context dictates otherwise:

  • •   Financing Fund: Direct financing fund and indirect financing fund.
  • •   Direct Financing Fund: An investment fund established for the purpose of engaging in direct financing activities for legal persons and investment funds.
  • •   Indirect Financing Fund: An investment fund established for the purpose of engaging in indirect financing activities.
  • •  Default: The beneficiary’s total or partial delay in paying any installment due under the financing contract for a period of (90) days or more from its due date.
  • -   Beneficiary: The beneficiary of the financing.
  • •   Fund Size: Means the total value of the fund’s assets plus any capital committed to be paid by the unit holders.

A) The offering of the financing fund units, its operations, and management in the Kingdom must be in accordance with these instructions and the Investment Funds Regulations.

B) The Authority may exempt any person subject to these instructions from applying any of its provisions, in whole or in part, based on a request received from them or on its own initiative.

• The Director of the Financing Fund shall not invest the assets and funds of the Fund except in the following areas:

  • A) Financing activities.
  • B) Money market transactions concluded with a party subject to the regulation of the Saudi Central Bank (SAMA) or a party subject to a regulatory authority similar to SAMA outside the Kingdom.
  • C) Bank deposits with institutions subject to the evaluation of SAMA or subject to a regulatory authority similar to SAMA outside the Kingdom.
  • D) Units of money market funds registered with the Authority or units of money market funds outside the Kingdom subject to the supervision of a regulatory authority that applies regulatory standards and requirements similar to those applied by the Authority.

• A) When offering the units of the financing fund and establishing it, the following conditions must be met:

  • 1. The fund must be of the closed type; however, if it is a private fund, it may be of the open type provided that the fund’s terms and conditions include a clear policy for handling subscription and redemption requests and liquidity management to execute those requests.
  • 2. The procedures and policies related to the fund’s risk management must be defined, including the fund’s risk level.

• B) In addition to the conditions stated in paragraph (A) of this clause, when offering the units of the direct financing fund and establishing it, the following conditions must be met:

  • 1. The fund must take the form of a special purpose entity in accordance with the Capital Market Law and its executive regulations.
  • 2. The minimum total size of the fund at the time of establishment must not be less than (50) million Saudi Riyals.
  • 3. The fund manager must submit to the Authority a detailed feasibility study including the targeted sectors and their details.
  • 4. The fund’s terms and conditions must include the investment decision-making mechanism, any relationships that may lead to conflicts of interest when conducting the fund’s activities, and a statement that the fund’s investment will be in financing grant operations, and that the investment risks in the fund may extend to the loss of the value of its assets.

A) The Direct Financing Fund shall engage in direct financing activities for legal entities and investment funds, excluding individuals.

B) The financing period granted through the Direct Financing Fund shall not exceed the remaining lifespan of the fund, including any rescheduling or extension of the financing.

C) The total financing provided through the Direct Financing Fund shall not exceed its total size.

D) The Direct Financing Fund must not bear exposure to one or more beneficiaries belonging to the same group at a rate of 25% or more of the total size of the fund.

E) The manager of the Direct Financing Fund, when selling a financing contract to a beneficiary inside the Kingdom to a person inside the Kingdom, must include in the sale contract the right of full recourse; so that the buyer of the financing contract inside the Kingdom has the right of recourse against the fund to claim repayment according to the arrangements specified in the contract.

F) The manager of the Direct Financing Fund is not permitted to sell financing contracts concluded outside the Kingdom to financial institutions licensed by SAMA.

• The practice of the financing fund for indirect financing activity within the Kingdom shall be through any of the following:

  • A) Purchasing financing portfolios established by entities subject to the supervision of SAMA.
  • B) Concluding agreements or partnerships with financing companies licensed by SAMA to practice one or more financing activities to provide joint financing.
  • C) Investing with financing companies licensed by SAMA, provided that the credit granting decision is made by the financing companies.

• A) The fund manager must keep all beneficiary documents, records, and files in an organized and secure manner, verify their completeness, and update them periodically, for at least ten years from the date of termination of the relationship.
• B) The fund manager must establish clear procedures for receiving, documenting, studying, and responding to beneficiaries' complaints. He must also take appropriate and immediate corrective actions regarding those complaints, provided that the complaints are recorded in special registers that include all necessary information related to the subject of the complaint and the actions taken thereon.
• C) The fund manager must maintain the confidentiality of beneficiaries' data and transactions and must not disclose or reveal them to other parties even after the termination of his relationship with the fund, except as required by the relevant laws and regulations.
• D) The fund manager must disclose to the fund’s Board of Directors any conflict that may arise between his interests and the interests of the Direct Financing Fund he manages due to dealings with any beneficiary or any related party, and must obtain the Board’s approval or ratification of that conflict.
• He must also disclose that conflict to the unit owners.
• E) The fund manager must include in the financing contracts concluded with beneficiaries a mechanism for resolving disputes that may arise therefrom, such as adding an arbitration clause in those contracts, and this mechanism must be stated in the fund’s terms and conditions.
• F) The fund manager must calculate provisions for losses and potential risks of the fund in accordance with the International Financial Reporting Standards.

A) The fund manager must examine the beneficiary's credit record - after obtaining their consent - to verify their financial adequacy, ability to fulfill obligations, and credit behavior, and document this in the financing file.

B) The fund manager must register the beneficiary's credit information - after obtaining their consent - with one or more licensed companies authorized to collect credit information, in accordance with the provisions of the Credit Information Law and its executive regulations, and update this information throughout the duration of dealing with the beneficiary.

C) The fund manager must refrain from granting financing if unable to apply the provisions of paragraphs (A) and (B) of this clause.

D) The fund manager must follow clear, transparent, and written standards and procedures to assess the beneficiary's creditworthiness and repayment ability, update them as needed, and have these standards and procedures and any updates thereto approved by the fund’s Board of Directors. The fund manager must apply these procedures before granting financing and document this in the financing file.

E) Subject to Article Fifty-Nine of the Financial Market Institutions Regulations, the fund manager may contract with financing companies licensed by SAMA to outsource the work related to the financing activity stipulated in these instructions.