a) These Instructions aim to regulate the offering of units of investment funds that are

established for the purpose of carrying out direct financing activity, and the management and

operations of those funds.

b) These Instructions are without prejudice to the Capital Market Law and its Implementing

Regulations, including the provisions of the Investment Funds Regulations and other relevant

regulations.

a) Any reference to the “Law” in these Instructions shall mean the Capital Market Law issued

by Royal Decree No. M/30 dated 2/6/1424H.

b) Subject to paragraph (d) of this Article, expressions and terms in these Instructions have the

meaning which they bear in the Capital Market Law and in the Glossary of Defined Terms

Used in the Regulations and Rules of the Capital Market Authority, unless the context

indicates otherwise.

c) Definitions of terms used in the Investment Funds Regulations stipulated in the Glossary of

Defined Terms Used in the Regulations and Rules of the Capital Market Authority shall

apply to the words and phrases mentioned in these Instructions, unless the context indicates

otherwise

d) For the purpose of implementing the requirements of these Instructions, expressions and

terms shall have the meaning they bear as follows, unless the context indicates otherwise:

• - Direct Financing Fund: An investment fund established for the purpose of carrying

  out the activity of direct financing for legal persons and investment funds.

• - Beneficiary :The beneficiary of the financing.

• - Fund size: It means the Fund's Total Assets Value plus any capital pledged to be paid

  by the unitholders.

a) The offering of the units, operations and management of the Direct Financing Fund in the

Kingdom must be in accordance with these Instructions and the Investment Funds

Regulations.

b) The Authority may waive a provision of these Instructions in whole or in part as it applies to

a person either on an application from such person to whom the relevant provisions of this

Article would otherwise apply or on the Authority’s own initiative.

The following conditions must be satisfied when offering units and establishing the Direct

Financing Fund:

1) The fund’s units shall be offered by a way of a private placement in accordance with the

provisions of Part (5) of the Investment Funds Regulations.

2) The fund shall be closed ended.

3) The fund shall take the form of a special purpose entity in accordance with the Capital

Market Law and its Implementing Regulations.

4) The total fund size at establishment shall not be less than (50) Million Saudi Riyals.

5) The Fund Manager shall submit to the Authority a detailed feasibility study that includes

the targeted sectors and its details.

6) The fund’s terms and conditions shall include the investment decision-making mechanism,

and any relationships that may lead to a conflict of interests when the fund’s practice its

activity, and a statement that the fund investment would be in grant finance processes and

the investment risk may extend to lose the value of the fund’s assets.

a) The Direct Financing Fund is prohibited from practicing in the activity of direct financing to

individuals.

b) The duration of the financing granted through the Direct Financing Fund may not exceed the

remaining period of the fund’s lifetime, including any rescheduling or extension of the

financing.

c) The Direct Financing Fund’s total borrowing may not exceed (50%) of the total fund’s size.

d) The total direct financing provided through the Direct Financing Fund may not exceed its

total size.

e) The Direct Financing Fund may not bear any exposure to one beneficiary or more than one

belonging to the same group at a rate of (25%) or more of the total fund’s size.

f) When selling a financing contract for a beneficiary in the Kingdom to a person in the

Kingdome, the Fund Manager must include the right of full recourse, provided that the

purchaser of the financing contract has the right to refer to the fund to demand payment

according to the arrangements indicated by the contract.

g) The Fund Manager may not sell financing contracts concluded outside the Kingdom to

financial institutions licensed by the Saudi Central Bank (SAMA).

a) The policies and procedures set by the Fund Manager must include the aspects related to

granting credit and the collection provisions and procedures. The Board of Directors of the

fund must ensure the completeness and accuracy of those policies and procedures.

b) The Fund Manager must maintain all documents, records and files of the beneficiary in an

orderly and secure manner, verify the completeness of the files and update them periodically,

for a period of, at least, (10) years from the date of termination of the relationship.

c) The Fund Manager must set clear procedures for receiving and documenting the

beneficiaries’ complaints, studying them, and responding to them, and must commit to taking

appropriate and immediate corrective actions related to those complaints. Provided that the

complaints shall be registered in special records for this purpose, which include all the

necessary information related to the subject matter of the complaint and the actions taken in

this regard.

d) The Fund Manager must maintain the confidentiality of the beneficiaries’ data and

operations, and not disclose or detect it to other parties, or report it even after the termination

of the relationship with the Fund, except as required by the relevant regulations and

instructions.

e) The Fund Manager must disclose to the Fund’s Board of Directors any conflict of interest

that may arise between the Fund Manager and the Direct Financing Fund under his

management caused by dealing with one of the beneficiaries - if any - or a related party. such

conflict of interest must be approved or validated by the Fund’s Board of Directors and

disclosed to unitholders.

f) The Fund Manager must include in the financing contract concludes with the beneficiaries a

mechanism for considering disputes that may arise from it; such as adding an arbitration

clause in those contracts, provided that such a mechanism shall be disclosed in the Fund’s

terms and conditions.

g) The Fund Manager must calculate the provisions for potential losses and risks for the fund

in accordance with the International Financial Reporting Standard.

a) The Fund Manager must examine the beneficiary's credit record, after its approval, to verify

its financial solvency, ability to fulfill and credit behavior, and document this in the financing

file.

b) The Fund Manager must register the credit information of the beneficiary, after its approval,

with one or more licensed companies for the credit information collection, in accordance

with the Credit Information Law and its implementing regulation, and such information shall

be updated throughout the period of dealing with the beneficiary.

c) In the event that the Fund Manager is not able to implement the provisions of paragraphs (a)

and (b) of this Article, financing must not be provided.

d) The Fund Manager must follow clear and transparent written standards and procedures to

assess the beneficiary’s creditworthiness and ability to fulfill, and update them when needed.

Such standards and procedures shall be approved and any update thereon by the Fund’s

Board of Directors. The Fund Manager must implement these procedures before granting the

finance and document such in the financing file.

e) Subject to Article (59) of the Regulations of Capital Market Institutions, the Fund Manager

may contract with finance companies licensed by the Saudi Central Bank (SAMA) to

delegate any of the duties described in these Instructions.

The provisions governing the Board of Directors of the fund and the responsibilities of its members

stipulated in Articles (86) and (87) of the Investment Funds Regulations shall apply to the Direct

Financing Fund.

The Fund Manager must include, as additional information, in its annual report stipulated in

paragraph (a) of Article (95) of the Investment Funds Regulations the following:

• 1. The ratio of the fund's lending to the Direct Financing Fund's Total Assets Value .

• 2. The dual unit price of the fund.

• 3. Beneficiaries default ratio (90) days or more and (180) days or more of the total financing

  provided through the Direct Financing Fund (if any).

• 4.The actual ratio of asset-backed loans out of the total financing provided through the

  Direct Financing Fund.

These Instructions shall become effective upon its publication.