Contractor Financing, Public Works in Saudi Arabia

Abstract

In recent years many changes have occurred in the construction industry in Saudi Arabia, caused by the switch in emphasis from new construction—building the infrastructure—to operation and maintenance, the declining revenue from oil sales, and the planned privatization of many aspects of construction. Contractor financing has changed from interest‐free loans provided by the government—in the form of large advance payments—to short‐term, fee‐bearing loans provided by commercial banks. A commercial banking system, established under strict government regulation, is providing loans, bonding, leasing, letters of credit, hedging and other financial services to contractors. Commercial banking in the Kingdom faces various problems not present in western countries, in complying with Islamic mores. This paper discusses the financial requirements set by the Saudi Arabian government for contractors engaged in public works, the establishment of, and the financial services offered by, the commercial banks in the Kingdom, and the cost and qualifications for obtaining these services.