What if a few hundred dirhams were all that stood between a struggling and a thriving business? For many small business owners across the Middle East, that’s the reality. 

Micro-debts are opening the line to access and opportunity and breaking financial barriers. As more small business owners tap into these bite-sized loans, they prove that even the smallest push can lead to big change.

And that big change is being accelerated by fintech. 

A MORE VIABLE OPTION 

Fintech has removed the traditional barriers that once made micro-debt expensive and inefficient, says Nameer Khan, Chairman of MENA Fintech Association and Founder of FILS. What used to take weeks happens in minutes, thanks to AI-driven lending, embedded finance, and real-time risk assessments.

Globally, Ant International’s Bettr is integrating AI-powered micro-lending directly into business platforms, allowing small businesses to access funds without the hassle of traditional bank loans.

Closer to home, Magnati’s partnership with Aafaq Islamic Finance in the UAE is a prime example of embedded finance in action. By linking Sharia-compliant lending to SMEs’ daily transactions, businesses can qualify for financing based on real-time sales data rather than outdated credit scores or collateral requirements.

Meanwhile, Saudi Arabia’s STCPay has grown into a powerful digital wallet, providing businesses with faster access to capital and greater payment flexibility, advancing financial inclusion.

Hasan Haider, Founder and Managing Partner at Plus VC, notes that digitizing data was the first step in making micro-debt more viable. “When data was inaccessible, building a case around non-asset-backed lending was hard. Now that data is available, that was the first step. More recently, with the advent of AI-enabled applications, digging through unstructured data and making it usable faster and easier has led to even more comfort.”

Data digitization, along with the rise of digital payments, alternative data lending models, and the digitization of KYC and transfers, have fueled micro-debt’s growth, says Basil Moftah, Managing Partner at Key Capital and Member of Dubai Angel Investors. He highlights leading innovators such as Hala Payments in Saudi Arabia, Flow48 and, FlapKap in the UAE, and Lean and Tarabut in Saudi Arabia.

Private microlending institutions are also filling gaps in access to funding for the unbanked across Egypt, Jordan, Lebanon, and other North African countries.

Integrating fintech into the process has made micro-debt faster, more transparent, and more efficient, says Fadi Ghandour, Executive Chairman of Wamda Capital. “Fintech enables a quicker process, the ability to check creditworthiness and smoother payments. But its viability is only a product of a market already proven through traditional microfinance institutions.”

However, Anand Nagaraj, Co-Founder and CEO of CredibleX, cautions that distribution, collection, and fraud risks remain the biggest challenges in micro-debt lending. “Technology is enabling digital customer acquisition, which reduces distribution costs. Working with payment aggregators helps ring-fencing collections, while integration with credit bureaus and other data points helps mitigate some of the fraud risks typical to this sector.”

THE FUNDAMENTAL GAP 

For decades, SMEs struggled to access financing because traditional banking models weren’t designed for them. Banks typically require long financial histories, high collateral, and complex documentation—barriers that most small businesses simply can’t meet.

Fintech lenders are shifting the focus to cash flow and real-time business performance instead of outdated financial statements, says Khan. Magnati’s embedded finance model streamlines approvals by evaluating businesses through their transaction history, ensuring quick access to capital.

BNPL for SMEs is expanding rapidly in the UAE and Saudi Arabia, enabling small businesses to buy inventory and manage cash flow without upfront payments. Globally, platforms like Square Capital and Shopify Capital use a similar model, funding businesses based on payment activity rather than credit scores—a system now being scaled by Middle Eastern fintech.

Ghandour points out another critical reality: “Banks will never do microlending. They don’t even like SME lending. Banks are too conservative, too demanding for collateral—while the fundamental principle of microlending is providing funds to the unbanked, which, by definition, means no collateral.” Instead, private companies are stepping in to fill the gap. However, banks are still involved—providing loans to these private lenders, who distribute micro-debt with far lower default rates. “So everyone participates in their area of comfort and expertise in a complete ecosystem,” he adds.

Nagaraj says the SME lending problem is more of a “borrower problem” than a lender problem. “Banks have faced significant losses on their SME lending books during economic downturns. By the time the cycle recovers, many small businesses have already shut down, meaning they’re no longer around to benefit from the rebound or service their debt.” He argues that for banks to lend effectively to SMEs, they need to offer actual working capital solutions instead of term loans that don’t align with small businesses’ needs.

For Moftah, the biggest gap is reach. Fintechs specializing in micro-debt can serve millions of previously unbanked users. He points to MoneyFellows in Egypt, which has already brought thousands of unbanked customers into the financial system.

Banks are also not incentivized to lend to small businesses, adds Haider. “The banking industry’s time, cost, and rigid structures make SME lending unviable. In some cases, the cost of reviewing a loan application can exceed the small amounts being requested. In contrast, more agile, lower-cost, and technology-driven lenders have a significant advantage in filling this gap.”

LOCAL JOB CREATION AND ECONOMIC RESILIENCE

Micro-lending plays a crucial role in local job creation and economic resilience by enabling micro-businesses, which typically create up to five jobs and make up most businesses, whether formal or informal, says Ghandour. 

Revenue-based financing (RBF) startups also provide much-needed working capital for SMEs, directly fueling their growth. Moftah points to BRKZ in Saudi Arabia, where small construction firms have leveraged financing to scale and benefit from Riyadh’s booming real estate sector. SMEs are at the heart of the Middle Eastern economy—in Saudi Arabia alone, they support 6.5 million jobs, while in the UAE, they account for 94% of businesses. When these businesses gain access to capital, they don’t just grow, they hire, expand, and create new opportunities.

Micro-lending isn’t just about jobs but is also about sustainability, says Khan. 

Financial inclusion directly supports the UN Sustainable Development Goals, particularly helping small manufacturers, service providers, and tech startups scale and reduce inequality, with women-led businesses making up 50% of microfinance recipients in the UAE.

TECHNOLOGY STREAMLINING MICROFINANCE

Technology has been crucial in making microfinance more efficient, enabling faster, cheaper, and more accessible credit assessments, says Haider. Startups like Flow48 now use AI to gain deeper insights into SMEs’ financial health, expanding access to financing for more businesses.

Ghandour believes AI and digital tools will make lending more robust, cost-efficient, and transparent. By moving the entire process to mobile devices, fintech eliminates intermediaries, giving debtors, vendors, and creditors direct control while streamlining a once bureaucratic system.

Nagaraj notes that AI is crucial in underwriting smaller loans. His company uses data from distribution partners to extend credit to small businesses, achieving a 94% success rate. As machine learning advances, accuracy is expected to improve even further.

AI and alternative data models are revolutionizing micro-lending, making it faster, more precise, and more inclusive. Instead of relying on outdated credit reports, fintech lenders now assess businesses using real-time transaction data, e-commerce sales, and utility payments, says Khan. Platforms like Forus and Beehive in Saudi Arabia and the UAE already use AI-driven credit assessments, granting loans in hours instead of weeks.

Meanwhile, STCPay’s expansion in Saudi Arabia shows how digital wallets support businesses beyond payments, enabling faster loan disbursements and flexible repayment. With AI improving risk prediction and digital disbursements and eliminating banking delays, fintech micro-lending is no longer just an alternative—it’s becoming the future of SME financing.

MICRO-LOANS = LARGER-SCALE FINANCING?

Micro-loans should be a stepping stone to larger SME financing, not a permanent fix, says Khan. Leading fintech lenders now offer structured loan programs, allowing businesses to start small and gradually increase borrowing.

However, debt traps remain risky if financing isn’t paired with growth strategies. Financial literacy, mentoring, and responsible lending are crucial to ensuring SMEs use micro-loans as a path to expansion, not a cycle of short-term debt.

Ghandour highlights a major gap in SME lending across the region. In the GCC, SMEs receive just 5% of total bank lending, while in MENA, the figure is 8–10%, despite SMEs making up over 90% of businesses. The demand for financing is apparent, but regulatory support for non-bank lending remains limited.  

He argues that the success of BNPL platforms like Tabby and Tamara proves strong market demand, and expanding diverse lending products could unlock significant growth opportunities. 

Nagaraj believes that when SMEs receive responsible financing, they have the potential to grow into mid-sized and even larger enterprises. But he warns against providing long-term loans without carefully assessing working capital needs. An influx of capital without a clear strategy can push SMEs toward risky investments that don’t align with their actual cash flow needs, a mistake that has led many businesses to collapse.

Haider sees micro-loans playing different roles depending on the business—some use them to scale, expanding inventory and sales, while others rely on them for stability and cash flow management.

THE ECONOMIC DIVERSIFICATION GOAL

Moftah, however, doesn’t view micro-loans merely as a step toward larger financing but as a response to an underserved market. 

The next step, he says, is securitization, which would improve risk management and attract more investors. “We will see exciting things in securitization in the coming years,” he adds.

Studies by the World Bank and others have shown that democratizing SME funding generates jobs, drives economic activity, alleviates poverty, and creates wealth. For Ghandour, the impact goes beyond finances—it also improves access to healthcare and education and empowers women to manage family affairs.

Fintech-driven micro-loans are bridging funding gaps for startups in industries like e-commerce and retail, where BNPL models help businesses scale without upfront capital. In agri-tech and food production, they support sustainable farming and supply chain improvements. Meanwhile, green financing is enabling companies to invest in energy-efficient solutions, driving economic diversification.

By unlocking capital in key sectors, micro-lending is driving a diversified, tech-driven economy and is poised for strong growth.