Article 11 of the Saudi Finance Companies Control Law
المادة 11 من نظام مراقبة شركات التمويل
The article prohibits a finance company from non-finance business, trading in currencies, gold, securities and real estate, wholesale and retail trade, accepting deposits, and unapproved short-term foreign financing.
Official text (Arabic)
This article has not been amended since the law was issued.
يحظر على شركة التمويل ما يأتي:
1- مزاولة أي نشاط آخر غير التمويل.
2- امتلاك منشأة تزاول نشاطاً آخر غير التمويل سواء بشكل مباشر أو غير مباشر.
3- المتاجرة في العملات، أو الذهب، أو المعادن النفيسة، أو الأوراق المالية.
4- المتاجرة في العقار.
5- مزاولة تجارة الجملة، أو التجزئة.
6- قبول الودائع تحت الطلب.
7- قبول الودائع الآجلة، أو التسهيلات غير المصرفية، أو فتح الحسابات لعملائها بجميع أشكالها، ما لم ترخص لها المؤسسة بذلك، ويجب أن تودع لدى المؤسسة نسبة من قيمة الودائع بالقدر الذي تحدده اللائحة.
8- الحصول على تمويل أجنبي قصير الأجل إلا بموافقة المؤسسة، وفقًا لما تحدده اللائحة.
This is the official Arabic wording, the only legally binding version. We do not translate the law itself; the explanation below is ours. Official source: Bureau of Experts at the Council of Ministers
Article 11 explained in plain English
This article specifies what a finance company may not do, so that it stays specialized in finance. It is prohibited from:
- Carrying on any activity other than finance.
- Owning an establishment that carries on an activity other than finance, directly or indirectly.
- Trading in currencies, gold, precious metals or securities.
- Trading in real estate.
- Carrying on wholesale or retail trade.
- Accepting demand deposits; this prohibition is absolute in the text.
- Accepting term deposits or non-banking facilities or opening accounts of all kinds for its customers, unless SAMA licenses it to, in which case it must deposit with SAMA a percentage of the value of the deposits that the Regulations specify.
- Obtaining short-term foreign financing except with SAMA's approval as the Regulations specify.
Note the difference between the absolute prohibition (such as demand deposits and trading in real estate) and the prohibition that is lifted by a license or approval from SAMA (such as term deposits and short-term foreign financing).
The prohibition on trading in real estate does not conflict with the preceding Article 10, which allows real estate finance and owning assets in order to finance their transfer of ownership to others; what is prohibited is trading, not financing. It is followed by Article 12, which adds prohibitions on how finance is granted and to whom.
To find out whether a particular activity falls within these prohibitions, you can consult a lawyer who specializes in banking and finance.
Practical example
A finance company in Riyadh offered its customers savings accounts with a monthly return. This falls within opening accounts, which a finance company is prohibited from unless SAMA licenses it to, and then it must deposit with SAMA a percentage of the value of the deposits according to the Regulations.
Translated from our Arabic explanation with machine assistance. For guidance only; it does not replace advice from a lawyer on your situation.
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Frequently asked questions about Article 11 of the Saudi Finance Companies Control Law
Is a finance company entitled to accept deposits?
It is prohibited from accepting demand deposits, and prohibited from accepting term deposits or opening accounts for its customers unless SAMA licenses it to.
May a finance company trade in real estate or gold?
No. The article prohibits trading in real estate and in currencies, gold, precious metals and securities.
Can a finance company borrow from abroad?
It is prohibited from obtaining short-term foreign financing except with SAMA's approval, as the Regulations specify.
More articles on Prohibitions on Finance Companies
- Article 12
The article prohibits a finance company from financing without security, against its own shares, or for parties connected to its board members, auditors and staff except as the Regulations specify, and provides for removal of a violating member or auditor.
1- يحظر على شركة التمويل ما يأتي: أ - أن تقدم أي تمويل دون ضمان، واستثناءً من ذلك تحدد اللائحة قواعد التمويل دون ضمان. ب - أن تمول أو تمنح تسهيلات بضمان أسهمها.
- Article 18
The article makes the members of a finance company's board jointly responsible for guaranteeing the company's rights against losses resulting from providing finance without security, without prejudice to paragraph (1/a) of Article 12.
مع عدم الإخلال بما ورد في الفقرة ( 1/أ) من المادة الثانية عشـرة من هذا النظام؛ يتحمل أعضاء مجلس إدارة شركة التمويل - بالتضامن- مسؤولية ضمان حقوق الشركة ضد الخسا
The texts are reproduced from the official website of the Bureau of Experts at the Council of Ministers for reference; where they differ, the officially published Arabic text prevails. This content is not legal advice.