Article 24 of the Saudi Finance Companies Control Law
المادة 24 من نظام مراقبة شركات التمويل
The article requires a finance company to diversify the risks of its activity and bars it from financing a single establishment or a group of interconnected ownership beyond the percentage the Regulations specify.
Official text (Arabic)
This article has not been amended since the law was issued.
يجب على شركة التمويل تنويع مخاطر نشاطها، ولا يجوز أن تمنح تمويلاً لمنشأة واحدة أو لمجموعة مترابطة الملكية بما يتجاوز النسبة التي تحددها 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 24 explained in plain English
This article contains two provisions to protect the company from concentration of risk:
- A general duty: a finance company must diversify the risks of its activity, that is, not place its funds with a single party or a single type of risk.
- A specific limit: it may not grant finance to a single establishment or to a group of interconnected ownership beyond the percentage the Regulations specify.
The mention of "a group of interconnected ownership" is important, because it prevents circumventing the limit by spreading finance across several companies owned by the same party. The article did not specify the percentage or the criterion of interconnection, but left the percentage to the Regulations.
The idea is that the default of one large customer should not threaten the whole company, and thereby threaten the rights of its shareholders and those dealing with it.
It is preceded by Article 23, which binds the company to capital adequacy ratio rules, and followed by Article 25, which requires SAMA's approval for amending the company's capital or its articles, or for merger or acquisition.
To assess whether a finance portfolio complies with these restrictions, you can consult a lawyer who specializes in banking and finance.
Practical example
A business group in Jeddah that owns three companies applied for separate finance for each company from a single finance company. The finance company must count these applications together because they are for a group of interconnected ownership, so that their total does not exceed the percentage the Regulations specify.
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 24 of the Saudi Finance Companies Control Law
Is there a limit on financing a single customer by a finance company?
Yes. The company may not grant finance to a single establishment or a group of interconnected ownership beyond the percentage the Regulations specify.
What is meant by a group of interconnected ownership?
The article does not define it, but it makes the limit cover it as it covers a single establishment, and the details are in the Regulations.
More articles on Financial Solvency of Finance Companies
- Article 13
The article requires a finance company to set aside a provision to meet potential operating losses according to the standards the Regulations specify.
على شركة التمويل أن تضع مخصصًا لمواجهة خسائر التشغيل المحتملة وفق المعايير التي تحددها اللائحة.
- Article 14
The article allows a finance company to issue securities and sukuk under the Capital Market Law and its regulations, in proportion to its assets and financial position and without prejudice to Article 3.
مع عدم الإخلال بما ورد في المادة (الثالثة) من هـذا النظام؛ يجـوز لشـركـة التمويـل - وفق ما تحدده اللائحة وبما يتناسب مع أصولها ومركزها المالي - إصدار الأوراق ال
- Article 22
The article lists subjects the Regulations organize, including finance limits, security ratios, disclosure of the cost of finance, consumer protection, advance payments and debt collection.
تنظم اللائحة ما يأتي: 1- الحد الأعلى لمجموع التمويل الذي يجوز لشركة التمويل تقديمه. 2- منع شركة التمويل من إجراء تعاملات ائتمانية معينة، أو تقيـيـدها في ذلك. 3-
- Article 23
The article requires a finance company to comply with the capital adequacy ratio rules as the Regulations specify.
يجب على شركة التمويل أن تتقيد بقواعد معدل كفاية رأس المال وفقًا لما تحدده اللائحة.
- Article 25
The article requires SAMA's approval to amend a finance company's capital or articles, or for its merger into or acquisition of a similar company, subject to other laws.
مع مراعاة ما تقضي به الأنظمة؛ يجب الحصول على موافقة المؤسسة لتعديل رأس مال شركة التمويل، أو تعديل نظامها، أو اندماجها في شركة مماثلة، أو استحواذها عليها.
- Article 26
The article requires a finance company to obtain SAMA's approval to open a branch, agency or office inside or outside the Kingdom, or to close any of them.
يجب على شركة التمويل الحصول على موافقة المؤسسة عند فتح فرع، أو وكالة، أو مكتب داخل المملكة أو خارجها، أو إغلاق أي منها.
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.