Legal Aspect of Non-Banking Solutions: The Case of Saudi Arabia

Abstract

Contemporary life is full of responsibilities and entertainments. Thus, people in all segments demand funds to satisfy their needs. Business people look for funds to enlarge their businesses, employees require cash to pay for housing and other assets. Most of these have less ability to pay up front for their needs, but they can pay short-to mid-term installments. Legally, funds can be provided only from recognized financial institutions that are regulated by central banks, such as traditional banks and financing companies. However, not all people can get the required funds due to regulatory and risk issues. This is because the requirements demanded by such institutions are unattainable by all clients. Therefore, clients usually look for alternative methods to satisfy their needs. The solutions vary, but could come from institutions or individuals who are operating outside the central bank of a country. They are known as: non-banking institutions, leasing companies, shadow banking and individual financiers. Although these methods of financing are unregulated, and in some cases are illegal, they have created a huge demand from the public, attributable to their flexibility in payment process and maybe as a result of their low cost.