Saudi Arabia’s Private Credit Market: Regulatory Evolution and Strategic Implications

Introduction

In a previous article published in 2025, we examined the convergence of legal reform and capital market development in Saudi Arabia, arguing that the conditions were, for the first time, genuinely conducive to the deployment of sophisticated private credit strategies. The year since has vindicated that assessment, but it has also materially raised the ceiling. Two regulatory developments in early 2026 have meaningfully expanded the infrastructure available to private credit participants: the Saudi Capital Market Authority’s (CMA) consolidated Instructions on the Financing Investment Funds, issued in February 2026, and the Saudi Bankruptcy Commission’s (EISAR) proposed amendments to the Bankruptcy Law, which recently went through public consultation. Taken together, these developments represent the next chapter in the Kingdom’s deliberate construction of a world-class credit market ecosystem.

This article builds on our prior analysis to examine these two developments and their implications for fund managers, institutional investors, and other participants in the Saudi private credit market. It does not seek to rehearse the foundational analysis set out in our 2025 article, which remains a relevant backdrop to the structural themes discussed here.

The CMA’s Financing Investment Funds Framework: A New Vehicle for Private Credit

An Eight-Year Architecture

The CMA’s regulatory architecture for financing investment funds has been constructed with notable patience. The journey began in 2018 with a narrow circular permitting indirect lending through funds under strictly controlled conditions, private placement only, closed-ended structure, borrowing capped at fifty percent of total assets, and with credit decisions anchored in SAMA-licensed entities rather than CMA-regulated fund managers. The 2022 Instructions on Direct Financing Investment Funds represented a qualitative leap: for the first time, CMA-regulated funds could extend credit directly to legal persons and other investment funds, without routing the lending decision through a SAMA-licensed entity. The 2026 Instructions consolidate and expand both models into a unified framework, and, critically, permit public offering and exchange listing for the first time.

This eight-year arc reveals a regulator that tests concepts under controlled conditions before broadening the permissible scope. The approach is the opposite of regulatory boldness, and that deliberateness has produced a framework of genuine credibility.

What the 2026 Instructions Change

 

The renaming of the framework, from “Instructions on the Direct Financing Investment Funds” to “Instructions on the Financing Investment Funds”, signals the broader ambition. The 2026 Instructions now formally encompass both Direct Financing Funds (which lend directly to legal persons and other funds) and Indirect Financing Funds (which deploy capital through portfolio acquisitions, co-lending arrangements, or co-investment with SAMA-licensed entities) within a single, consolidated regulatory document.

Three changes are particularly significant for private credit participants. First, public offering and exchange listing. Until February 2026, financing funds were restricted to private placements, limiting their investor base to qualified and institutional participants. The 2026 Instructions enable public financing funds

to be offered on the Main Market (Tadawul) and the Parallel Market (Nomu). This is a structural shift: it creates a mechanism for price discovery and secondary liquidity, supports larger fundraising at inception, and opens these products to a broader pool of capital, including retail investors with an appetite for fixed-income-adjacent returns.

Second, open-ended private funds. The 2026 Instructions introduce a new flexibility for private funds, which may now be structured as open-ended vehicles provided their terms include clear policies for handling subscription and redemption requests and managing liquidity. This was not available under the prior regime and is significant for managers seeking to offer more accessible entry and exit mechanics to institutional investors.

Third, enhanced disclosure obligations. Public financing fund managers face materially more detailed quarterly reporting requirements, covering the number of days of default per financing contract, the percentage of default relative to total financing granted, sectoral exposures, returns from financing contracts, the ten largest financings by amount, and the fund’s borrowing ratio. For traded funds, any beneficiary default must be disclosed immediately. This level of transparency is a precondition for institutional credibility and brings Saudi financing funds closer to the disclosure standards expected of credit fund vehicles in more mature markets.

Implications for the Private Credit Market

For private credit fund managers, the 2026 Instructions create a new product category with a genuinely broad investor base. The classification of public financing funds as specialised public funds brings them within the established governance and oversight framework for public funds, reducing regulatory ambiguity. The ability to list on Nomu, which carries a borrowing cap of fifty percent of total fund size, compared to fifteen percent for Main Market-listed public funds, provides a structuring option that preserves meaningful leverage capacity for credit-oriented strategies.

For the broader credit market, indirect financing funds that invest in seasoned loan portfolios, subject to a minimum six-month seasoning period under the 2026 Instructions, introduce a product with structural similarities to the credit fund and CLO vehicles familiar in more mature capital markets, adapted to the Saudi regulatory environment. This creates a new channel for liquidity and capital relief to originating finance companies, and a new regulated pathway for international investors seeking exposure to Saudi private credit.

The ring-fencing of fund assets, restricted to financing activities, money market transactions, bank deposits, and units of registered money market funds, imposes portfolio discipline that will reassure institutional investors. The standardised definition of “Default” (failure to pay any amount due for 90 days or more) provides a common trigger for reporting and provisioning, facilitating cross-fund comparability.

The Bankruptcy Law Proposed Amendments: Deepening the Restructuring Toolkit

Four Proposals, One Direction

In parallel with the CMA’s regulatory evolution, EISAR published proposed amendments to the Bankruptcy Law for public consultation in late February 2026, which consultation period closed in early March. The proposals are four in number, and their collective direction is unmistakable a more creditor-protective, rescue-oriented and institutionally independent insolvency framework.

The first proposal introduces a minimum return threshold for dissenting creditors in restructuring plans under Article 75. Creditors who vote against a plan must be guaranteed a return at least equal to what they would receive in liquidation, a “best interest of creditors” standard that mirrors leading insolvency frameworks globally, including the United States Chapter 11 regime. For private credit participants, this is a materially important development: it codifies a floor beneath which restructuring plan terms cannot fall, regardless of the composition of the creditor constituency. The protection is particularly relevant for minority creditors who may otherwise be crammed down by a majority coalition of incumbent lenders.

The second proposal introduces emergency and public interest exceptions to the automatic stay. Courts would be empowered, upon application from relevant public authorities, to lift the stay for claims related to declared states of emergency, environmental disasters, or public health and safety crises. This reflects a balance between debtor protection and broader societal interests consistent with the UNCITRAL Legislative Guide, and has limited direct impact on private credit strategies in normal market conditions.

The third and most consequential proposal is the introduction of a formal legal framework for pre-court, out-of-court restructuring agreements. Debtors and creditors would be able to negotiate and execute debt restructuring plans before any formal insolvency proceedings are filed, with court ratification available upon request. This aligns directly with the World Bank’s Insolvency and Creditor/ Debtor Regimes (ICR) Principles and signals a meaningful shift toward a rescue-oriented culture. For private credit participants, a recognised out-of-court framework reduces the frictional costs of distressed debt resolution, provides a structured basis for negotiating amendments, waivers and debt-for-equity exchanges outside formal proceedings, and allows parties to preserve enterprise value without triggering the reputational and operational disruption associated with formal insolvency. It also creates a clearer foundation for “amend and extend” structures that are common in more mature private credit markets.

The fourth proposal would grant EISAR a fully independent annual budget, its own accounts, and the ability to generate revenues through fees and licensing. This is critical institutional infrastructure. An adequately and independently resourced Bankruptcy Commission is better positioned to develop expertise, attract talent and maintain the regulatory consistency that institutional market participants require.

Connecting the Dots: Proposed Amendments and Private Credit Strategy

The proposed amendments, if enacted in their current form, will reinforce several strategies discussed in our 2025 article. The best interest of creditors standard strengthens the position of minority private credit providers in restructuring negotiations, reducing the risk of value extraction by controlling creditor groups. The out-of-court restructuring framework provides a new arena for private credit deployment: rescue financings, bridge facilities, and negotiated restructurings that do not require court involvement. For DIP financing, which remains largely untested in the Kingdom, the growing sophistication of the framework reduces the structural uncertainty that has historically deterred early movers.

The proposed financial independence of EISAR is also noteworthy in a practical sense. A Commission that is self-funding through fees and licensing is less susceptible to budgetary constraints that could impair operational effectiveness, and is more likely to develop the institutional depth and regulatory consistency that sophisticated market participants require.

The Convergence: Regulatory Infrastructure Meets Capital Demand

Reading the CMA’s Financing Investment Funds framework and EISAR’s proposed Bankruptcy Law amendments together, a coherent picture emerges. Saudi Arabia is systematically building the regulatory infrastructure for a mature private credit ecosystem: vehicles through which capital can be raised and deployed in

a regulated, transparent and scalable manner; an insolvency framework that is increasingly creditor-protective, rescue-oriented, and capable of resolving distress efficiently; and institutional bodies, the CMA, SAMA, and EISAR, that are maturing in their coordination and their capacity to support market development.

For private credit participants, the implications are direct. The financing fund framework provides a regulated and exchange-listed vehicle through which private credit strategies can be offered to a broad investor base, including, for the first time, retail investors via public offerings on Tadawul or Nomu. The Bankruptcy Law amendments, once enacted, will deepen the toolkit for distressed and special situations strategies, reduce resolution friction, and strengthen the position of minority creditors. Together, they address two of the historically significant constraints on private credit deployment in the Kingdom: the absence of a purpose-built regulated vehicle and the relative immaturity of the formal restructuring framework.

Saudi Arabia’s financing backdrop continues to support the case for private credit. Bank claims on the private sector stood at roughly SAR 3.19tn in February 2026, while broader bank lending measures that include other domestic non-sovereign borrowers were above SAR 3.4tn in early 2026. At the same time, a structural funding gap persists for many mid-market and growth-stage companies. PwC estimates the GCC and Egypt private credit market could expand to roughly US$11bn-20bn over the next six years, with Saudi Arabia expected to be a major driver of that growth.

Considerations for Market Participants

Against this backdrop, several practical considerations warrant attention.

Fund managers contemplating public financing funds under the 2026 Instructions should engage early with the classification as specialised public funds and the resulting governance and disclosure obligations. The enhanced quarterly reporting requirements, covering default rates, sectoral concentrations, and individual financing details, demand robust portfolio monitoring systems and, for traded funds, real-time default disclosure capabilities. The borrowing limit differential between Nomu-listed funds (fifty percent of total fund size) and Main Market-listed funds (fifteen percent of NAV) is a structuring variable that should be assessed in light of the target strategy and investor base.

For investors in financing funds, the standardised default definition and enhanced transparency regime represent a material improvement in the ability to monitor credit quality on an ongoing basis. The seasoning requirement for indirect financing funds investing in portfolio acquisitions (minimum six months) provides a baseline quality threshold that possibly reduces adverse selection risk in the secondary market.

For distressed and special situations investors, the proposed out-of-court restructuring framework, if enacted, should be studied carefully. A formal legal mechanism for pre-court restructuring agreements, with the option of court ratification, creates a new mode of engagement with financially stressed companies that is less adversarial, less expensive, and potentially more value-preserving than formal proceedings. Market participants should begin developing the relationships, expertise, and documentation frameworks necessary to operate effectively in this space.

For all participants, the intersection of conventional legal principles with Shari ah requirements remains a structuring consideration that is unique to the Saudi market. Financing fund documentation, restructuring agreements and portfolio transfer mechanisms must be designed with both frameworks in mind. The CMA’s 2026 Instructions and the proposed Bankruptcy Law amendments do not alter this fundamental characteristic of the Kingdom’s legal environment; they simply provide a more sophisticated framework within which Shari ah-compliant structures must be deployed.

Conclusion

The twelve months since our 2025 article have confirmed the direction of travel, and accelerated it. The CMA’s consolidated Financing Investment Funds Instructions and EISAR’s proposed Bankruptcy Law amendments are not incremental adjustments; they are structural additions to a regulatory framework that is, in material respects, now fit for purpose as a foundation for sophisticated private credit activity.

For fund managers, the public financing fund is a new product category that merits serious evaluation. For investors, the combination private-credit-adjacent asset class with a risk-return profile that is increasingly well-defined. For distressed investors, the deepening insolvency toolkit and the proposed out-of-court framework represent a meaningful expansion of the viable strategy set.

The window of opportunity identified in our 2025 article has not closed, it has widened. Those who invest now in the expertise, relationships, and institutional infrastructure necessary to operate in this market will be positioned to capture a disproportionate share of what promises to be one of the most consequential private credit growth stories of the next decade.

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This article is intended for informational purposes only and does not constitute legal advice. Readers should consult qualified legal counsel for advice on specific matters.

Karim Wali is a Partner at K&A (Khoshaim & Associates), leading on Finance and Projects matters.