Private credit: The Middle East's next financial frontier

Zawya

5 hours ago

Over the past decade, the private credit industry has experienced robust growth, positioning itself as a crucial alternative to traditional bank financing. Now valued at $2 trillion in assets under management as of April 2024, this asset class has become an indispensable part of global capital markets, said an industry expert, citing the International Monetary Fund (IMF) data.
Concurrently, the Middle East has grown into an economic powerhouse. The region, especially Saudi Arabia and the UAE, has witnessed transformative economic shifts that have created fertile ground for private credit investment.
As these nations diversify their economies and modernize their infrastructures, private credit is emerging as a key enabler of economic growth and a valuable tool for investors seeking high returns in an evolving financial landscape, said David Beckett, Head of Origination at SC Lowy.
Private credit is a rapidly growing asset class however this expansion remains heavily concentrated in developed markets.
North America dominates with approximately $1.1 trillion in AUM, accounting for about 55% of the global total. Europe follows with roughly 23%.
In contrast, Asia represents just 5.7% of global AUM — while the remaining share, covering the Middle East, Latin America and Africa, collectively accounts for less than 3% despite representing nearly 25% of global GDP.
Private credit remains significantly underrepresented in the Middle East, accounting for just 0.2% of global assets under management, but this figure belies a rapidly evolving growth story.
In Saudi Arabia and the UAE, policy reforms, legal overhauls, and ambitious economic diversification plans are laying the groundwork for the region's emergence as a viable, and attractive, destination for private credit investment, said Beckett.
Driving investor confidence
Saudi Arabia and the UAE have taken major steps to modernise their financial infrastructure, laying critical foundations for private credit.
Saudi Arabia's 2018 Bankruptcy Law introduced structured insolvency and restructuring procedures, with over 850 cases processed to date, many under the Financial Restructuring Procedure (FRP).
These outcomes are creating legal precedent and boosting investor confidence that distressed situations can be resolved through enforceable, negotiated recoveries.
In parallel, the UAE overhauled its bankruptcy framework in 2024, introducing specialised courts, clearer timelines, and formal mechanisms for restructuring and debtor-in-possession (DIP) financing, already tested in landmark cases like Emirates Hospital Group and JBF RAK.
Other GCC countries including Bahrain, Kuwait, and Oman are following suit with reforms aimed at improving creditor protection. Meanwhile, financial free zones like ADGM (Abu Dhabi) and DIFC (Dubai) provide international investors with the legal certainty of English common law, arbitration capabilities, and a neutral legal environment, further strengthening the region's appeal for structuring and enforcing private credit deals, stated Beckett.
India offers a useful point of comparison. Since the introduction of its Insolvency and Bankruptcy Code (IBC) in 2016, the country's private credit market has expanded from under $1 billion to more than $25 billion in AUM, he added.
Despite some procedural inefficiencies, the IBC has significantly strengthened creditor rights, attracting both global and domestic private lenders.
Analysts forecast this momentum could push India's private credit market to $60-70 billion by 2028, demonstrating how regulatory reform can rapidly scale an alternative credit ecosystem.
The GCC, particularly Saudi Arabia and the UAE, appear poised for a similar trajectory with some clear advantages. These markets are well-capitalized, their economic diversification plans are state-backed, and sectors such as infrastructure, tourism, healthcare, digital services, and clean tech are rapidly expanding, said the top expert.
This wave of mid-market businesses urgently requires flexible, non-bank financing that traditional lenders, often focused on sovereign or GRE clients, are unable or unwilling to provide, said Beckett.
At the same time, local banks are beginning to offload non-performing loan portfolios, signaling the emergence of a more active secondary market for distressed credit. Adding further momentum, regional sovereign wealth funds and family offices are increasingly backing private credit strategies as LPs or co-investors - deepening liquidity and institutionalizing the asset class.
Real demand, real collateral
While legal reforms provide the foundation, demand-side dynamics in Saudi Arabia and the UAE are equally compelling.
In Saudi Arabia, the industrial sector, especially manufacturing, logistics, and downstream petrochemicals, is expanding rapidly, yet traditional banks remain focused on sovereign-led mega projects. Private credit can bridge this gap, funding mid-sized corporates with asset-backed loans that offer downside protection and strong risk-adjusted returns.
In the UAE, smaller developers and businesses in real estate, hospitality, and services are underserved as banks hit exposure limits. Private lenders are stepping in with mezzanine and senior-secured loans backed by hard assets. Across both markets, tangible collateral, conservative LTVs, and clearer enforcement mechanisms are creating compelling private credit opportunities with attractive yields and real downside protection.
Foundation to frontier
The private credit story in the Middle East is still in its early chapters, but the narrative is taking shape, observed Beckett.
Legal and institutional reforms are aligning with macroeconomic transformation, creating a fertile environment for private credit to scale.
If India's experience over the last decade demonstrates how market evolution can accelerate with the right reforms, then Saudi Arabia and the UAE are following a similar, perhaps faster, path, he stated.
For global and regional investors, the Middle East presents a compelling case: strong macroeconomic backdrop, rising demand for alternative capital, improved legal protections, and untapped market potential.
Those who position early may benefit most as the region matures into the next global hub for private credit, he added.- TradeArabia News Service
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