New Financing Playbook
The startup ecosystem of the Middle East and North Africa (MENA) has long been driven by bold venture capital bets, sovereign wealth injections, and a rush of innovation in fintech and e-commerce. But 2025 has introduced a significant transformation. For the first time, debt financing is no longer seen as a niche alternative. Instead, it is emerging as a mainstream growth lever. This shift is especially visible in Saudi Arabia, where supportive policies, sovereign capital, and maturing startups are aligning to make credit-based instruments a core feature of the funding landscape. The region, once almost entirely reliant on equity-driven expansion, is now embracing debt as a structural component of entrepreneurial finance.
The Numbers Behind the Transformation
The latest statistics underscore how significant this shift has become. In the first half of 2025, startups across MENA raised a total of USD 2.1 billion across 334 deals, a year-on-year increase of 134 percent. Yet nearly 44 percent of that amount about USD 930 million was raised through debt financing rather than equity. Without this debt contribution, the region’s pure equity growth rate would have been closer to 53 percent, revealing how critical debt has become to the overall surge.
Saudi Arabia stands out as the clear leader. The Kingdom accounted for around 64 percent of all startup funding in H1 2025, not just by volume but also by pioneering the shift toward debt-heavy financing structures. By contrast, the United Arab Emirates, although one of the most active hubs for venture activity, still relies predominantly on equity deals, with debt representing only 19 percent of its funding mix. These figures highlight the emergence of a dual-speed ecosystem in which Saudi Arabia leans on innovative debt structures while the UAE continues to rely more heavily on equity-led growth.
Policy Drivers: Why Saudi Arabia Is Leading
Saudi Arabia’s embrace of debt financing is the result of deliberate policy design rather than market accident. The government’s Vision 2030 strategy, which seeks to diversify the economy beyond oil dependence, has placed startups at the center of job creation and innovation. Debt financing offers the state a way to accelerate capital deployment into high-growth companies without overexposing itself to equity risks.
The Public Investment Fund (PIF) and other state-backed vehicles have been critical in channeling liquidity into venture debt programs, often co-investing alongside private funds. Regulatory reforms have also played a role by making it easier to establish private credit funds, register debt instruments, and structure hybrid deals that blend elements of debt and equity. Moreover, Saudi Arabia has succeeded in attracting global partners. International institutions, including JPMorgan, have participated in debt rounds for local fintech firms, signaling that the Kingdom is now seen as a credible testing ground for alternative finance in emerging markets.
What Debt Financing Offers Startups
For founders, the appeal of debt lies in its ability to preserve ownership while providing much-needed capital. Unlike equity rounds, which require giving up stakes in the company, debt allows entrepreneurs to retain control of their vision and long-term upside. Successfully raising debt also signals maturity, as it demonstrates that the company has predictable revenues or cash flows sufficient to service obligations. For many businesses, particularly those with asset-heavy or capital-intensive models, debt can serve as a bridge to profitability by financing growth without sacrificing equity.
In addition, the range of available instruments has expanded. Convertible debt, revenue-based financing, and asset-backed loans are becoming more common in the region. These provide flexibility in structuring capital stacks, allowing founders to match repayment obligations with their specific growth trajectories. However, debt is not without risk. Unlike equity, which absorbs downside shocks, debt requires repayment regardless of performance. This makes it a double-edged sword for startups still navigating volatile markets.
Risks and Challenges
The growing reliance on debt introduces several challenges. Overleveraging is one of the most immediate risks, as ambitious founders may be tempted to borrow aggressively without securing stable revenue streams to cover repayments. High debt burdens can suffocate growth and, in worst cases, lead to bankruptcy. Debt instruments also typically come with restrictive covenants that may limit flexibility. Requirements for minimum cash reserves, borrowing caps, or frequent financial reporting can constrain startups that thrive on agility and rapid pivots.
Valuation complexities add another layer of risk. Later-stage equity investors may negotiate valuations that conflict with terms embedded in earlier debt or convertible deals, creating disputes around liquidation preferences and capitalization tables. In addition, exit options for debt investors are limited in MENA compared to mature markets. With few established secondary markets or robust refinancing mechanisms, lenders face challenges in liquidating positions. Finally, much of the debt demand is concentrated in fintech, proptech, and e-commerce. If these sectors falter, the ripple effects could destabilize the debt-financing ecosystem.
Global Comparisons: How MENA Stacks Up
Globally, debt financing for startups has existed for decades. In Silicon Valley, firms like Silicon Valley Bank pioneered venture debt in the early 2000s, while Europe has normalized the use of debt alongside Series A and Series B equity rounds. Yet global patterns are not uniformly positive. In 2024, venture-debt fundraising in the United States fell by 63 percent compared to 2023, reflecting investor caution after interest rate hikes and a series of high-profile startup failures.
MENA, however, is charting a different path. Instead of contracting, debt financing in the region is expanding rapidly. The difference lies in local context. Sovereign wealth funds, government-backed policies, and the urgency of economic diversification are pushing debt forward as a deliberate growth strategy. While developed markets are retrenching from risky venture debt, Saudi Arabia and its neighbors are using it as a tool to build resilience and attract global participation.
Case Studies: Debt in Action
Several recent deals illustrate how debt is being deployed. Lendo, a Saudi fintech, raised significant debt financing with the backing of JPMorgan, demonstrating not only domestic confidence but also international validation. E-commerce and proptech companies, often reliant on physical infrastructure such as warehouses and logistics networks, are increasingly turning to structured debt to finance expansion. Even in advanced technology sectors such as artificial intelligence and cloud services, debt is being used to fund large-scale infrastructure projects like data centers, where predictable cash flows from enterprise clients make repayment feasible.
These examples show that debt is not confined to a single stage or industry. It is being applied across a spectrum of verticals and maturity levels, each with its own rationale for preferring non-dilutive capital.
Outlook for 2026 and Beyond
Looking forward, several trends are likely to shape the future of debt financing in the region. Venture debt funds are expected to emerge in Riyadh and Dubai, offering startups tailored credit solutions and reducing reliance on equity-heavy capital stacks. Hybrid rounds combining equity and debt will become more common, giving founders greater flexibility in aligning capital with business cycles. Institutional investors such as pension funds and international banks are expected to deepen their exposure, as debt provides a relatively safer entry point into the MENA market compared to pure equity.
North Africa, though still lagging, is also beginning to experiment. Morocco has already climbed in regional funding rankings, while Egypt, despite macroeconomic challenges, is seeing early attempts at debt adoption. Over time, as regulatory frameworks mature and investor confidence grows, debt is likely to become a standard component of startup financing in these markets as well. For founders, this means a growing need to develop financial discipline, carefully balancing the trade-off between ownership retention and repayment obligations.
Conclusion
The rise of debt financing in MENA is more than a financial trend it is a symbol of ecosystem maturity. By blending equity and debt, startups gain access to a more sophisticated set of financing tools, while investors secure alternative pathways for returns. Saudi Arabia, through deliberate state support and regulatory innovation, has positioned itself at the forefront of this shift, setting an example for the broader region.
If nurtured responsibly with clear regulations, diversified exposure, and founder education debt financing could accelerate the region’s transformation from a high-risk, equity-dependent ecosystem to a balanced and sustainable capital market. In doing so, MENA would not only redefine its startup landscape but also signal to the world that it is ready to compete with the most mature innovation economies.
