AI and SME financing: balancing innovation and regulation in Saudi Arabia and the UAE

Purpose Small- and medium-sized enterprises (SMEs) are central to economic diversification in the Gulf Cooperation Council (GCC), accounting for 90 % of businesses yet facing a financing gap estimated at US250bn (Deloitte, 2022). This paper critically aims to examine how Saudi Arabia and the United Arab Emirates (UAE) are integrating artificial intelligence (AI) into conventional and Islamic SME financing, evaluating whether technological adoption is matched by enforceable ethical and regulatory safeguards. Design/methodology/approach This paper uses a desk-based doctrinal and thematic analysis of regulatory strategies across both countries, including sandboxes, fintech hubs and Shariah governance frameworks. Drawing on existing literature, policy documentation and institutional frameworks, it assesses gaps in data governance, algorithmic accountability and transparency within AI-enabled credit scoring systems for SME finance. Findings Both Saudi Arabia and the UAE are fostering digitally enabled financial ecosystems underpinned by national strategies such as Vision 2030 and AI Strategy 2031. However, regulatory ambition is not consistently matched by enforceable ethical safeguards. Concerns persist around algorithmic bias, data privacy, opacity and weak oversight, which risk reproducing existing inequalities and undermining consumer trust in both conventional and Islamic finance contexts. Research limitations/implications The analysis is conceptual in nature and focused on two GCC jurisdictions, limiting direct generalisability. The findings point to the need for empirical evaluation of AI-driven credit outcomes and bias, and underscore the importance of embedding auditability and explainability into financial systems as preconditions for equitable access. Originality/value While AI adoption in SME finance is growing rapidly, limited scholarly attention has been paid to its intersection with Islamic finance principles and GCC regulatory environments. This paper addresses that gap by proposing a governance model that embeds accountability, transparency and Shariah compliance into AI-enabled SME finance, offering implications for policymakers, practitioners and society at large.