Socio-Economic Background of Saudi Society and Its Impact on Financial Sector

Subject: Financial Management
Pages: 8
Words: 2347
Reading time:
10 min
Study level: PhD


The Financial sector in Saudi Arabia has experienced tremendous change over the past few decades, especially due to the presence of oil. The socio-economic environment in this country has been confirmed to have a direct impact on the performance of the financial sector. The socio-cultural beliefs and practices have been blamed for the slow growth of this sector. The culture that demeans women is seen as the main reason why some women are yet to embrace banking as a way of keeping their money.

Other banking institutions give men superior services as compared to those given to women. This has discouraged some female customers, affecting the sector negatively. However, the production and export of oil have supported this sector. This has been made possible by business people, who come for the product. These people rely on financial institutions to be able to trade. Tourism and agriculture have also supported this sector.


The Kingdom of Saudi Arabia is a country located in Western Asia, bordering Iraq, Jordan, Oman, Yemen, United Arab Emirates, Kuwait and Qatar. The country is largely an Islamic nation given the fact that the largest population is Muslims. According to Al-Mulhim (2009), Saudi Arabia has one of the fastest-growing economies in the Middle East and the entire Arab World. It was ranked the largest economy by the World Bank in the year 2009. The socio-cultural practices of this country have largely been seen as unique, especially when compared to that of Western countries. The Saudi society is uniquely Islamic, with most of the laws governing the country derived from the Shariah laws.

The economy of the country has been stable even during the 2008 economic recession that affected many countries around the world. Although oil remains the leading source of income, other economic activities such as agriculture and tourism also play an important role in boosting the economy. The research by Tollitz (2005) has shown that the region has been experiencing impressive growth in trade with other parts of the world. The country has also embraced the open market policy, a fact that has enabled foreign firms to invest in the local economy. It would, therefore, be argued that the socio-economic environment in this society has had a positive impact on the financial sector. It would be of interest to determine the impact of this socio-economic environment on the financial sector.

Literature Review

Scholars have conducted a lot of research about the socio-economic environment in Saudi Arabia, especially because of its strategic relevance in the world’s energy sector. The Kingdom of Saudi Arabia has been considered the cradle land of Islamic society. According to Nonneman (2006), Saudi Arabia is the heart of the Islamic religion. The City of Mecca has a religious connotation to all Muslims across the world. When defining the socio-cultural practices of Saudi society, Lacey (1982) says that it is important to understand the role of religion. The majority of the residents in the country are Muslims, practicing strict Islamic teachings as stipulated in the Shariah law.

It is a fact that other religious groupings such as Christians and Hindus also exist in the country, but they constitute a negligible percentage. Their impact on this society would be considered inconsequential, given the fact that others are just visitors who come for trade or a tour. This means that the social environment is closely defined by this religion. It would be important to understand how the social environment of this country affects the financial sector.

According to Baamir (2010), many business institutions operating in Saudi society have been forced to learn the social dynamics in the society and develop products that would meet the needs of the locals in the best way possible. One of the defining cultural practices common in this country is the value given to men of this society. Although society is slowly embracing equality of both genders, the truth is that it may take decades for true equality to be achieved.

Men are still the custodians of the family wealth in the country. This means that they are the most attractive segment for the banks. Shoult (2006) says that this has had a negative impact on banks. Women prefer home banking where they can easily hide their money and retrieve it when they need it without being noticed, to avoid reprimand from their spouses who may want to know why they have bank accounts (Behdad & Nomani, 2006).

Belanger (2011) says that, in Muslim society, men are not supposed to have body contact with women who are not their spouses. The Shariah law forbids This. The banking sector has grappled with this problem for a long time because, in the banking halls, it may not be easy to avoid body contact (Kent & Thompson, 2005). This forced many women to avoid banking as a way of eliminating chances of having body contact with men. As Lippman (2012) observes, this reduced the number of customers who visited the banks, reducing their profitability. Other firms that were keen to attract both male and female customers were forced to create different banking halls for the two groups (Lippman, 2004).

Samba Financial Group is one such institution that has developed male and female banking in Riyadh and major cities in the country. Although this has earned the bank admiration among the Muslim society as a bank that seeks to uphold Islamic teachings, it comes at an extra cost that would have been used for other development purposes (Cordesman, 2003). The bank has to establish two banking halls in these major cities in an attempt to attract both male and female customers. Although this is working in the local economy, Robertson (2005) says that the bank may risk developing a negative image in the international society.

Saudi Arabia has been criticized for upholding laws that demean women. For instance, Krivenko (2009) notes that women of this country were not allowed to drive cars just because they were women. They could also travel abroad only after being granted permission from their mahrams. Their husbands could deny them permission at will. Some were even forced to ask permission from their sons in case they did not have husbands because society considered them as people who lacked Hikmat (Rubin, 2005).

The world society has criticized the retrogressive belief, and there has been a lot of pressure on the government and the society in general to eliminate such retrogressive laws and cultural practices. Developing another bank that is distinctively meant for women will bring the need to compare the service delivery of the two banking units. As mentioned above, men are still the custodians of family wealth, and it would be common to find men in banking halls with better facilities for faster service delivery (Tripp & North, 2003).

This will give a negative image in the international society. As Long (1997) says, the outsiders may not realize that the bank was forced to develop different banking halls because of the social environment in the country. There will be a belief that the firm is trying to promote a culture that is oppressive to women, which may affect the bank’s performance in non-Islamic regions where it has branches such as in the United Kingdom. Banking institutions have also had problems with the issue of interests earned on customers’ deposits. As Clinton (2011) notes, customers will always be convinced to bank their money when they know their money will earn some interest.

However, Shariah law does not approve of such interests. Some staunch Muslims still consider banking as an institution that is meant to bring temptation to humanity that can make them sin against Allah’s teachings (Kline, 2010). This has also had a negative effect on the financial sector in the country.

According to Madawi (2006), the impact of the economic environment on the financial sector in Saudi Arabia has been positive. Saudi Arabia remains the leading exporter of oil in the world. This has made major cities, such as Riyadh, strategic trading points in the world. International society has to visit the country in search of oil. This has boosted the financial sector because it offers the medium through which financial transactions can take place. Many of the traders, who frequent the country, have opened bank accounts with local financial institutions to ease their financial transactions (Mai, 2005). The religious significance of the City of Mecca has also boosted the financial sector.

Hundreds of thousands of tourists visit this city every year. Their frequent visits have made some of them open bank accounts with local banks. These tourists also boost other business entities which will, in turn, improve their banking. The country also has an active agricultural sector that has been playing a major role in stabilizing the economy. Some of the farm produce is exported to neighboring countries, earning foreign exchange to the country. This helps in strengthening the financial sector. Based on findings from the relevant literature, the following hypotheses were developed:

  • H1: The social-cultural environment in Saudi Arabia has a negative impact on the financial sector.
  • H2: The economic environment in Saudi Arabia has a positive impact on the financial sector.


In a research project, it is always important to define the methodology that would be appropriate in yielding the most desirable results. In this research, a quantitative method was considered appropriate in collecting and analyzing data. The researcher used 50 participants within the City of Riyadh who were in the banking sector. A stratified sampling method was used to select the sample population (Kothari, 2004). The strata used were defined by the number of years that a participant had been in the industry, the position held at various banking institutions, religious standings, and the possibility of an individual to have worked in the banking sector in other parts of the world (Anderson, 2009). In each stratum, simple random sampling was used to select specific individuals who would take part in the research. Care was taken to eliminate any form of bias at this stage.

Questionnaires were developed by the researcher to help in the collection of data from the participants (Calabrese, 2006). These questionnaires were sent to the sampled population through hand delivery. This was considered appropriate because the researcher needed to explain to them the relevance of this research and to convince them to take part in the research (Anderson, 2004). The physical delivery also created strong bonds and a sense of commitment between the researcher and the participants (Barthe & Hermenegildo, 2010).

The researcher collected the answered questionnaires for the purpose of analysis. Given that the research took a quantitative approach, SPSS software was used to analyze data in order to arrive at various conclusions based on the hypotheses that were developed (Badenhorst, 2007). The researcher was keen to ensure that the validity and reliability of the data were upheld at all stages of research.


The socio-economic background of Saudi society has a direct impact on the financial sector. According to this research, it was confirmed that the social environment in this country still has a bearing on the banking behavior of the people of Saudi Arabia. Many people still believe that civilization that is not backed by religion is not only misleading and unacceptable but also a practice that is meant to introduce a new culture that is strange in this society (Manaschi, 1998). According to the data obtained about the male and female employees of Samba Financial Group, it was clear that men felt more satisfied than women in their respective banks. The graph below shows the result in tabular form.

The result in tabular form

The results that were obtained reveal that male customers enjoy superior services from the banks as compared to female customers. This means that women would easily opt for home banking where they do not feel intimidated (Minja, 2009). This reduces the customer base of such financial institutions, a fact that would reduce their profitability. It also earns the firm a negative image in the international society. This means that the socio-cultural environment in Saudi Arabia has a negative impact on the financial sector. For this reason, the hypothesis below is confirmed.

  • H1: The social-cultural environment in Saudi Arabia has a negative impact on the financial sector.

According to the results that were gathered from the respondents about the economic environment in this country, most of them noted that it had a positive impact on the financial sector. Most of the respondents noted that the stable growth of the country’s economy has had a positive impact on the financial sector. Most of the respondents cited the exportation of oil, tourism, and agriculture as the main sectors that have boosted the financial sector.

The export of oil has forced some of the international traders to open bank accounts with some of the leading financial institutions such as the Samba Financial Group. These three sectors have played a major role in boosting trade between Saudi Arabia and the international community. The data gathered was analyzed and presented graphically as shown in figure 2 below.

Do you believe that economic environment has positive impact on financial sector

As shown in the above graph, the economic environment has a positive impact on the financial sector in Saudi Arabia. This confirms the second hypothesis below

  • H2: The economic environment in Saudi Arabia has a positive impact on the financial sector.


It is clear from the above discussion that the socio-economic environment in Saudi Arabia has a direct impact on the financial sector. The socio-cultural practices in this country have been determined to have a negative impact on this sector. Some of the cultural practices that lower the status of women in society have been cited as one of the impediments that have to be fought to win this battle. On the other hand, the research shows that the economic environment in this country has helped to boost the financial sector in the country. This has specifically been attributed to the export of oil, increased tourism, and agricultural developments.


Al-Mulhim, N. (2009). Islamic Funding of Small Business in Saudi Arabia. Mumbai: McMillan Publishers.

Anderson, J. (2009). Assignment and thesis writing. Cape Town. Juta.

Anderson, V. (2004). Research Methods in Human Resource Management. London: Chattered Institute of Personnel Management.

Baamir, A. Y. (2010). Shari’ a Law in Commercial and Banking Arbitration: Law and Practice in Saudi. Burlington: Ashgate Publishing.

Badenhorst, C. (2007). Research writing: breaking barriers. Pretoria: Van Schaik Publishers.

Barthe, G., & Hermenegildo, M. (2010). Verification, Model Checking, and Abstract Interpretation: 11th International Conference, VMCAI 2010, Madrid, Spain, January 17-19, 2010, Proceedings. New York. Springer.

Behdad, ‎S. & Nomani, F. (2006). Islam and the Everyday World: Public policy Dilemmas. London: Routledge.

Belanger, C. (2011). Our World: Saudi Arabia. Riyadh: Cangage.

Calabrese, R. (2006). The elements of an effective dissertation and thesis: a step-by-step guide to getting it right the first time. Lanham: Rowman & Littlefield.

Clinton, H. (2011). U.S Department of State, Diplomacy in Action. Washington, DC: Potomac Books, Inc.

Cordesman, A. (2003). Saudi Arabia Enters The 21st Century. New York: Greenwood Publishing Group.

Kent, M. & Thompson, J. (2005). Economics of Banking: New York: John Wiley and Sons.

Kline, J. (2010). Ethics for International Business: Decision-Making in a Global Political Economy. New York: Routledge.

Kothari, C. R. (2004). Research methodology: Methods and techniques. New Delhi: New Age International (P) Limited Publishers.

Krivenko, E. (2009). Women, Islam and international law: within the context of the Convention on the Elimination of All Forms of Discrimination against Women. Danvers: Koninklijke Brill.

Lacey, R. (1982). The Kingdom: Arabia & the House of Sa’ud. Harcourt Brace: Jovanovich.

Lippman, T. (2012). Saudi Arabia on the Edge: The Uncertain Future of an American Ally. Washington, DC: Potomac Books, Inc.

Lippman, W. (2004). Inside the Mirage: America’s Fragile Partnership with Saudi Arabia. New York: West view Press.

Long, D. (1997). The Kingdom of Saudi Arabia. Gainesville: University Press of Florida.

Madawi, A. (2006). Contesting the Saudi State. Cambridge: Cambridge University Press.

Mai, Y. (2005). Changed Identities: The Challenge of the New Generation in Saudi Arabia. Columbia: University of British Columbia Press.

Manaschi, A. (1998). Comparative Advantage in International Trade: A Historical Perspective. Cheltenham, UK: Edwards Elgar Publishing.

Minja, D. (2009). Ethical Practices for effective leadership: Fact or Fallacy- A case of Kenya. KCA Journal of Business Management, 2(1), 1-14. Web.

Nonneman, G. (2006). Saudi Arabia in the Balance: Political Economy, Society, Foreign Affairs. New York: New York University Press.

Robertson, B. (2005). Shaping the Current Islamic Reformation. London: Frank Class Publishers.

Rubin, B. (2005). Crises in the Contemporary Persian Gulf. New York: Routledge.

Shoult, A. (2006). Doing Business with Saudi Arabia. London: GMB Publishing Ltd.

Tollitz, N. (2005). Saudi Arabia: Terrorism, U.S. Relations, and Oil. New York: Nova Publishers.

Tripp, H. & North, P. (2003). Saudi Arabia: Culture Shock Guides. New York: Graphic Arts Center.