SME Financing  


The Small Medium Enterprises have played key role in development of economies like Japan. It has also been playing key role in providing impetus to the development of some of the world’s best economies like Taiwan, Korea, Hong Kong and China. Countries in South America and India have also been concentrating their efforts in developing the SME sector. Pakistan in not an exception to this as both the Government of Pakistan and the State Bank have been trying to give impetus to their efforts aiming to develop SME sectors in Pakistan. In this regard government has restructured the key support institutions such as SMEDA and SME Bank.

It may be reiterated that in line with other developing countries, the SME sector in Pakistan also do not have adequate access to financing from the formal sector and has been primarily relying on the credit facilities from the informal sector, at a cost even higher than the cost paid by those borrowers from SME sector who are able to avail facilities from the formal sources like banks. Our experience/ interaction with the banks has transpired that one basic reason for reduced access to financing from banks by SME borrowers has been inadequate, enabling regulatory environment, in the absence of which banks are forced to evaluate the financing requests from prospective borrowers under the existing prudential regulations which are basically driven by their requirements for lending to corporate sector. The State Bank has already drafted draft Prudential Regulations for the SMEs, which are likely to be made operational shortly. Once these are made operational they would go a long way in developing the skills / mind set in the commercial banks for financing to SMEs. For the purpose we have also asked the banks to establish dedicated departments for handling the SME financing requirements.

As already stated, the SME bank is undergoing a restructuring; where after the bank is expected to become a beacon for financing to the SME sector. The SME bank has been conceived as a leader in developing the program lending, to be developed as a model. Other banks desirous to provide lending to SME sector can then use these models. For the purpose of facilitating credit decision, the SBP is also contemplating to set up Credit Information Bureau in the private sector for collection/compilation of data on the credit history of SMEs, which will ultimately improve the credit risk appraisal capacity of the banks and reduce the non performing loans.


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