BP Governor urges banks develop effective strategy for SME sector sustainable growth

Karachi: Governor, State Bank of Pakistan urged banks to develop effective SME Strategy by focusing on important areas for sustainable growth of SME sector. Presiding 4th meeting of SME Credit Advisory Committee Wednesday at SBP, he felt a sustainable approach to development of SME sector would require more active role from all stakeholders specially banks in improving availability of finance and other banking services for Small & Medium Enterprises.

He said SME sector growth is critical to prospects of increasing employment, supporting productivity through greater business innovation, reducing income inequalities. “It is very important, as SMEs account for vast majority of business establishments in Pakistan (over 98%) and account for over 78% percent of non-agricultural employment. SBP stands ready to support banks wishing to increase lending to this important sector with appropriate policy interventions, revamped its Credit Guarantee Scheme and refinancing schemes with some encouraging results.”

He noted with concern that overall utilization of these schemes is still below expected levels, which needs to be looked into seriously by participating banks. SME Prudential Regulations review has been completed after collecting feedback from relevant stakeholders and revised PRs will be issued soon. Expressing dissatisfaction over decline of SME financing by banks, he said it was Rs 437 billion in Dec-2007, dropped to Rs 268 billion in Sep-2011. In percentage terms, SMEs financing share in total lending portfolio of banks also fallen from 16.2% in Dec-2007 to 7.7% by Sep-2011. “Clearly, this is not a very desirable situation,” he observed.

He said broad analysis of banks’ aggregate SME loan portfolio shows major share of total SME Advances (i.e. 76%) constitutes Working Capital loans, which suggests reluctance on part of banks to meet long-term financing needs of SME sector. This has significant negative implications for drive for modernization, expansion of businesses, asset formation process by SMEs.

Anwar said overall adverse macro-economic conditions have led to decreasing demand and lower SME lending. “I feel another major factor for this decline is banks’ excessively cautious approach toward SME lending in face of difficult business environment. This is not a sustainable situation. Banks need to recognize that their need to diversify and grow their customer base entails greater focus on this potentially lucrative market segment.”

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