This column has stressed upon access to finance as the biggest hurdle for SME development in Pakistan. The problem comprises of both demand and supply side issues with only around 6 percent of SMEs currently availing financing despite the fact that 40 percent have banking relationships. From the supply side it is arguably the State Bank of Pakistan (SBP) that is relied upon to play an active role in the provision of finance to SMEs.
According to the Deputy Governor SBP, Saeed Ahmad, the bank has adopted a three pronged strategy of providing an enabling regulatory environment, building a secured lending environment and undertaking market development measures. The SBP also introduced a key policy measure of assigning SME financing targets to banks and DFIs in December, 2015 coupled with the advice to build a proper hierarchy which includes dedicated teams for SME Banking. This calls for closely working with senior management of banks and DFIs to achieve the targets as well as encouraging them to harness the benefits of technology to improve access and outreach.
Measures like drafting of secured transaction law, launch of various credit enhancement schemes and other market development initiatives have also been taken by the central bank.
These will certainly help address the challenge of risk averseness.
The SBP has in a welcome move introduced a dedicated scheme titled Credit Guarantee Scheme for small and rural enterprise which covers 40 percent risk of financial institutions.
Apart from SMEs, SBP has provided an enabling regulatory framework to foster access to finance through easy to open accounts through Branchless Banking channel. There are 9 financial institutions that have been licensed to provide basic financial services in the near vicinity of customers through their appointed agents. The accounts can now be opened in realtime, through BVS-Biometric Verification System devices placed at the agent locations; and also by dialling a short code from the mobile phone.
Digital credit through the mobile financial system is also an area which can play an important role in satisfying the immediate and short term monetary needs of the masses. Likewise, SBP is working with the industry for value addition in their product portfolio and credit goes to the central bank for being innovative in product development in the digital financial eco system for the future.
However, there is only so much the SBP can do and the majority of the onus lies with the private banks to increase provision of finance to the SME sector. Banks need to diversify their portfolios and be less risk averse when lending to small and medium enterprises. Even a cursory look at the balance sheets of leading banks will reveal the majority of lending occurs to the corporate sector.
Moreover, the disproportionately high weightage of government securities chokes off any credit supply to the credit starved informal sector.
Banks have to realise that small and medium enterprises today might be conglomerates of tomorrow if only they are provided with the resources to grow.
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