The SBP’s SME Finance review that comes out every quarter has seen its ups and downs—some quarters offering extensive data and review of the data, and in others, just offering basic numbers and little discussion.
Since Mar-17, the review offered a one-pager that merely tells how much SME financing was made, its share in total; bifurcated along banking institutions and type of financing attained. There is no information for instance, on the distribution of borrowers by institution, non-performing loans (NPLs) by institution or size of loans by institution etc. to gain any valuable insights into where SME financing is headed.
Latest numbers indicate that financing to SMEs rose by 28 percent to Rs379.8billion in June-17 year-on-year, though in Dec-16, total outstanding stood at Rs401—in that sense, SME financing has fallen. Share of SMEs in private sector credit reached 9.2 percent in Dec-16 but has since dropped to 8 percent (See table for statistics. See also our last story on the subject: “SME Financing: Mountain or a molehill”).
About 12,000 more borrowers seemed to have been added since June-16 but the difference between borrowers in Dec-16 and June-17 is merely 1,000. The numbers show a superficial growth in financing but it doesn’t mean that bank ability of SMEs is on the rise. The increase in financing should be a lot more, given the SBP changed its definition in Mar-16 that brought a good chunk of lower corporate portfolio into the SME space.
Some policy changes have been in the works. The last report on the DFID collaborated Credit Guarantee Scheme (CGS) to SMEs and rural enterprises from Oct-16 showed that total borrowers had surpassed the 20,000 borrower mark since the scheme was launched in 2011. It had been suggested to establish the CGS as a Public Private Partnership company, but there is no timeline on when this would materialize. Meanwhile, the SBP launched a similar scheme for women entrepreneurs in underserved areas according to a recent notification.
The data made available in place of the SME review is not adequate enough for evaluate the mobility of overall SME lending. The growth should be taken with a profound grain of salt given SME financing used to lie between 15-20 percent of all private sector credit before 2008.
The SBP as a policy started putting forth SME financing targets for banks and until Dec-16, most institutions were outperforming these targets. But these targets again are vague at best. Public sector banks earlier showed they outperformed their SBP-target but the increase in lending in fact, came at the back of Bank of Punjab’s government supported Apna Rozgar Scheme. Since that wrapped up, in Jun-17, share of financing by public sector banks show a decline.
As we mentioned earlier, these targets do not indicate any evolution of banks moving toward improving their lending models for SMEs, and existing data is too sparse to evaluate whether banks are becoming open to lending to new SME borrowers.
The risk factor in lending to SMEs has historically been high. The push to develop a collateral registry for which the Secured Transactions Law has already been passed should be the biggest focus of the SBP. This will substantially reduce the risk-factor of SMEs who have issues arranging for property-based collateral. The Credit Information Bureau run by the central bank also needs to expand its reach and more private credit bureau licenses should be issued to cater to the vastly growing SME economy. More on that in this column next time.
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