The Governor of the State Bank of Pakistan, Yaseen Anwar, has stressed upon the banks to develop an effective 'SME strategy' by focusing on important areas for the sustainable growth of the SME (small and medium enterprises) sector.
Presiding over the 4th meeting of the SME Credit Advisory Committee at SBP, here on Wednesday, he observed that a sustainable approach towards the development of the SME sector would require a more active role from all stakeholders, specially the banks, in improving availability of finance and other banking services for small and medium enterprises.
He said that the growth of the SME sector is critical to the country's prospects of increasing employment, supporting productivity through greater business innovation, and reducing income inequalities. "This is very important, as SMEs account for the vast majority of the business establishments in Pakistan (over 98 percent) and account for over 78 percent of the non-agricultural employment in the country," he observed.
"SBP on its part stands ready to support banks wishing to increase lending to this important sector with appropriate policy interventions," he said, and added that the State Bank has revamped its Credit Guarantee Scheme and various refinancing schemes with some encouraging results. He, however, noted with concern that the overall utilisation of these schemes is still below the expected levels, which needs to be looked into seriously by participating banks. "The review of SME Prudential Regulations has been completed after collecting feedback from relevant stakeholders, and the revised PRs will be issued soon," he added.
Expressing dissatisfaction over the decline in SME financing by banks, he said that it was Rs 437 billion in December 2007, which dropped to Rs 268 billion in September 2011. "In percentage terms, the share of SMEs financing in total lending portfolio of banks has also fallen from 16.2 percent in December 2007 to 7.7 percent by September 2011. Clearly, this is not a very desirable situation," he observed.
The SBP Governor said that a broad analysis of banks' aggregate SME loan portfolio shows that a major share of total SME Advances (ie 76 percent) constitutes Working Capital loans, which suggests reluctance on the part of banks to meet the long-term financing needs of the SME sector. "This has significant negative implications for both the drive for modernisation, expansion of businesses and the process of asset formation by SMEs," he added.
Anwar said that the overall adverse macro-economic conditions have led to decreasing demand and lower SME lending. "However, I feel that another major factor for this decline is banks' excessively cautious approach towards SME lending in the face of a difficult business environment," he noted. "I would suggest that this is not a sustainable situation. Banks need to recognise that their own need to diversify and grow their customer base entails greater focus on this potentially lucrative market segment," the SBP Governor added.
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