Pakistan to launch collateral-free financing for SMEs: SBP governor

In a bid to improve access to finance for Small Medium Enterprises (SMEs), the State Bank of Pakistan (SBP) in collaboration with the government will soon launch a collateral-free financing scheme, said central bank governor Dr Reza Baqir.

Under the scheme, banks will provide lending facilities to SMEs on the basis of cash flows rather than collateral, said Baqir in a video message.

“Under this scheme, the government will provide a guarantee of up to 40-60% depending on the loan size on the principal amount,” he said.

Govt devising effective mechanism for SMEs: minister

The new scheme comes as the central bank eyes to increase the amount of credit offers to the SME sector, which plays a vital role in Pakistan economy.

Baqir said that the SME sector contributes 40% to the country's GDP, provides 25% of the exports, and generates 80% of industrial employment.

“However, when you see the amount of credit SMEs receive from banks, the numbers are very low which needs to be increased. At present only 6% of the total credit goes to SMEs,” said Baqir, adding that the major objective of SBP is to increase the access to credit for the SME sector.

SMEs likely to get Rs60bn collateral-free lending

Baqir, who previously worked at the IMF for nearly 18 years, said that the formal announcement of the scheme would soon be made with all details and procedures. He said banks would themselves express interest in making investments in their technology, which will allow them to assess credit risk on the basis of cash flows and facilitate SMEs.