State Bank of Pakistan (SBP) Governor Dr Shamshad Akhtar has emphasised the need for introducing credit-enhancing mechanism for SME financing and directed the banks to immediately identify their SME heads as focal points so that the efforts of various stakeholders could be well co-ordinated through the SME department at the State Bank.
Addressing the first meeting of the SME Credit Advisory Committee (Smecac) held at the State Bank here on Thursday, she urged the commercial banks to promote Small and Medium Enterprises (SMEs) financing more aggressively.
The SBP governor observed that it is in the interest of banks to diversify their credit portfolios with focus on SME financing. For this purpose, banks need to launch innovative products to meet the needs of this important sector of the economy, she added.
The SBP governor directed to set up a committee, having representation of SME heads from the banks, SME department from the State Bank and other relevant stakeholders, to deliberate on the issues associated with SMEs financing and suggest corrective measures. She also directed the Pakistan Banks Association to revitalise its SME committee for the purpose.
Dr Shamshad Akhtar said the State Bank is determined to ensure that ample credit is available to the SME sector, adding it (SBP) will continue to use 'moral suasion' to encourage banks to enhance their SME loan portfolios. "We may impose some kind of allocation requirements if banks do not venture into SME lending", said the SBP governor.
Stressing the need for resolving the issues impeding the growth of credit disbursement to the SME sector, she said: "We need to have a co-ordinated approach in consultation with the related-government agencies and banks to resolve these issues."
Dr Shamshad Akhtar said the SBP is also studying various structures of credit guarantee agencies operating in other countries and will co-ordinate with the stakeholders for establishing such an agency in Pakistan.
She also underscored the need for capacity building both within the banks and SMEs. For this purpose, she said the State Bank will provide support to banks by arranging training programmes in SME financing at the National Institute of Banking & Finance and the Institute of Bankers, and will also utilise field offices of SBP Banking Services Corporation for arranging such programs for local staff of banks. She said that Smeda can help SMEs in enhancing their entrepreneurial skills and making them bankable for availing financing from banks.
Dr Shamshad Akhtar said there is also a need to carry out a study on funding cost of SMEs. "We have to examine in detail the pricing issues and prepare a catalogue of rates charged by banks for SME lending," she added.
Earlier, Mansoor H. Siddiqui, director, SME department of the State Bank, briefed the participants about the scope and functions of Smecac and initiatives taken by the SBP to promote SME finance. He said as of September 30, 2007 the total number of SME borrowers stood at 184,798 while total outstanding loans to them were Rs 409.86 billion.
It may be mentioned here that the SME sector, which contributes about a third of total Gross Domestic Product, comprises 99 percent of total 3.2 million business enterprises in the country. Among these SMEs, 96.37 percent employs 1-5 persons, 2.69 percent has employment size of 6-10 persons, while only 0.95 percent establishments have an employee base of 11-50 and above.
The total outreach of the banks to SMEs has shown an annualised growth of around 11 percent, but there is huge scope for increase given the potential size of the market. Among others, heads/representatives of commercial banks, Smeda, private sector trade bodies, federal and provincial governments, besides senior officials of the State Bank attended the meeting.
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