There has been a lot of emphasis on the development of Small and Medium Enterprises (SMEs) in the recent past due to their importance in achieving certain socio-economic objectives in the country. In this regard, attention has generally been focused on ample availability of financial resources to exploit their full potential.
Speaking at the first meeting of the SME Credit Advisory Committee (SMECAC), the Governor of the State Bank, Shamshad Akhtar, urged the commercial banks to promote financing in the sector more aggressively. She observed that it was in the interest of banks to diversify their credit portfolios and for this purpose they would have to launch innovative products to meet the needs of this vital sector of the economy.
The SME sector offers a huge potential which could be tapped through the collective wisdom of all the stakeholders, and the State Bank was determined to ensure that ample credit was available to the SMEs. The Governor asked the banks to immediately identify their SME heads as focal points so that efforts of various stakeholders could be well co-ordinated through the SME department at the State Bank.
She also directed the SMECAC to set up a committee, having representation of the SME banks, SME department of the State Bank and other relevant stakeholders, to deliberate on the issues associated with SMEs financing and suggest corrective measures.
Regarding the need for resolving the issues impeding the growth of credit disbursement to this sector, the Governor laid emphasis on having "a coordinated approach in consultation with the related government agencies and banks" to resolve various issues.
In this context, capacity building both within the banks and SMEs was also highlighted. Shamshad Akhtar was so serious about the subject that she remarked: "We may impose some kind of allocation requirements if banks do not venture into SME lending."
The importance of SMEs in the situation prevailing in Pakistan, in our view, can hardly be overemphasised. Their proper development cannot only help achieve sustained higher levels of growth but could also play a key role in fostering a fair and equitable distribution of wealth as well as in creating self-help and entrepreneurial culture in the economy.
Over the last few years, the government has encouraged institutional environment that actively supports the growth, competitiveness and resilience of SMEs by engaging the Asian Development Bank, revisiting of labour laws and establishing the SME Bank and the Business Support Fund.
The SME sector, it may be mentioned, comprises 99 percent of the total 3.2 million business enterprises in the country. Among these SMEs, 96.37 percent employ 1-5 persons, 2.69 percent 6-10 persons while only 0.95 percent establishments have an employee base of 11-50 persons or above.
Overall, this sector contributes about one third of total Gross Domestic Product of the country. Due to the efforts of the State Bank, the total outreach of the banks to SMEs has shown an annualised growth of around 11 percent. Hopefully, bold initiatives now contemplated by the central bank would help in meeting a substantial part of the unmet credit demand in this sector.
However, while nobody can deny the crucial role of SME sector in generating employment, poverty reduction etc, the State Bank needs to be cautious in forcing the banks to disburse credit to a particular sector by prescribing mandatory allocation requirements.
Segmentation of credit leads to sub-optimal utilisation of financial resources and should be avoided at all costs. Other sectors could also clamour for such a treatment and make the formulation of proper monetary policy harder for the State Bank.
Also, as the State Bank would like its autonomy to be respected, the autonomy of commercial banks and their boards in granting credit to various sectors and individuals also needs to be safeguarded. In this context, we hope that Governor's threat to allocate credit for SMEs, if the banks themselves don't venture into the field in a big way, was only meant to make a point and not intended seriously.