SBP Plans to Increase Credit to SME Sector to Rs. 1 Trillion

State Bank of Pakistan (SBP) is gearing up to launch a new initiative to increase finance supply for Small and Medium Enterprises (SME) in the country. Through this initiative, SBP plans to increase credit to SME sector by up to Rs. 1 trillion within 2 years.

According to documents obtained by ProPakistani, SBP wishes to announce an aggressive plan for financial access to SME sector. This initiative is 2 years long and will begin from Jan 1st 2018.

Currently SME share in private sector credit is only 9 percent and the number of borrowers are at 177,000. SBP plans to increase the SME share to 17 percent or Rs. 1 trillion and increasing the number of borrowers up to 500,000 by the end of 2018.

To achieve this target, SBP plans to make changes in the current regulatory framework, Risk Mitigation Strategy, and simplifying procedures for Small Enterprise Banking.

Regulatory Framework:

  • SME financing targets to be assigned on provincial and regional basis from January 1, 2018.
  • Gender-wise targets and targets of Small Enterprise and Medium Enterprise will be assigned from January, 1, 2019.
  • A refinancing scheme may be launched at 0% rate to the banks. Scheme for identified sectors will be launched by January 1, 2018.
  • Reducing Credit risk weight for SME portfolio by changing the eligibility criteria of retail portfolio.
  • SBP will relax General Provision Requirement, bringing it down to 1% for unsecured lending and 0% for secured landing.
  • Financing limit to Microfinance banks will be increased to Rs. 1 million.

For the risk mitigation strategy, SBP plans a scheme to include Medium Enterprises (ME) in the current Credit Guarantee Scheme (CGS), this will also be launched by January 1st 2018. Companies with an annual sale turnover of Rs. 300 million will be included in CGS. SBP will provide risk coverage ration of up to 40 percent.

SBP also suggested establishing a Credit Guarantee Company (CGC). A comprehensive plan is under preparation in this regard. SBP has assigned this task to a private sector company. The first draft will be provided by the April 30th 2018 and CGC will be formed by the end of 2018.