SME Financing via Banks Crosses Rs. 500 Billion for The First Time

Small and Medium Enterprise financing by commercial banks in Pakistan has crossed the milestone of Rs 500 billion for the first time despite high policy rates, which shows huge potential for small and medium-sized businesses and their contribution to the economy.

According to the State Bank of Pakistan (SBP) data, SME financing of banks reached Rs. 513 billion at the end of 2018 compared to Rs. 450 billion in the corresponding period last year, exhibiting a growth of 14%. The growth in SME financing was even more prominent in the last six months of CY 2018 (July-Dec, 2018) wherein it registered an increase of 25%.

This increase in SME financing is significant, keeping in view the fact that SBP policy rate during 2018 witnessed a rising trend. Due to the continued focus of State Bank on facilitating SMEs access to formal sources of finance, SME financing increased significantly during 2018. The substantial increase in SME financing is mainly attributable to implementation of the policy for promotion of SME finance issued by the State Bank of Pakistan in December 2017.

The SME policy ensured provision of an enabling regulatory environment for SME finance, prescribing SME financing targets for banks/DFIs, sensitizing banks to adopt SME financing as a viable business proposition, advising banks to provide non-financial advisory services for making SMEs bankable, simplifying procedures for SME financing and introduction of new SBP refinance schemes for SMEs through banks/DFIs. Under the policy, so far, more than 2,500 bankers have been trained through focused training by the central bank.

Similarly, awareness has also been created among more than 20,000 stakeholders including SMEs through special programs held by SBP and SBP BSC all across the country.

The impact of SBP interventions resulted in a significant rise in outstanding SME finance by banks/DFIs coupled with a 2.3 percent decrease in non-performing SME portfolio of banks over last year. It is pertinent to mention that the Government of Pakistan is also providing all-out support to promote the SME sector. The tax incentives to the banks on their incremental financing to SMEs announced in recent economic reforms bill are in line with measures identified in the government’s 100-day agenda for the development of the SME sector. This will continue to encourage banks to fulfill the financing needs of SMEs.

It is worth mentioning that the SME sector is contributing 30 percent towards the country’s GDP, employ more than 80 percent of the non-agricultural workforce and generate 25 percent in export earnings. Thus, the SME sector has huge potential for employment generation and poverty alleviation.