Bank lending to small businesses declines Rs100 billion in 3 years
Bank credit to small and medium enterprises declined from Rs437 billion in 2007 to Rs334 billion by December 2010
KARACHI:
Bank credit to small and medium enterprises (SME) declined from Rs437 billion in 2007 to Rs334 billion by December 2010, according to State Bank of Pakistan (SBP) Governor Shahid Kardar.
Addressing a conference on Tuesday, Kardar said the decline came despite higher demand for working capital, fueled by higher input prices. Stressing the importance of the sector, he termed smaller businesses “the engines of growth, employment and profitability” urging banks to focus on improving their client base from SMEs.
He suggested that banks, in their expansion plans, must focus on clusters of economic activity in Gujranwala, Sialkot, Sukkur, Faisalabad and other areas with relatively higher concentration of small and medium enterprises.
Kardar also warned banks against over-reliance on government debt. He questioned the profitability of sovereign debt, citing mushrooming and persistent inter-corporate debt in the energy sector and frequent commodity operations. At present, 54 per cent of the total lending under the export refinance scheme has been extended to 50 biggest textile exporters, while new SMEs are unable to avail such services.
He said that communications technology has improved outreach, urging banks to seek cheap solutions for reaching potential clientele in dispersed locales. He also encouraged banks to supplement their financial services with other support functions, aimed specifically at the SME sector.
“Banks have to consider major restructuring in order to effectively penetrate small and medium enterprises,” said Andrew McCartney, SME banking specialist for the International Finance Corporation. He highlighted areas that banks should improve to capture larger chunks of the SME sector.
He urged banks to target specific segments, based on industry or locale, use existing branch networks to gain customer insight and tailor products based on customer needs. The expert also urged banks to look beyond risk measuring tools to include behavioral scoring and personal feedback.
“Half the Pakistani banks have started units tailored towards SMEs, but these are usually the unloved puppies of the organisation,” said McCartney. He urged banks to restructure their organisations instead of attempting to use the corporate banking model for smaller firms.
“These businesses are excellent at their craft, banks have to teach them how to conduct business,” said Devrim Tavil, Director of SME Department of Ekonomi Bankasi. The Turkish banker explained that banks in Turkey offered training in export financing, cost reduction, supply chain management, marketing and other business-related topics to SME-based clients.
Tavil encouraged Pakistani banks to also offer other non-financial services such as consultancy, insurance and advocacy to the sector.
In his presentation, Habib Bank Head of Learning and Development Saleem Baig contended, “banks should move away from the traditional asset-based model used for corporate banking.” He explained that banks could make deeper inroads into the sector by rolling out credit along with services that help clients better utilise these funds.
Conference participants expressed hope that banks will enhance services offered to SMEs and extend banking services to previously unbanked businesses.
Published in The Express Tribune, March 16th, 2011.
Bank credit to small and medium enterprises (SME) declined from Rs437 billion in 2007 to Rs334 billion by December 2010, according to State Bank of Pakistan (SBP) Governor Shahid Kardar.
Addressing a conference on Tuesday, Kardar said the decline came despite higher demand for working capital, fueled by higher input prices. Stressing the importance of the sector, he termed smaller businesses “the engines of growth, employment and profitability” urging banks to focus on improving their client base from SMEs.
He suggested that banks, in their expansion plans, must focus on clusters of economic activity in Gujranwala, Sialkot, Sukkur, Faisalabad and other areas with relatively higher concentration of small and medium enterprises.
Kardar also warned banks against over-reliance on government debt. He questioned the profitability of sovereign debt, citing mushrooming and persistent inter-corporate debt in the energy sector and frequent commodity operations. At present, 54 per cent of the total lending under the export refinance scheme has been extended to 50 biggest textile exporters, while new SMEs are unable to avail such services.
He said that communications technology has improved outreach, urging banks to seek cheap solutions for reaching potential clientele in dispersed locales. He also encouraged banks to supplement their financial services with other support functions, aimed specifically at the SME sector.
“Banks have to consider major restructuring in order to effectively penetrate small and medium enterprises,” said Andrew McCartney, SME banking specialist for the International Finance Corporation. He highlighted areas that banks should improve to capture larger chunks of the SME sector.
He urged banks to target specific segments, based on industry or locale, use existing branch networks to gain customer insight and tailor products based on customer needs. The expert also urged banks to look beyond risk measuring tools to include behavioral scoring and personal feedback.
“Half the Pakistani banks have started units tailored towards SMEs, but these are usually the unloved puppies of the organisation,” said McCartney. He urged banks to restructure their organisations instead of attempting to use the corporate banking model for smaller firms.
“These businesses are excellent at their craft, banks have to teach them how to conduct business,” said Devrim Tavil, Director of SME Department of Ekonomi Bankasi. The Turkish banker explained that banks in Turkey offered training in export financing, cost reduction, supply chain management, marketing and other business-related topics to SME-based clients.
Tavil encouraged Pakistani banks to also offer other non-financial services such as consultancy, insurance and advocacy to the sector.
In his presentation, Habib Bank Head of Learning and Development Saleem Baig contended, “banks should move away from the traditional asset-based model used for corporate banking.” He explained that banks could make deeper inroads into the sector by rolling out credit along with services that help clients better utilise these funds.
Conference participants expressed hope that banks will enhance services offered to SMEs and extend banking services to previously unbanked businesses.
Published in The Express Tribune, March 16th, 2011.