The Small and Medium Enterprises Development Authority (Smeda) has launched an initiative to develop a separate credit risk assessment system for easy disbursement of loans to the manufacturing small and medium enterprises (SMEs).
In a statement on Monday, Smeda CEO Farhan Aziz Khawaja stated that the initiative had been started through “the Research, Regulatory Insight and Advocacy Assistance for SMEs”, a project funded by the Public Sector Development Programme (PSDP) under the federal Ministry of Industries and Production.
The CEO highlighted that SMEs in Pakistan faced significant hurdles in obtaining finance. Challenges include limited data transparency, complex paperwork, cumbersome bank protocols, SMEs’ readiness, high interest rates and insufficient collateral.
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Khawaja emphasised that the core aim of the initiative was to establish a reliable credit risk assessment model that could enable financial institutions to accurately measure the creditworthiness of manufacturing SMEs by pinpointing predictive cues and information channels to enhance current credit risk evaluation processes and tools.
He hoped that the emerging model would help establish a comprehensive framework guiding well-judged lending choices made by financial institutions.
“The initiative will provide a complete system for scrutinising established credit risk assessment models, such as credit scoring and credit rating models, to gauge the suitability of credit for the manufacturing SMEs,” he mentioned.
Besides, global best practices will also be reviewed to provide financial institutions with a robust toolset for evaluating the manufacturing SMEs’ credit risks and feeling comfortable while extending the required loans.
The Smeda CEO elaborated that the new assessment system would be able to identify each category of manufacturing SMEs in order to enhance their positioning and perception among lending institutions.
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The intended model will select predictive indicators, taking into account factors such as business and credit risk, cash flow, industry benchmarks and economic indicators.
Smeda will collaborate with regulators, banks, fintech companies and credit bureaus to amplify the financial accessibility and growth of SMEs.
Published in The Express Tribune, August 22nd, 2023.
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