State Bank chides banks for excluding SME sector from credit lending

Governor says sector has huge potential despite current crisis.

KARACHI: State Bank of Pakistan (SBP) Governor Yaseen Anwar has stressed upon the top management of local banks to develop a more robust and focused strategy for meeting the banking needs of small and medium enterprises (SMEs).

“This will lead to better and improved banking solutions for SME customers,” he said, while delivering a keynote address at a roundtable on SME banking organised by the SBP and the International Finance Corporation (IFC) at the SBP Learning Resource Centre in Karachi on Wednesday.

“I hope that when you walk out after this roundtable, a voluntary commitment to increase lending to this sector will be forthcoming. This prudent decision will be in the interest of both the banking sector and the economy,” he said.

SME development plays a key role in the economic development of a country, Anwar told participants; adding that the SME sector in Pakistan contributes 30% towards GDP, employs more than 70% of the non-agricultural workforce and generates 25% in export earnings. “The sector has huge potential in generating employment and poverty alleviation in the country. Therefore, SBP is actively promoting SME finance under the broader agenda of increasing financial Inclusion in Pakistan,” Anwar added.



“Both the SBP and commercial banks need to play a proactive role in improving access to finance for SMEs,” he said, adding that the central bank has already taken a number of important initiatives for improving access to credit for the SME sector. “These measures include the provision of specialised prudential regulations for SMEs, refinance schemes for SMEs, credit guarantee scheme for small and rural enterprises and cluster development surveys,” he added.

Anwar further said that the SBP has been assisting banks through a holistic IFC technical assistance and capacity building initiative, encompassing areas of strategy formulation, product development, risk management and HR development for SME lending.

“Presently, Bank Alfalah is being supported for capacity building to boost SME banking, while many other mid-tier banks are being considered for similar IFC technical assistance. IFC is in direct dialogue with a number of banks. We hope that the project will revitalise SME lending by participating financial institutions and will be a prototype for other financial institutions which could see financing to SMEs as profitable business ventures,” he added.

The SBP governor noted that despite the immense significance of the SME sector in Pakistan, it remains largely a financially excluded sector. This is reflected in the declining trend in SME finance over the years, which constituted only 8% of banks’ total advances as of June 2012, down from 16% in June 2007.

Anwar stressed upon the financial industry to move towards promoting SMEs by formulating strategies to overcome challenges presented by the market, as well as by the cyclicality in economic conditions. “Banks need to shift from a traditional banking approach towards SMEs, to the provision of more customised and differentiated financial products and services,” he added.

Published in The Express Tribune, January 17^th, 2013.

Like Business on Facebook to stay informed and join in the conversation.