Small, medium enterprises: Businesses demand credit guarantee schemes

A share of SMEs in total bank lending is mere 6%, says ICCI chief.

ISLAMABAD: The Islamabad Chamber of Commerce and Industry (ICCI) has underlined the need for offering credit guarantee schemes to small and medium enterprises (SMEs) in order to help them achieve swift growth.

“Lending to SMEs in Pakistan was just 6% of the total bank loan portfolio and the government should introduce more credit guarantee schemes to enable them achieve rapid growth and contribute more effectively to improving the economy,” said ICCI President Muzammil Hussain Sabri.

He was speaking at a workshop held in collaboration with the United Nations Industrial Development Organisation (Unido) and the Small and Medium Enterprises Development Authority (Smeda).

“SMEs are contributing 40% to the country’s GDP and generating more than 70% of employment in the non-agriculture sector, but are facing problems in getting easy access to finance,” he added.

Sabri stressed that the State Bank of Pakistan should set an example by initiating such schemes so that banks could have confidence in lending to the SMEs for expanding their business. Smeda Chief Executive Officer Muhammad Alamgir Chaudhry said 80,000 SMEs approached his organisation for business support, of which 27% sought access to finance.

He said India and Bangladesh provided 30% and 32% of total lending respectively to the SMEs, while in Pakistan the share of SMEs stood at a meagre 6%, indicating that financing was the core issue faced by them.

“Lack of a legal framework for loan recovery is the main hurdle due to which banks are reluctant to lend money,” he pointed out. Unido National Project Coordinator Mukesh Kumar highlighted his organisation’s initiatives in Pakistan for the development of SMEs. He said Unido had launched many projects in the areas of clean technology, energy efficiency, dairy processing and olive farming and would continue to work for industrial development with primary focus on SME development.

SBP Additional Director Imran Ahmed said keeping in view the significant role of SMEs in economic development, the State Bank was improving prudential regulations for the SMEs.

He said the SBP would provide 40% risk coverage to banks under the Credit Guarantee Scheme for providing easy financing to the SMEs and would give annual lending targets to the banks.

Published in The Express Tribune, May 8^th, 2015.

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