LAHORE, March 15: The SME Bank plans to start commercial banking in six months, says its president Kaiser H. Naseem.

Talking to the businessmen at the Lahore Chamber of Commerce and Industry here on Friday, he said the bank did not have skills and expertise to start commercial banking.

The SME Bank that came into being as a result of the merger of Regional Development Finance Corporation (RDFC) and Small Business Finance Corporation (SBFC) has so far disbursed Rs200 million amongst 400 new and women entrepreneurs since its inception a few months ago, creating 1,200 new jobs. The bank intends to advance loans to the tune of Rs1 billion to about 800 SMEs during the current calender year. He said anyone with assets between Re1 and Rs10 million was eligible to obtain loan from his bank.

While the recovery rate of the two parent organizations of the SME Bank was as low as three per cent, its president reported 100 per cent recovery of loans so far advanced.

Kaiser made it clear that his bank was a “commercial” bank and it charges market rates on its loans. But, he said, the interest rates would come down with the decline in the SBP discount and Treasury Bill rates. “What we’ve done is that we have helped a good number of borrowers replace their loans obtained by them at a very, very high rate from the informal sector thus reducing their cost.”

He also made it clear that his “bank could not meet the entire credit need of Rs20 billion a year of the small and medium sector because of its meagre resources”. However, he said, the “priority would be given to those sectors which had a greater impact on the economy”. He said the export-oriented sectors were being accorded priority while advancing credit.

He said that the bank was also providing “business support services like marketing and management of their businesses” to the SMEs to help increase their production and enter export markets. However, he said, the SMEs were reluctant to expand their business because it meant “involvement” of 101 agencies from a health inspector to the CBR. He said Finance Minister Shaukat Aziz had called them as “irritants” but they were actually “hurdles” for the SMEs. He was of the view that the SMEs needed a conducive business environment in order to survive.

Kaiser said about Rs15 billion belonging to RDFC and SBFC were still outstanding in the market in spite of “recovery of over Rs5 billion from the defaulters of these two defunct institutions”.

The president said the “bank had begun its operations with the funds raised through recovery of bad loans”. “No additional funds from the government have been sought.” But, he said, the bank may tap the market to raise funds from the market (for lending). That might be (done) through IPO (initial public offering), he stated.