ISLAMABAD: The Islamabad Chamber of Commerce and Industry (ICCI) has asked the government to encourage commercial banks to increase financing to small and medium enterprises (SMEs).

“Reduced lending to SMEs would further weaken the economy as it would cause a decline in exports and tax revenue collection which will eventually push up unemployment,” ICCI President Atif Ikram Sheikh said on Tuesday.

Mr Sheikh also called upon the State Bank of Pakistan (SBP) to introduce more credit guarantee schemes for SMEs in order to provide them easy access to finance to them.

“It is due to the strict collateral requirements by banks that is depriving SMEs of easy access to working capital, fixed investment and trade financing needs,” he said talking to a group of industrialists at his office.

The members of the ICCI noted that the formal lending to SMEs had decreased to Rs261.75 billion during the quarter ending on March 31 compared to Rs287.8 billion during the previous quarter which ended on December 31 2014, showing a decline of nine per cent.

They referred to SBP’s quarterly report up to March 2015 which showed that the SME financing had dwindled to 5.8 per cent of the total financing compared to 6.3 per cent in the previous quarter.

The ICCI members referred to China, Germany and Vietnam where the SMEs had played a vital role in the economic growth, increasing exports and reducing employment.

“The declining financing to these business enterprises would further dampen the efforts aimed at economic revival in the country,” added Sheikh Pervez Ahmed, ICCI senior vice-president.

He asked the government to focus on enhancing the share of formal lending to SMEs in total lending that would help in expanding businesses, promoting exports and creating more jobs.

ICCI vice-president Sheikh Abdul Waheed said access to finance was one of the major constraints for the growth of SMEs in Pakistan.

“Up to 30 per cent of SMEs approach the Small and Medium Enterprises Development Authority (SMEDA) for financing needs but this prevents the growth of entrepreneurship in the country,” he said.

He said formal lending to SMEs in Pakistan was much less than the actual requirement as it was around six per cent of the total lending whereas the share of formal lending to SMEs in regional countries was around 30 per cent.

Published in Dawn, October 7th, 2015

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