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SME financing reaches record Rs500bn

Updated February 20, 2019

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SBP report highlights that SME finance increased up to 14pc to Rs513bn compared to Rs450bn in 2017. — File photo
SBP report highlights that SME finance increased up to 14pc to Rs513bn compared to Rs450bn in 2017. — File photo

KARACHI: Banks have provided record financing to the small and medium enterprises (SMEs) in the calendar 2018 crossing the Rs500 billion mark, according to data released by the State Bank of Pakistan (SBP) on Tuesday.

The report highlighted that SME finance up 14 per cent to Rs513bn compared to Rs450bn in 2017. The growth was more prominent during the July-Dec period wherein it registered an increase of 25pc.

SMEs’ contribute around 30pc towards country’s total gross domestic product, providing employment opportunities to more than 80pc of non-agricultural workforce and generate 25pc export earnings. “The SME sector has huge potential for employment generation and poverty alleviation,” said the central bank.

The jump in financing comes despite rising interest rates. The SBP said this increase in SME financing attracts greater significance keeping in view the fact that policy rate during 2018 witnessed a rising trend. The substantial hike in financing is mainly attributable to implementation of the policy for promotion of SME finance issued by the SBP in December 2017.

The central bank has emphasised the need for increasing SME financing since the sector is considered as the backbone of the country’s economy and creates higher employment opportunities compared to big corporates.

The SBP said the policy to promote SME was aimed at enabling regulatory environment for finance, prescribing financing targets for banks and development finance institutions (DFIs) and sensitising banks to adopt SME financing as a viable business proposition.

The banks were advised by the SBP to provide non-financial advisory services for making SMEs bankable, simplifying procedures for the sector’s financing and introduction of new refinance schemes for SMEs through banks and DFIs.

“Under the policy so far, more than 2,500 bankers have been trained through focused trainings by the training institute of the central bank,” said the bank. Similarly, awareness has also been created among more than 20,000 stakeholders including SMEs through special programs conducted by the SBP.

The impact of central bank’s interventions resulted into significant rise in outstanding SME finance by banks coupled with 2.3pc decrease in non-performing SME portfolio of banks over last year. Government of Pakistan is also providing all-out support to promote the small and medium enterprise sector. The substantial tax incentives to the banks on their incremental financing to SMEs announced in recent economic reforms bill is in line with measures identified in government’s 100-day agenda. This will continue to encourage banks to fulfill the financing needs of SMEs.

Published in Dawn, February 20th, 2019