Between July 1, 2021, and Feb 11, 2022, banks’ lending to the private sector soared to Rs813 billion from just Rs292bn a year ago, according to the State Bank of Pakistan (SBP). Credit disbursement to the private sector for the full 2021-22, ending in June, should well exceed the Rs1 trillion mark.

The government had stopped borrowing from the central bank even before the recent enactment of a law banned it. Already, the government has been relying on commercial banks for borrowing and its reliance on them has increased after having been refrained from central bank borrowing.

But in order to save the private sector from the “crowding out” effect, the government will have to moderate its borrowing from banks and explore some avenues of non-bank borrowings. That, however, seems too difficult. Net fresh investment in existing National Saving Schemes is not coming in. And, the introduction of any new schemes to raise non-bank borrowing — and that too in a high-interest rate regime — isn’t that easy.

On the other hand, the fiscal deficit still remains high despite growth in tax revenue, deepening the government’s need to borrow from banks. Meanwhile, in spite of moderation this year in the pace of economic growth compared to last year, demand for private sector credit remains high.

We must also look at whether banks’ credit is distributed judiciously among provinces — and whether credit flows in urban and rural areas are equally satisfying or whether women and women-led businesses are getting enough bank finance

This means banks will continue to have enough opportunities for investing and reinvesting in the treasury bills and bonds and for making fresh loans to the private sector.

Meanwhile, bank deposits continue to grow on the back of economic growth and greater documentation of the economy — and also due to upward revision of returns on them following the tightening of the monetary policy. So it seems banks can, by and large, meet the borrowing requirements of both the government and the private sector.

But that alone isn’t enough. We must also look at whether banks’ credit is distributed judiciously among provinces — and whether credit flows in urban and rural areas are equally satisfying or whether women and women-led businesses are getting enough bank finance.

It is encouraging to note that disbursement of bank loans in Sindh has been rising in line with growing private sector activities in Karachi — the commercial and financial hub of Pakistan and the capital city of Sindh — and elsewhere in the province. In Jan-June 2016, bank advances made in Sindh constituted just about 50 per cent of the total. But this percentage kept growing and in Jan-June 2021, reached close to 53.4pc, a careful reading of the SBP stats reveal. The same holds true for Balochistan. Credit disbursement in this least-developed province also improved from a little less than 0.12pc of the total in Jan-June 2016 to a little more than 0.18pc in Jan-June 2021.

However, even this elevated share is minuscule, rather negligible. Given the province’s vast potential for indigenous China-Pakistan Economic Corridor driven progress in industrial, mining, fishing and services sectors, banks’ lending to Balochistan’s private sector can easily be raised to 1-2pc of the total in three to five years. The establishment of Balochistan Bank, on the lines of Sindh Bank and Punjab Bank, can help promote banking services in the province. But past promises to fulfil this oft-repeated demand of the people of Balochistan are yet to materialise.

A more disturbing aspect of credit distribution across Pakistan is that credit flows towards rural areas remain too thin.

In Sindh, where banks lend more than in any other province, the share of rural areas in outstanding volumes of bank advances stood at 2.74pc of the total as of June 2021

For example, even in Sindh where banks lend more than in any other province, the share of rural areas in outstanding volumes of bank advances stood at 2.74pc of the total as of June 2021. The situation in Punjab was a little better though, with the share of rural areas at 5.27pc, SBP stats reveal.

An even more worrying aspect of credit distribution is that female bank borrowers get a negligible share in total bank advances. That is perhaps why the central bank does not require banks to report gender-wise breakups of their loans. Only microfinance banks and institutions do this. As of Dec 2021, women borrowers made up 44pc of the total active borrowers of all kinds of microfinance but their share in the total loan portfolio of microfinance was 33pc, according to Pakistan Microfinance Network.

But one must keep in mind that the number of all active borrowers of microfinance including men and women stood slightly above 8.122 million and the gross loan portfolio stood around Rs392.6m. In other words, the number of active women borrowers was a little less than 3.6m women and the volumes of microfinance outstanding against them were close to Rs133m.

Women-led small and medium enterprises (SMEs) also get bank loans that are far larger than microfinance loans but the gender-wise breakup of SME loans are not made public by the central bank. If the SBP starts doing this, it would help people know what progress has so far been made to financially empower one half of our population.

The stock of outstanding SME loans stood at Rs473.7 billion as of September 2021, according to SBP stats. Though this represented just a shade above 6pc of the total private sector loans, still sharing a gender-wise breakup of SME loans would mirror a better picture of women empowerment and financial inclusion than microfinance loans whose total portfolio (of Rs392.6m) makes up less than 0.1pc of the total SME loans — what to talk about overall private sector borrowings.

Published in Dawn, The Business and Finance Weekly, March 7th, 2022

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