Record lending to SMEs.

Byline: Shabbir Kazmi

Providing level playing field can strengthen the sector, says UNISAME Chief

According to State Bank of Pakistan lending to small and medium enterprises (SMEs) by banks in Pakistan was for the first time recorded at Rs513 billion for CY18 as compared to Rs450 billion for CY 17, registering growth of 14 percent. The growth was even more prominent in the last six months of CY18, registered at 25 percent. The growth in lending to SMEs becomes more significant because the policy rate witnessed an increase by 425bps during the year under review.

Increase in lending to SMEs can be attributed to continued focus of State Bank for of Pakistan (SBP) on offering them access to formal banking system. The lending policy of the central bank to SMEs remained focused on creating conducive regulatory environment, prescribing SME lending targets for banks/DFIs, sensitizing banks to adopt SME financing as a viable business proposition, advising banks to provide non-financial advisory services for making SMEs bankable, simplifying procedures for SME financing and introducing new refinancing schemes for SMEs through banks/DFIs.

Lately, SBP has also issued three Shariah Compliant Refinance Schemes that are expected to provide level playing field to the Islamic banking industry. Addition of Shariah compliant financing facility for renewable energy, financing facility for storage of agricultural produce and refinance facility for modernization of SMEs will meet the long awaited demand of the industry, especially for the agriculture and SME sectors.

Mudarabah-based facilities will ensure long term liquidity at competitive rates to the end users. The financing under Islamic financing facility for renewable energy will be available in two categories: 1) prospective sponsors desirous of setting up renewable energy power projects with capacity ranging between one to 50 MW and 2) consumers willing to install facility using renewable energy source for generation of electricity ranging from 4 KW to one MW for own use and/or for supplying to the national grid.

It is worth mentioning that SME sector is contributing 30 percent towards country's GDP, employ more than 80 percent of non-agricultural workforce and generate 25 percent in export earnings. SMEs offer huge potential for employment and poverty alleviation, but lending to SMEs has remained paltry. Those representing SMEs in the manufacturing as well as agriculture sectors have certain reservation...