We need faster credit distribution.

Byline: Mohiuddin Aazim

SMALL businesses are rushing to banks to get concessional loans or have bad loans re-profiled under the incentive schemes designed to help them survive amidst the Covid-19-triggered economic slowdown.

But helping small and medium enterprises (SMEs) is a difficult task. The main issue in lending to SMEs has always been their inability to offer acceptable collateral. It took the State Bank of Pakistan (SBP) 12 days, after rolling out the incentive schemes, to address this issue and 'encourage' banks to lend up to Rs5 million to SMEs that fail to offer collateral. Two weeks passed after this act of encouragement, but no bank made any collateral-free mass lending. Media reports suggest banks were making clean lending on limited scale.

In making large-scale clean lending, the banks' main concern was about the repayment of loans whenever they become due after adjusting for the extended grace period announced under the incentive schemes. This concern has now been addressed as the government has promised to bear 40 per cent first loss on the principal of loans. Even in the case of lending against permissible collateral, the problem banks are facing is that audited accounts of small businesses seeking concessional loans are weak and in some cases 'unauthentic'. Loan applications of such companies, too, cannot be entertained unless they present strong, authenticated details of their accounts and operations. In short, only those SMEs can get cheaper loans that are good, regular customers of banks.

Banking prudence marks a dot here. Beyond this dot lies genuine suffering of many SMEs that have been hit by lockdowns and failed attempts of thuggery unleashed in the name of Covid-19. There is a third category of helpless SMEs, too: those that have always operated in the informal sector. One hopes that the SBP and banks will soon make sure that genuinely suffering SMEs are not overlooked, informal-sector SMEs are provided with a chance to regularise their status and thugs are kept at an arm's-length distance.

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The purpose of concessional loaning and lenient treatment of bad loans is to spur economic demand so that a projected 1.57pc recession could be skipped or its intensity be lessened. The Fiscal and Monetary Policy Coordination Board believes that the Pakistan economy can show a modest 1-1.5pc growth during this fiscal year if...