In a conference on “SME Banking in Pakistan: Global/local trends and role of value-added services”, organized by SBP and IFC. The Governor State Bank Mr. Shahid Kardar stated that SBP is very much concerned about the decline in volume of the advances offered by Commercial banks to SMEs in the last 3 years. The Banks’ assets have reached to the level of Rs 334 billion (10% of Total Advances) in December 2010, as compared to the 437 billion rupees in year 2007 (16% of the bank advances,) despite the utmost efforts by SBP to promote financial growth in this sector.
Due to the sharp rise in the prices of input the demand for working capital has increased, the fall in real terms is much higher the nominal decline indicated in the period. The Governor also said that major part SME sector industries is service based and have also employed 77% of non-agricultural work force. The sector is also generating 30% of the GDP.
The SBP is encouraging financial institutions to work for the promotion of SME sector. In 2003 prudential regulations were introduced to facilitate banks in financing SMEs, and recently a Credit Guarantee Scheme is also launched. Presently SBP is working in collaboration with LUMS and IFC for collecting information & data on SMEs. The financial sector is lacking the skills to develop innovative products for SMEs. The major share of aggregate loans disbursed to SME industry is used to meet working capital requirement. One of the major reasons of banks reluctance in offering loans to SMEs is the unawareness about the norms and linkages with the formal sector.
Another major reason of the decline in growth is the acute shortage of supply of Natural Gas and electricity to the industry causing worst impact. Due to which the repayment of loans to the financial intuitions has become very difficult. A large number of SMEs are turning into NPLs.
As we all knew that industrial sector is always considered as back bone of the economy. Therefore, in order to make the economy strong the Government should take serious measures for the promotion of Small and Medium enterprises.