Banks and Development Finance Institutions (DFIs) lent Rs401.28 billion to small and medium businesses in 2016, a 31.5 percent increase from the previous year in loans extended to help spur economic growth, the central bank said on Friday.
The outstanding portfolio of financial institutions stood at Rs305 billion in 2015. “A part of the improvement in SME financing in the year 2016 may be attributed to the introduction of SME finance targets for the banks and issuance of revised prudential regulations for the SME financing in May 2016,” said the State Bank of Pakistan (SBP) in its SME finance annual review for 2016.
The SBP also said that domestic private banks held 67 percent share, while public sector banks account for 25 percent share in total SME financing. The remaining share in SME financing was held by Islamic banks and Islamic divisions of conventional banks, foreign banks, and DFIs. The percentage share of outstanding SME loans in total private sector advances stood at 9.1 percent at the end of December 2016 in comparison to 7.9 percent in the previous year.
The central bank stated that in five years, SME financing by banks and DFIs recorded a growth of 50.5 percent. Bank and DFI loans to SME borrowers amount to Rs401.28 billion as of December 31, 2016 against Rs267 billion owed in 2012.
The review showed that number of SME borrowers reached 177,595, registering an increase of 12 percent year-on-year in December 2016. The working capital facility constituted 67 percent of outstanding SME financing followed by fixed investment and trade finance with shares of 22 percent and 11 percent respectively. Small and medium enterprises play a vital role in economic growth in both developed and developing countries due to their significant contribution in terms of output, exports, and employment.
Amid enormous economic potential of the SME sector, the SBP has taken several initiatives for the promotion of SME finance. It issued spate new rules for small enterprises and medium enterprises.
Efforts are also underway to introduce an electronic-secured transactions collateral registry in the country to facilitate the SMEs’ access to finance by using movable assets as collateral.
Moreover, the central bank launched subsidised and affordable credit guarantee and refinance schemes for the modernisation of the SMEs and mark up subsidy cum guarantee facility for rice mills in Sindh. It also introduced monitoring and supervision of banks’ financing under Prime Minister Youth Business Loan Scheme.
Courtesy by Investors Lounges