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SME financing: issues, challenges and future prospects

The Center for Business and Economic Research (CBER) held the second Coffee@CBER session on 12th October 2019 at Institute of Business Administration (IBA), Karachi. The theme of the forum was “SME Financing: Issues, Challenges and Future Prospects”. The forum was attended by policymakers, government and business leaders, and visionaries to discuss the key issues that face the SME sector; especially in meeting their financing needs. This session was a second of a series of round table discussions that CBER will host on different aspects of the Pakistan’s economy.

Panelists included G. M. Abbasi, Director Infrastructure, Housing and SME Finance Department and Director Islamic Banking Department at State Bank of Pakistan (SBP); Aamir Shamim, Head, Treasury and Financial Institutions at BankIslami Pakistan; Mehboob-ul-Haq Memon, Managing Director, Sindh Enterprise Development Fund (SEDF) and Ahmed Ali Siddiqui, Senior Executive Vice President & Head, Product Development & Shariah Compliance (PDSC) at Meezan Bank. The session was moderated by Dr. Farrukh Iqbal, Executive Director Institute of Business Administration (IBA).


The discussion was in response to the State Bank of Pakistan target is to enhance SME sector credit to 17% (currently 8.7%) and increase the number of SME borrowers to 700,000 clients by 2023. Financing to SMEs by local banks and Development Financial Institutes (DFIs) was reported at Rs513 billion as of end December 2018, with total number of SME borrowers at 180,704, out of the estimated total operational 4.5 million SMEs.


Dr. Farrukh Iqbal initiated the discussion by highlighting the lack of data in the SME sector, which is a major impediment in identifying the needs of the sector. The panel unanimously agreed that the State Bank was playing a pivotal role in encouraging the banks to increase their lending to the SME sector. State Bank focused on key pillars such as introducing regulatory waiver, revising capital requirement, creating awareness and building capacity etc.

The banking sector also pointed out that for the banks to feel comfortable in lending to the SME sector, legislation must be strengthened for recovery of bad loans. It was highlighted by Ahmed Ali that the banks have low appetite for lending to the SME sector because of the high number of non-performing loans reported in 2008-09. Aamir Shamim highlighted that in regional economies, where SME sector performs well; the countries are export-oriented, while Pakistani is import-oriented. He also stated that the broader economic conditions and business environment was also a hurdle to the growth of the SME sector. Mehboob-ul-Haq from the SEDF was of the view that there was a huge demand for SME loans, but the banks need to rethink the way they deal with the SME sector.


It was concluded during the discussion that the challenge comes from the banking sector where the banks need to put in an infrastructure that specializes in facilitating SMEs.

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