CATERING TO THE FINANCIAL NEEDS OF SMES
June 18 - 24, 2012
Yasin Anwar, Governor State Bank of Pakistan, has said that the real interest rate channel in Pakistan is found to be extremely weak during the times of frequent price changes and high inflation.
Quoting a recent study of SBP's Research Department, he said that prices are revised roughly every quarter in the economy. 'Coupled with the fact that Pakistan's economy has experienced double-digit inflation during the last four years, prices are very quick to adjust to changes in monetary policy. A large part of inflation persistence in the country is due to sustained period of high inflation.
He advised the banking sector to give top most priority to small and medium enterprises (SME) banking with a view to ensure uninterrupted flow of financial access to SME sector in the country.
There are 3.2 million economic establishments, of which 99 per cent are SMEs, and SME sector represents over 90 per cent of all enterprises, employs 75 per cent of the non-agricultural workforce, and contributes 30 per cent towards the national GDP.
'However, despite its strong contribution in employment generation, exports, and national income, the SME sector is severely constrained in access to finance, which is crucial for its growth,' he added. SBP Governor advised the banks to study the international examples of successful SME banking models, which include retail-based model for mass SME, relationship-based banking, advisory-based lending services, segment-based model, and supply-chain linked model.
Speaking at the signing ceremony of the project document between the state bank of Pakistan and Bank Alfalah under the DFID-funded financial inclusion program (FIP), the central bank chief highlighted the role of banks, especially of mid-tier banks, which he described as crucial to ensure unhindered flow of financial resources to the SME sector.
Many banks in the market are trying to improve their market position in order to serve the SME sector more effectively, however the current level of SME finance as well as an overall level of SMEs' access to banking services remain unsatisfactory, and as such call for more serious efforts on part of the banks.
The governor SBP, while outlining the significance of the SME sector in the development of the economy, said it plays an important role in employment generation, poverty alleviation, and equitable distribution of resources and is the engine of growth.
Regrettably, he said that despite its immense significance and potential, the SME sector in Pakistan remains largely financially excluded. The current level of financing facilities to this sector stand at Rs253 billion, constituting only seven per cent of the banks' total advances.
Mr. Anwar said that with the SBP-Bank Alfalah-IFC grouping with DFID's generosity, we can have more joint ventures of this sort in the future that would lead to a sustainable, sound and integrated financial system, characterized with ready access to finance, diversified loan portfolio, and extended outreach to SMEs.
The State Bank, under the FIP, will provide funding support to Bank Alfalah in undertaking the IFC SME advisory project. 'The main objective of the project is to create a symbolic podium, which can position Bank Alfalah to cater to the financing needs of the SME sector including the S and M segments through a holistic banking and advisory services solution.
The SMEs need to be addressed through innovative credit assessment tools and techniques like credit scoring and capacity enhancement of the financial service providers, and an integrated approach to SME banking.
Speaking on an another occasion, Yaseen Anwar has called upon the regional central bankers to fully understand the nature of their economies and go beyond the text book approaches to tackle today's economic problems.
Further more, inaugurating a three-day SAARCFINANCE Regional Seminar on 'Monetary Policy Frameworks in the SAARC Region' at the National Institute of Banking and Finance (NIBAF), he stressed on the participants to check the validity of basic assumptions, while developing models for economic forecasts in view of the possibility of a breakdown in relationships between key variables in the backdrop of emerging economic realities.
"We also need to keep a close watch on the pulse of the economy, considering it is a living and ever evolving organism," he added. Mr. Anwar said that a comprehensive understanding of the economy is necessary in order to correctly calibrate monetary policy, which may then achieve the objectives of price stability and economic growth.
He said that sharing ideas and experiences at a regional forum would help central bankers better understand the nature of their economies. He urged them to explore the ways by which monetary policy frameworks may be improved through mutual and collaborative efforts.
Banks' lending to the SMEs sector should be improved as SMEs are the major contributor to the economy, said President and CEO Bank Alfalah Ltd (BAFL), Atif Aslam Bajwa.
He said that SMEs contribution to the national economy should be 60 per cent instead of current 30 per cent. Group Head BAFL, Shahab Bin Shahid, and Group Head BAFL, Mehreen Ahmed, were also present on the occasion. He informed that BAF has recently signed the agreement with SBP for project document under FIP.
He said though economy and political situation is grim at present, there is silver-lining and situation would get better very soon. He said that business community is shy of making further investment due to the situation particularly the energy crisis. He announced to introduce some new products for the business community.