Jan 9 - 15, 20

The economic segments, which are relied upon for contributing to the GDP growth, play their due role when they are allowed to perform under the growth based policies. In this respect, access to finances at an affordable rate is certainly a prerequisite for producing tangible results.

The financial regulators in Pakistan were depending much on a tight monetary policy to contain rising inflation. However, the state bank of Pakistan (SBP) is the best judge whether the tightening of monetary policy has produced results or not in containing the inflation.

On the other hand, the impact of high interest rate was quite evident in rising number of inflected portfolio of the banking sector generally known as non-performing loans. The consumer financing, which is considered as the fuel to generate economic activity, is almost non-operative compared with the consumer finance flurry of mid 2000s.

Realizing the importance of giving due respect to the opinion of the stakeholders, it is probably for the first time in the financial regulation history that the central bank has decided to move with a democratic spirit by evolving a policy to respect the opinion of consumers while deciding the direction of the monetary policy going forward.

In this respect, the Governor SBP, Yaseen Anwar, has said that the consumer expectation surveys will facilitate the process of designing a forward-looking monetary policy in the country. 'Such surveys will help us study the inflation expectations and economic confidence of households and their reaction to economic and policy decisions'.

Speaking at the inaugural ceremony of the Centre for Survey Research (CSR) at SBP, Karachi, he said that these expectation surveys are based on households' perceptions about current as well as future economic conditions.

'Expectations regarding inflation, interest rates, stock prices, and employment are important for policy formulation,' he said, adding that this explains why many developed and developing countries are using household surveys for policy research purposes.

Until recent times, a documentation of the expectations channel at the household level and one that is nationally representative of Pakistan was not available with either SBP or the private sector. It was this very fact, which made it all the more important for the central bank to enhance its efforts to collect information on expectations, he said and added 'this will allow us to undertake meaningful research, well-supported by first-hand knowledge of the situation in the country.'

It was against this backdrop that the idea of undertaking households' expectation and confidence surveys was developed. 'I am glad that we have the support of a reputable institution, Institute of Business Administration (IBA). The groundwork has been laid by both the institutions to make the project a real success.

It should be noted that the survey is of particular importance in that it is the first such exercise undertaken on 'full-scale' level in Pakistan. In this regard, a pilot project was completed last July, which enabled us to stop, rethink and ultimately adopt the most appropriate strategy to steer this idea into practice.

This joint effort between SBP's Research Department and professors of accounting, law, computer sciences, economics, statistics in IBA will go a long way in providing a reliable set of information regarding consumers' expectations in Pakistan.

'Apart from its instantaneous contribution towards the process of policy formulation, I hope that this project will be of great help to future generations of policymakers in Pakistan, primarily by bi-monthly documenting consumers' expectations,' he added.

Mr. Anwar said 'I am grateful to IBA for joining hands with SBP in order to undertake this venture which is also being continuously peer-reviewed by international and domestic institutions. I sanguinely believe that today's inaugural ceremony will prove to be the start of a long-term relationship between both the institutions as well as a beneficial exercise for the national economy'.

Speaking on the occasion, Director IBA, Dr. Ishrat Husain recognized the efforts of SBP in formulating consumer expectation survey and also appreciated it (SBP) for undertaking such a research of national level and importance. He said that both SBP and IBA would keep working together in future to build such economic intelligence tools with a view to developing a better understanding of country's economy.


The small and medium enterprises can play a pivotal role in the economic growth and development with the trickledown effects to the grass root level. This important segment is generally taken in high esteem but only in speeches and articles. When it comes to ground realities, the banking sector does not pay due respect to this important sector which has the potential to contribute significantly in GDP growth of the country. This observation is substantiated with the fact that SME financing by banks, which was Rs437 billion in Dec-2007, dropped to Rs268 billion in Sep-2011. In percentage terms, the share of SMEs financing in the total lending portfolio of banks has also fallen from 16.2 per cent in Dec-2007 to 7.7 per cent by Sep-2011. Clearly, this is not a very desirable situation.

Expressing his dissatisfaction over the declining trend of bank financing to SMEs, the governor stressed upon the banks to develop an effective SME strategy by focusing on important areas for the sustainable growth of the sector.

A sustainable approach towards the development of SME sector would require a more active role from all stakeholders specially the banks in improving the availability of finance and other banking services for SMEs.

The growth of the sector is critical to the country's prospects of increasing employment, supporting productivity through greater business innovation and reducing income inequalities.

'This is very important, as SMEs account for the vast majority of the business establishments in Pakistan (over 98 per cent) and account for over 78 per cent of the non-agricultural employment in the country.

SBP on its part stands ready to support banks wishing to increase lending to this important sector with appropriate policy interventions, he said and added that the state bank has revamped its credit guarantee scheme and various refinancing schemes with some encouraging results.

He, however, noted with concern that the overall utilization of these schemes is still below the expected levels, which, he said, needs to be looked into seriously by participating banks. 'The review of SME prudential regulations has been completed after collecting feedback from relevant stakeholders and the revised prudential regulations will be issued soon.'

A broad analysis of banks' aggregate SME loan portfolio shows that a major share of total SME advances (i.e. 76 per cent) constitutes working capital loans, which suggests reluctance on the part of banks to meet the long-term financing needs of the SME sector. 'This has significant negative implications for both the drive for modernization, expansion of businesses and the process of asset formation by SMEs.'