TARIQ AHMED SAEEDI (tariqsaeedi@hotmail.com)
Feb 04 - 10, 2008

Despite disbursement of Rs. 633 million alone by SME Leasing Limited in nine months tailor made lease service provision to small and medium enterprises needs to expand its outreach to fulfill eighty percent untapped demand existing in the market. Beside consisted of numerous commercial ventures transporters, operators of oil tankers, users of heavy electricity generators, trolleys operators, building constructors compose its potential customer-base strengthening equity utilization position of the leasing industry. Out of present seventeen functional leasing companies operating around the nation only one state run leasing company sums up its concentration exclusively directing towards SME sector. Otherwise all leasing companies have diversified their network of lending facilities to different sectors irrespective of their credit-type. They are injecting hard-generated capital into commercial as well as non-commercial market. Thereby, development financial institutions, business financing institutions, commercial and investment banks are making unprecedented profits. As long as small business operators are becoming aware of lease financing, the profit of leasing companies also keep on increasing so does their net assets. It is quiet obvious that single-targeted approach is commendable to a certain extent. Because of, specialization can only ensure up scale of customer satisfaction. According to financial results of the company, during January-September 2007 Rs. 633 million was disbursed as against Rs. 493 million in the corresponding period of the last year showing an increase of 28%. Similarly, net assets showed a rise of Rs. 2 crore during the period increasing to Rs. 42 crore from Rs. 40 crore in the corresponding period of the last year. The company earned profit after taxation of Rs. 2.4 crore in nine months, which was a 100 percent rise of Rs. 1.5 in comparison to last year. The gross revenue increased to Rs. 129.36 million, a growth of 26% from the corresponding figure of Rs. 102.40 million for the last year. All the revenue has been generated from the leasing operations of the company. Pretax earnings registered a growth of 67% amounting to a total of Rs. 30.53 million as compared to Rs. 18.23 million for the corresponding period of last year. However, during the period its liabilities against assets, subjected to finance lease, lowered down to Rs. 1.7 million from Rs. 2.4 million. This indicated that company shifted its focus to finance lease, which transfers ownership of asset to lessee after loan maturity, to operative lease, which keeps ownership rights with the lesser.

While talking to this scribe, Shaheen Akhtar, Vice President and Head of Credit Marketing, SME Leasing Limited said tailor made financial solutions to SME sector is provided by very few leasing companies in Pakistan out of which his company has enormous share in terms of extending finance to small business occupants. He said his company especially engages in financing to small businesses instead of large scale business operations. Giving an example, he said, TCS would not come to us for seeking working capital or leased asset due to the size of its credit requirement. Our portfolio does not match to the credit proposition either.

Expanding Lease Finance Outreach: In case of working capital maximum limit of financing amount is up to Rs. 2 million while we can go up to Rs. 40 million in leasing arrangement, he said. Maximum tenure of repayment of working capital is 36 months, which is flexible to match the borrower's requirements. The company has motto of flexibility as it deals with clients hailing from informal organizational structure. Such persons are more susceptible to detraction than those who come out of formal sector. Complicated criteria could often perplex and detract genuine clients forcing them to be declined. However, the business concerned should fulfill the requirements of Securities and Exchange Commission of Pakistan regulations. The borrower has to submit commercially viable business plan along with his application of credit. It is tailor made in a sense that applicant has not to go from pillar to post in completing basic criterion. The business should generate monthly revenue sufficient enough to pay out monthly rentals after meeting its expenses or operational expenditures or disclose any other sources of income for paying its monthly rentals. General lending criteria for proprietors hardly get them into trouble.

SME leasing is registered with the SECP as a leasing company under the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003. The company was incorporated in Pakistan as a public limited company on July 12, 2002. It was incorporated as a wholly owned subsidiary of SME Bank Limited, whereby under an arrangement the assets and liabilities of the leasing division of SME Bank Limited were transferred to the company on January 31, 2003. It was granted the Certificate of Commencement of Business on January 28, 2003. It is only listed on Lahore stock exchange. The company has eight branches in Pakistan. It is presently operating in Mirpurkhas, Lahore, Mardan, Peshawar, Hyderabad, Sialkot, Islamabad, and Karachi. Its core objective is to extend lease and working capital financing facilities to small and medium enterprises of the country.

Players of SME Sector: Players of SME sector are lackluster in seeking finance from financial institutions and holding reservations about veracity of lending agreements. Hovering around complaints against consumer banks may be furthering their skepticism. Adding to their reservations are credit criteria set by financial institutions. As a matter of fact, businesses in informal sector may produce collaterals but often would not be able to present credibility of their solvency. It must be notable that leas financing is asset-based and thus reduces risk of insolvency automatically. Additionally, structure and mechanism of operation of leasing companies enable them to verify and cross check debt performance of informal sector. Therefore, only strategic business unit--delegated to SME leasing--of a financial institution or specialized organization of lease financing would gradually augment the disbursement in SME sector; no matter if cash reserves requirements would block liquidity circulation in the market.