May 17 - 23, 2010

The inclusion of Small & medium Enterprises (SMEs) in to the Refinance Facility of the central bank is certainly an important move on the part of the Central Bank

The financing under the scheme will be available for purchase of new imported/local plant and machinery for BMR and setting up of new units. Sectors eligible for financing under the scheme include Rice Husking, Cotton Ginning, Power Looms, Dairy & Livestock, Cutlery & Stainless Utensils, Surgical Instruments, Marble & Granite, Engineering Goods/(Electronic), Fisheries, Packaging/Processing of Fruits/Vegetables, Furniture, Gems & Jewellery, Sports Goods and Agro-based Industry.

In addition, financing for import/local purchase of new generators up to a maximum capacity of 500 KVA shall also be eligible under the scheme. The capacity of generator shall however not be in excess of SME Unit's in-house energy requirements or up-to 500 KVA, whichever is less. The facility allows a maximum period of financing for 10 years and the scheme will remain effective till December 31, 2012.

SMEs play an important role in creation of employment opportunities, economic growth, poverty reduction, and equitable distribution of economic prosperity in the country. However, despite the overwhelming economic significance, SMEs have not been able to avail adequate financing facilities from the formal sources. In this regard, fixed investment financing of SMEs is of particular concern, as it constitutes a small proportion of total SME financing. In order to improve the access to finance, the State Bank has decided to expand the scope of its refinance schemes.


The Central bank has directed the banks to make serious efforts in order to meet the financing needs of SME Sector. It may be noted that SME sector's share in total banks' financing has drastically reduced during the last two years.

However, the central bank has been playing its due role in the development of SME sector, and has recently launched three SME related schemes which included Credit Guarantee Scheme for Small & Rural Enterprises, Refinance Scheme for SMEs of Khyber-Pakhtoonkhwa, Gilgit-Baltistan & FATA and Refinance Scheme for meeting the long-term financing needs of Small & Medium Enterprises (SMEs).

Besides, SBP has also developed financing facility for storage of agricultural produce, as well as broadening the scope of recent refinance facility for all key SME clusters.

Syed Salim Raza Governor State Bank of Pakistan while speaking at a meeting said the objective behind these schemes is to ensure availability of credit to SMEs but its success and utilization is dependent upon the active participation of the banks.

The banks are to come up with initiatives and other measures to meet the funding needs of the sector on sustainable basis. "A paradigm shift in strategic focus of banks is needed to target SMEs through increased commitment, dedication, and effective planning. "The banks will have to explore beyond the domain of SME finance into the sphere of SME banking. The success lies in cross selling," said governor State bank.

Expressing his concern over declining trend in SME finance, he informed the participants that SME financing of banks, which was Rs437 billion in December 2007, significantly declined to Rs348 billion in December 2009 whereas the share of SME financing in total lending portfolio of banks also reduced from 16.2 per cent to 10 per cent. "This was despite the fact that we all are aware, SMEs play an important role in economic growth & development through employment generation, business innovation and reduced income inequalities," he added.

Raza said the major share of total SME advances i.e. 89 per cent is being disbursed for meeting working capital requirements, reflecting on banks' reluctance to bridge the long-term financing needs of SME sector. "This has affected both the drive for modernization, expansion of businesses and the process of asset formation," he said and added that the pre-dominance of short-term lending also shows banks lack of interest in long-term viability of SME customers.

It is amazing to note that under the present set up over 90 per cent of total SME portfolio is concentrated in Punjab (64.22 per cent) and Sindh (25.93 per cent) while only 10 per cent is shared by Khyber Pakhtoonkhwa, Balochistan, FATA, Gilgit-Baltistan and AJK reflecting severe regional disparity.

"Another worrying facet of this geographic concentration is that three cities i.e. Lahore, Karachi, and Faisalabad account for more than half of SME financing. At present around 20 districts make up 85 per cent of total SME financing, while remaining 110 districts have been ignored so far.