Banks Must Prioritise Its Lending To SME Sector To Support PM's Vision Of Sustainable Economy

Pakistan Business Forum (PBF) on Friday proposed that at least 25 percent of concessional financing, including the Export Finance Scheme, exclusively to SMEs in the export sector may be allocated in the coming budget

ISLAMABAD, (UrduPoint / Pakistan Point News - 5th Apr, 2024) Pakistan Business Forum (PBF) on Friday proposed that at least 25 percent of concessional financing, including the Export Finance Scheme, exclusively to SMEs in the export sector may be allocated in the coming budget.

This strategic allocation will not only support small sector development but also promote a more inclusive and sustainable economy.

PBF President Khawaja Mehboob ur Rehman in a meeting with members of Pakistan Cotton Ginners Association, proposed that the State Bank of Pakistan may review its credit policies by fixing a special quota to finance the small and medium enterprises, as only the large industries have been availing government’s all major concessional export loaning facilities, with very limited financing is left for the SMEs which are the backbone of the economy, contributing around 40 percent to the national gross domestic product (GDP).

He observed that despite their significance, more than 5 million SMEs face a significant credit gap, receiving only 7% of private sector credit, far below neighboring countries like Bangladesh (25%) and India (18%). To achieve near to our neighbour countries targets we must advocate for targeted and fixed SME allocations in concessional financing schemes, particularly those aimed at the export-oriented sector.

Khawaja Mehboob said the SBP has launched various policies for the promotion of SME finance, but the required results were still awaited. It was unfortunate that banks were always reluctant to provide financing to SMEs as their financing continued to show negative growth.

PBF President said that the government with a view to help grow the businesses will have to take solid measures to strengthen the industry, especially the SMEs, saving the livelihood of millions of workers associated with the small industries.

The government will have to make a visible reduction in markup rate to help grow the businesses, particularly the SME sector, as Pakistan needs millions of jobs annually.

He suggested we also need to highlight the critical role of Small & Medium Enterprises (SMEs) in driving sustainable economic development in Pakistan. With an estimated 5.2 million businesses, the SME sector is a cornerstone of our economy, fostering employment, growth, and export diversification.

In its endeavor to provide concessional financing to the export-oriented sector, the SBP has introduced the Export Finance Scheme, offering financing as low as3%, in stark contrast to the earlier Export Refinance Schemes’ (ERF) markup rates that reached 21%. However, it is a matter of great concern that a substantial portion of this financing has been availed by large corporate industries, leaving no room for SMEs. The current economic challenges demand a targeted approach to support the SMEs, as they are among the hardest-hit and in desperate need of assistance.

As there are over five million SMEs across the country. These represent about 90 percent of Pakistan’s businesses, and contribute 35 percent to GDP with over 30 percent to export earnings. In fact, it is a key pillar of national economy, employing about 40 percent of the workforce for different abilities—skilled, semiskilled and unskilled. These diversified enterprises are engaged in a variety of industrial, commercial and services activities.