Bank financing to SMEs jump by 20% to Rs 524 billion in second quarter

Bank financing

Bank financing to small and medium enterprises (SMEs) has jumped by 20 percent quarter-on-quarter in October-December 2021.

The PTI government has been focusing on promoting industrial activities in the country since the time, it took over. The economic experts, attached to this government are of the view that the strength of the industrial base depends upon the performance of Small and Medium Enterprises (SMEs). The government has taken a number of steps to promote SMEs in the country. The banks were particularly asked to increase the size of loans to SMEs.

Read more: Rs 12 billion SMEs refinancing initiative launched by Bank of Khyber

The report says that the number of bank loans to SMEs went high by Rs 86.3 billion to Rs 524 billion during the period from October to December of the current fiscal year as compared to the number of advances which was Rs 437.7 billion during the first quarter of this fiscal year. Prime Minister Imran Khan had formally announced the policy for the growth of Small and Medium Enterprises in January, this year.

According to the Quarterly SME Finance Review, issued by the State Bank of Pakistan on Friday, the bank financing to SMEs increased by 20 percent quarter-on-quarter basis during the second quarter of the ongoing fiscal year.

As per the new policy, the requirement of NOC for the establishment of new business or expansion of certain SMEs has been abolished. In this policy, it has been focused that employment in SMEs may increase by 5 percent annually as compared to 2.43 percent during the last three years. The number of borrowers from SMEs up to December last year decreased to 164,752 from 179,934 in the previous year.

Although the government claims that Pakistan has the second-highest young population internationally which can be a big source for the growth of SMEs but banks are, to some extent, hesitant in forwarding loans to SMEs due to the fear of high default. The ratio of Non-Performing Loans (NPL) of this sector does not show the big change which stood at 15.85 percent in the last year, ending December.

In the month of September, however, the ratio of NPLs was 19.1 percent. The report of the central bank shows that the major lenders to SMEs were the domestic private banks. The share of domestic banks in financing SMEs stood at Rs 344.8 billion as compared to Rs 128.4 billion of advances by the banks, working in the public sector. The share of Islamic banks in loan forwarding came to Rs 38.2 billion.  

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