SBP Policy for SME Finance

Banking industry of Pakistan started focusing on Small and Medium Enterprise (SME) sector during the period of 2004-2006 because of which Small and Medium Enterprise (SME) financing (Rs. 408 billion) reached at 17 percent of total private sector financing by banks & DFIs in December 2006. However, following the economic slowdown since 2007-08, Small and Medium Enterprises (SMEs) became less profitable and highly risky ventures for bankers. State Bank of Pakistan (SBP) has been making efforts and playing supportive role due to which Small and Medium Enterprise (SME) financing started rising from 2013. The outstanding Small and Medium Enterprise (SME) financing crossed Rs 400 billion in December 2016 compared to Rs 284 billion in December 2013, which was 9 percent of total private sector credit.

State Bank of Pakistan (SBP) initiatives to support Small and Medium Enterprise (SME) financing mainly include;

i) improving regulatory framework through revising prudential regulations, strengthening secured transactions framework and introduction of Small and Medium Enterprise (SME) targets.

ii) market development through Small and Medium Enterprise (SME) supportive subsidized refinance schemes, risk coverage scheme, Islamic Small and Medium Enterprise (SME) financing, cluster surveys and non financial advisory service.

iii) improving capacity building and awareness creation of bankers and Small and Medium Enterprises (SMEs).

Under National Financial Inclusion Strategy (NFIS) and strategic direction of State Bank of Pakistan (SBP), Small and Medium Enterprise (SME) sector has been identified as one of the key priority areas. In line with the strategic direction of State Bank of Pakistan (SBP), key benchmarks to be achieved by 2020 are;

i) to increase Small and Medium Enterprise (SME) share from existing 8 percent of private sector credit to 17 percent.

ii) to increase number of borrowers from existing 174,000 to 500,000.

In order to achieve these objectives, a policy has been prepared for promotion of Small and Medium Enterprise (SME) finance (conventional & Islamic) in Pakistan. There are 9 key pillars of this policy which include improving regulatory framework, upscaling of micro finance banks, risk mitigation strategy, simplified procedures for Small and Medium Enterprise (SME) financing, program based lending & value chain financing, capacity building & awareness creation, handholding of Small and Medium Enterprises (SMEs), leveraging technology and simplification of taxation regime.

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