For Promotion of Small and Medium Enterprises (SMEs) Finance State Bank of Pakistan (SBP) has taken steps to develop some strategies, One of the Main Strategy is as follows;

Risk Mitigation Strategy

Compared to corporates, Small and Medium Enterprises (SMEs) are confronted with challenges such as low access to financial resources, low equity ratio and low profit margins which make them vulnerable to external shocks. Main reasons for reluctance of banks to lend to Small and Medium Enterprises (SMEs) include;

i) lack of strategic focus on part of banks.

ii) Small and Medium Enterprises (SMEs) are perceived as high risk projects considering the industry’s NPL ratio in Small and Medium Enterprises (SMEs) credit.

iii) fewer financing products/options for Small and Medium Enterprises (SMEs).

iv) corporate finance mindset.

v) absence of Small and Medium Enterprises (SMEs) R&D centers in banks.

Proper risk management and mitigation strategies can help in identifying significant risks and their timely mitigation.

For the purpose of risk mitigation, State Bank of Pakistan (SBP) has been managing Credit Guarantee Scheme since 2010 to encourage lending towards collateral deficient borrowers by providing risk coverage to banks against their lending to such borrowers. Following changes are being made to improve risk coverage framework of Small and Medium Enterprises (SMEs);

Inclusion of low-end medium enterprises in Credit Guarantee Scheme (CGS)

The current Credit Guarantee Scheme is for small and rural enterprises only. Going forward, new low end Small and Medium Enterprises (SMEs) will also be included under the scheme. In this respect, parameters and eligibility criteria will be announced in January, 2018.

Establishing Credit Guarantee Company

It has been decided to convert the existing Credit Guarantee Scheme into a Credit Guarantee Company that will function as an independent entity. Consultants have been engaged for developing a business plan for the proposed Credit Guarantee Company. Efforts will be made to make the company operational by December 31, 2018.

Supporting Provincial Risk Sharing Schemes

State Bank of Pakistan (SBP) is coordinating with provincial governments to facilitate them in their efforts to enhance Small and Medium Enterprises (SMEs) credit. In this regard, different provinces have approached State Bank of Pakistan (SBP) for provision of risk sharing facilities for lending to Small and Medium Enterprises (SMEs). State Bank of Pakistan (SBP) is facilitating the provincial governments in their refinance and risk sharing schemes.

Setting up of E-Registry

As discussed earlier, a new law named “The Financial Institutions (Secured Transactions) Act, 2016” has been passed and an E-Registry is in process of being established to facilitate Small and Medium Enterprises (SMEs) and Agri borrowers to access credit from banking sector by using their movable assets as collateral.

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