KARACHI – The Center for Business and Economic Research (CBER) at the Institute of Business Administration (IBA), Karachi held the second round table Coffee@CBER session on the theme, SME Financing: Issues, Challenges, and Future Prospects, at the IBA, Karachi on October 12, 2019. The forum was attended by policymakers, government and business leaders, and visionaries to discuss the key issues faced by the SME sector ? especially in meeting their financing needs.
Panelists of the round table included Director Infrastructure, Housing and SME Finance Department and Director Islamic Banking Department at State Bank of Pakistan (SBP), Mr. G.M. Abbasi; Head, Treasury and Financial Institutions at Bank Islami, Mr. Aamir Shamim; Managing Director of Sindh Enterprise Development Fund (SEDF), Mr. Mehboob ul Haq Memon; and Senior Executive Vice President and Head, Product Development and Shariah Compliance (PDSC) at Meezan Bank, Mr. Ahmed Ali Siddiqui. The session was moderated by Executive Director IBA, Karachi Dr. Farrukh Iqbal.
The discussion was in response to SBP’s target to enhance SMEs sector credit to 17% (currently 8.7%) and increase the number of SME borrowers to 700,000 clients by 2023. Financing to SMEs by local banks and Development Financial Institutes (DFIs) stood at Rs. 513 billion as of December 2018, with a total number of SME borrowers clocking in at 180,704 borrowers out of the estimated total operational 4.5 million SMEs.
Dr. Iqbal initiated the discussion by highlighting the lack of data in the SME sector which is a major impediment in identifying the needs of the sector. The panel unanimously agreed that the SBP was playing a pivotal role in encouraging the banks to increase their lending to the SME sector.
The banking sector also pointed out that for the banks to feel comfortable in lending to the SME sector, legislation must be strengthened for recovery of bad loans. It was highlighted by Mr. Siddiqui, that the banks have low appetite for lending to the SME sector because of the high number of non-performing loans in the 2008-09 era.
Mr. Shamim also highlighted that regionally in economies where SME sector performs well, the economies are export-oriented, while Pakistan’s economy is import-oriented. He also stated that the broader economic conditions and business environment were also a hurdle to the growth of the SME sector.
Moreover, Mr. Memon stated that there was a huge demand for SME loans, however the banks need to rethink the way they deal with the SME sector.
It was concluded in the session that the challenge comes from the banking sector where the banks need to put in an infrastructure that specializes in facilitating SMEs.
This session was the second one in a series of round table discussions that IBA CBER will host on different aspects of Pakistan’s economy.
