SME Bank can help build better businesses

The Express Tribune reached out to the businessmen and analysts to get their opinion on the subject.

“Since the government has now decided not to privatise and not to merge SME Bank with the National Bank of Pakistan, it should be restructured as an SME-specific institution for the betterment of the sector,” Union of Small and Medium Enterprises (UNISAME) President Zulfikar Thaver told The Express Tribune.

While commenting on the subject, Pakistan Businesses Forum (PBF) Vice President Ahmad Jawad said SMEs play a major role in developing economies and they account for a majority of the businesses worldwide.

SMEs represent about 90% of businesses and more than 50% of employment worldwide. Formal SMEs contribute up to 40% to the national gross domestic product (GDP) in emerging economies, Jawad said, adding that the numbers will go significantly higher when informal SMEs are included.

There will be a global requirement of nearly 600 million jobs by 2030, which makes SME development a high priority for many governments around the world including Pakistan.

“Unfortunately, Pakistan’s SME Bank has a very limited role owing to the lack of capital and less presence.”

SME Bank was established in Pakistan and Malaysia at the same time. It is doing exceedingly well in Malaysia but in Pakistan it has remained neglected due to unprofessional handling, Thaver pointed out.

SME Bank was established to operate as a sector-specific institution to facilitate the SMEs. But it lacked both the political will and expertise for specialised SME financing.

In 2021, the microfinance grew 22% to Rs290 billion from Rs239 billion in CY20, said AHL Research banking analyst Sana Tawfiq. “Most of the financing is aimed at rural areas, but it declined 23% there.”

Most banks operating in Pakistan offer SME financing schemes as they are incentivised by the State Bank of Pakistan (SBP), said Employers Federation of Pakistan (EFP) President Ismail Suttar.

The SBP launched a scheme named Asaan Finance Scheme (SAAF) to further promote lending to the
SME sector.

Although the banking sector is promoting SME lending but more effort is required to strengthen the sector,
Suttar said.

A primary reason is that the banks still find the SME sector lending risky as a majority of the loans are given on the basis of the SMEs’ cash flow rather than through
the collateral.

Suttar also said that SMEs are bound by certain SBP rules and cannot borrow above the maximum limit of Rs10 million. However, it is good that the government and SBP are providing risk coverage 40% to 60% to the banks on the first loss portfolio basis.

To broaden its scope, the State Bank of Pakistan (SBP) and the Ministry of Finance must coordinate to make it a model SME-specific bank, Thaver said, adding that the bank also needs professional bankers for its growth
and expansion.

Jawad said SME Bank did not perform well that’s why the government has been trying to privatise it for the last few years, but it doesn’t have any assets except for the banking licence issued in 2004.