SBP formulating plan to promote SMEs banking

LAHORE: Small and Medium Enterprises (SMEs) banking is poised for a shakeup, as State Bank of Pakistan has decided to initiate a roadmap for its promotion which will help contribute to country’s higher GDP growth.

This issue was brought up during a recently held consultative workshop organized by SBP Banking Services Corporation (SBP BSC) in Lahore to highlight issues plaguing SME sector and formulate a plan for the proposed roadmap, reported a local newspaper.

SME sector has a significant contribution towards the country’s economic and social development by providing employment generation and poverty alleviation.

According to SBP, the SME sector contributes 30pc towards Pakistan’s GDP, employs more than 80pc of the non-agricultural workforce and provides for 35pc of the value added in the manufacturing industry. It also contributes 25pc in export earnings too.

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Albeit SME’s financial sector penetration remains abysmally low as commercial banks dither from lending to them. The reasons for this dithering could be labelled to the perception of SMEs being high risk, have a high transaction and administrative cost, corporate mindset, heavy investment in government papers etc.

Demand side problems have created issues for SMEs in gaining access to financial services from conventional banking channels. These problems include high-transaction cost, lack of proper accounts management, complicated loan procedures, reluctance to tax filing, low level of financial literacy and lack of documentation and collateral by SMEs.

SBP will be partnering with relevant stakeholders to enhance a market-based inclusive financial system for meeting financial requirements of SMEs. And the central bank is also preparing a long-term roadmap with help of stakeholders to promote SME financing in Pakistan.

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