Lack of financing hurting SME growth: SBP 

Lack of financing major hurdle for SMEs, agriculture, and low-income housing

KARACHI: The decline in the availability of credit has “significantly hampered” the growth of small and medium enterprises (SMEs) during the last decade, State Bank of Pakistan (SBP) Deputy Governor Riaz Riazuddin said on Tuesday.

Speaking at a seminar on “Enhancing Productivity for Growth,” jointly organised by the Consortium for Development Policy Research (CDPR), the International Growth Center (IGC) and the Institute of Business Administration (IBA) at the SBP, Riazuddin said special attention should be given to the accessibility of financing for “priority sectors” i.e. SMEs, agriculture and low-income housing.

“All the three engines of economic growth can pick up steam and gain mileage through improved productivity at the micro level,” he said.

Almost 90 per cent of 3.2 million firms operating in Pakistan are categorised as SMEs. They hold a share of almost 30 per cent in GDP and 25 per cent in national exports besides providing employment to 78 per cent of the non-agricultural workforce.

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“The SME sector has been resilient through recent ups and downs in global economic factors,” he said, noting that a major impediment to their growth was a lack of credit availability.

Riazuddin said the SBP has held consultations with national and international stakeholders to address the financial constraints, to enhance productivity, and for the development of SMEs in particular. The SBP has also proposed a multi-pronged policy to enhance the share of SMEs in private credit from 8 per cent to 17 per cent by 2020.

The SME policy, launched in December 2017, has nine pillars that are designed to address the decline in SME sector’s credit. These pillars include improving regulatory framework, up-scaling of certain micro-finance banks to cater to the needs of the SME segment, risk mitigation measures, simplified banking procedures, value chain, and programme-based lending, capacity building, non-financial advisory services, leveraging technology and innovation challenge and simplifying the taxation regime.

According to the SBP, a small enterprise has a maximum annual sales turnover of Rs150 million and a maximum of 50 employees. As for medium-sized enterprises, they must have 51-250 employees for manufacturing and service entities, and 51-100 for trading entities. As for the annual sales turnover, the SBP has set the range of Rs150 million and Rs800 million for medium-sized firms.

Riazuddin highlighted the importance of evidence-based policy-making, noting that a strong correlation exists between firms’ productivity and economic growth. “The SBP has made relentless efforts to investigate the determinants of productivity in agriculture and industrial sectors through national and international research collaboration,” he said.

His speech was followed by the presentation of eight papers on economics and econometrics by various researchers.

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