The State Bank of Pakistan (SBP) Governor Yaseen Anwar has impressed upon top management of banks to develop a more robust and focused strategy for meeting the banking needs of Small and Medium Enterprises (SMEs).

‘This will lead to better and improved banking solutions for SME customers’, he said while delivering his keynote address at the roundtable on ‘SME Banking’ organised by the State Bank and International Finance Corporation (IFC) at SBP Learning Resource Centre in Karachi on Wednesday.

He said, “I hope that when you walk out after this roundtable, a voluntary commitment to increase lending to this sector will be forthcoming. This prudent decision will be in the interest of both the banking sector and the economy’.

SME development plays a key role in the economic development of a country, he said, adding that the SME sector in Pakistan contributes 30 percent towards Gross Domestic Product (GDP), employs more than 70 percent of the non-agricultural workforce and generates 25 percent in export earnings. ‘The sector has huge potential in generating employment and poverty alleviation in the country. Therefore, SBP is actively promoting SME finance under the broader agenda of increasing Financial Inclusion in Pakistan’, Anwar added.

Both SBP and commercial banks need to play a proactive role in improving access to finance for SMEs, he said, adding that the State Bank has already taken a number of important initiatives for improving access to credit for SME sector. ‘These measures include provision of specialised Prudential Regulations (PRs) for SMEs, Refinance Schemes for SMEs, Credit Guarantee Scheme for Small and Rural Enterprises and cluster development surveys’, he added.

Anwar further said that SBP has been assisting banks through a holistic IFC technical assistance and capacity building initiative encompassing areas of Strategy Formulation, Product Development, Risk Management and HR Development etc. for SME lending. ‘Presently, Bank Alfalah Ltd. is being supported for capacity building to boost SME banking, while many other mid-tier banks are being considered for similar IFC technical assistance. IFC is in direct dialogue with a number of banks.

We hope that the project will revitalise SME lending by participating financial institutions and will be a prototype for other financial institutions which could see financing to SMEs as profitable business ventures’, he added. SBP Governor said that despite the immense significance of the SME sector in Pakistan, it remains largely financially excluded, as reflected from the declining trend in SME finance over the years, constituting only 8pc of the banks’ total advances as of June 2012, down from 16pc in June 2007. Anwar pointed out banks’ credit to SMEs has declined over the last 4 years from Rs 437b in 2007 to Rs 248b on June, 2012 and stressed upon the banks to move towards promoting SMEs by formulating strategies to overcome the challenges presented by the market.