Karandaaz Pakistan plans Rs10bln financing to SMEs

ISLAMABAD: Karandaaz Pakistan, a UK-funded company, has planned Rs10 billion in financing to small and medium enterprises (SMEs) to boost their financial inclusion from the existing less than four percent, its senior official said.

Naveed Goraya, chief investment officer of Karandaaz Pakistan told The News that the company envisaged three major investment programs for financial inclusion of SMEs that would create around 31,000 jobs opportunities.

“We have developed three major programs for SMEs, including strategic, wholesale and direct investment programs for total 900 SMEs in all over the country,” Goraya said.

Number of SMEs in the country is estimated at 4.5 million, but financing from the financial sector is highly skewed towards working capital. Financial institutions have only 163,000 SME borrowers – 3.6 percent of SMEs – as they failed to capture a large SME market. SMEs have access to only 10 percent of total credit. Commercial banks are reluctant to lend to SMEs for various addressable challenges, including relationship-based and heavily collateralised lending, lack of strategic focus and information asymmetry. Cost per relation for SME is much high compared to corporate sector. Non-banking financial institutions are fragmented and small and there is need to upscale and boost SMEs in the country.

Karandaaz’s official said the company is setting up special purpose vehicles to develop market for financing and strategic investments to fill the gap in financial architecture in the first mode of plan.

The company has already established Pakistan Microfinance Investment Company, a wholesale microfinance platform, under strategic investment plan, which aims at targeting 1.2 million clients by 2020. In the wholesale investment program, the company would provide risk capital and structured credit to financial institutions. Karandaaz established partnership with six financial institutions and non-banking financial institutions. Total 900 SMEs have so far benefited from the program, he added.