SME borrowing up 27.66 percent to Rs379.71 billion in April-June

KARACHI: Lending from financial institutions to small and medium-sized businesses rose 27.66 percent year-on-year to Rs379.71 billion in the second quarter (April-June), the central bank data showed on Wednesday.  

Banks and development finance institutions (DFIs) extended Rs297.43 billion in loans to small and medium enterprises (SME) in the same period a year ago, revealed data from the State Bank of Pakistan (SBP). 

Analysts welcomed the growth in credit to SME, which is called engine of economy.  SME contributes 30 percent of GDP, 25 percent in exports and 78 percent in the industrial employment, said the Small and Medium Enterprise Development Authority.

Presently, SMEs account for a little over seven to eight percent share in the banking sector credit portfolio as the major chunks of private sector’s credit goes to large corporations. 

SBP planned to increase the share to 15 to 17 percent. It asked financial institutions to ensure increased availability of credit to small firms.    “Banks are increasing finances to small companies, which are encouraging,” an analyst said.

“It shows credit opportunities are improving for small and medium-sized enterprises.”   Analysts said the pickup in SME loans is also reflective of higher demand. Small businesses are expected to seek more credit to expand. 

The SBP data revealed that small and medium enterprises borrowed Rs241.14 billion from banks during the quarter under review to meet their working capital needs as against Rs195.11 billion in the corresponding period last year.

Within specific sector, manufacturing small and medium enterprises remained the top receiver of the bank financing with Rs150.58 billion followed by the small companies operating in trade business.    

The number of SME borrowers increased to 176,847 during April-June 2017 from 164.734 a year earlier. Though non-performing loans of SMEs fell to 20.72 percent in the quarter under review, some banks are still reluctant to extend advances to SMEs.

Banks are skeptical of repayment capacity of SME borrowers. They believe small companies can find it hard to pay debts back. So, banks charge high mark-up rates on SME loans despite low interest rate environment in the country. The interest rate is hovering around four decades low.