UK-funded firm to launch SME financing

ISLAMABAD: A UK-funded company is about to launch a new financing program dedicated to Pakistan’s small and medium enterprise (SME) sector that plays important role in the economic activities and jobs creation.

“We are planning to come up with new program for promoting access to finance for SME sector in Pakistan,” Chief Executive Officer Ali Sarfraz at Karandaaz Pakistan said on Saturday.

Karandaaz is a joint venture of UK’s Department for International Development (DFID) and Bill & Melinda Foundation with total contribution of $270 million; of which 90 percent grant is provided by DFID and remaining 10 percent by Gates Foundation.

Sarfraz told The News that Karandaaz would spend $270 million for financial inclusion program till 2024 to improve access to finance in Pakistan. Karandaaz’s program aims to ensure access to finance for SMEs in the country in order to spur economic growth on long and sustained basis.

The State Bank of Pakistan has already launched National Financial Inclusion Strategy to provide maximum population with formal banking facilities.

Sarfraz said only 24 percent population in Pakistan enjoy access to banking facilities with nine percent having bank accounts and remaining 15 percent with mobile banking wallets.

On SME’s access to finance, Karandaaz chief said it is the most neglected sector in Pakistan as it obtains borrowing of around one percent of GDP despite contributing a lot in the country.

SME accounts for 90 percent of all enterprises in the country. It employs 80 percent of all the non-agricultural labour force. Small scale manufacturing has 13.8 percent share in manufacturing and 1.9 percent in GDP, the latest Pakistan Economic Survey report said.

A World Bank’s report said among the SMEs involved in retail and wholesale 98 percent employ less than five individuals and 99 percent less than 10 individuals.

“Even within the manufacturing sector the trend is not different and nearly 87 percent employ less than 5 persons and 98 percent less than 10 persons,” it added.

Sarfraz said the SME financing stood at far less than the total requirement. The reliance is shifting towards informal sector that is resulting into choking the growth potential of SME sector, he added.

He said SME financing stood at nine percent of GDP in India, 10 percent in Bangladesh, eight percent in Sri Lanka, 37 percent in Thailand, 36 percent in Korea and 24 percent in China while in Pakistan it is just one percent of GDP.

SME sector is getting loan only for working capital and very low amounts of loans are provided for long-term projects in Pakistan. “Keeping in view huge financing requirements, we are considering an institution aiming to promote SME access to finance,” he said. They considered collaboration with other parties for SME financing in the past, but no final decision had yet been taken.

Karandaaz is assisting the Central Directorate of National Savings to deploy digital services in collaboration with other partners. Karandaaz is going to provide $2.5 million for the project.