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Banks asked to promote SMEs through credit solutions

06 September, 2012

Kazi Abdul Muktadir, Deputy Governor, State Bank of Pakistan (SBP) has stressed upon banks to promote Small & Medium Enterprises (SMEs) through prudent banking solutions.

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"I would stress the financial industry to break-out of the tendency of lending to conventionally profitable and relatively safer sectors, and move towards promoting SMEs through prudent banking solutions, he said in his keynote address on '"Engaging the SMEs to Stabilise Economy," at the 6th SME Conference at a local hotel in Karachi.

Muktadir said banks need to shift from traditional banking approach towards SMEs by developing and implementing appropriate credit evaluation techniques, used globally, such as credit scoring, cash flow and program-based lending.

He said SMEs would greatly benefit the financial institutions themselves as SMEs will grow into larger corporations, resulting in increased business opportunities for them. "Banks need to remember that their industry is only as strong as the underlying economy," he emphasised.

The SBP Deputy Governor said there exists strong evidence that SMEs expansion boosts employment more than large firm growth due to the fact that SMEs are normally more labour intensive. "In Pakistan, the SME sector contributes 30 percent towards the country's GDP, employs more than 70 percent of the non-agricultural workforce, accounts for 35 percent of the value added in the manufacturing industry and generates 25 percent in the export earnings. The sector has huge potential in generating employment and alleviation of poverty in the country," he added.

Muktadir said the Credit Guarantee Scheme for Small and Rural Enterprises launched by the State Bank has been highly successful as over 64 percent of the guarantee limits allocated to banks have been utilised by them. He said in collaboration with IFC, SBP is assisting banks in their capacity building efforts, focusing on the areas of Strategy Formulation, Product Development, Risk Management, HR Development and Marketing Area.

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