Karachi March 4 2022: State Bank of Pakistan’s (SBP) report on SME financing showed that outstanding amount clocked in at PKR 524.09 billion at December 2020, surging by 8.7 percent or PKR 42 billion in 2021.
However, given the cyclical nature of this borrowing, during the last quarter (October-December) SME financing increase by 19.9 percent or PKR 86.99 billion.
What’s noticeable is that the share of SME loans in the overall private sector financing dropped to 6.51 percent in the latest quarter from 7.27 percent a year earlier. Since 2016, this percentage has hit a highest of 9.2pc in October-December 2016 and not reached the 8 percent mark in the last two years.
In terms of the number of borrowers, there was actually a decline as they fell from 179,934 in January-December 2020 to 164,756 in the corresponding period of 2021. From the financial institutions’ perspective, there is obviously a much higher risk associated with SMEs as reflected by their infection ratio of 15.85pc during the period.
Another long-persistent trend in the dataset is the overwhelming share of working capital in the overall financing, hinting that funds are being deployed towards day-to-day needs instead of being invested for more sustainable objectives. The proportion of SME loans classified as working capital stood at 67 percent, that of fixed investment was 25 percent while the remaining was for trade finance.
One area where policymakers could focus on is Islamic SME financing — which is made up of full-fledged Islamic banks and Islamic branches of conventional banks — whose share in the total remained stagnant at 11.8 percent in 2021.
