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Friday, December 13th, 2019

Corporate sector crowds out SMEs from Banks Credit

by November 9, 2016 General

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Staff Reporter

Karachi—SMEs which constitute over 90 percent of the economy get only 8 percent of the bank credit as it is crowded out by the corporate sector. Shaikh Khalid Tawab Sr. Vice President of the Federation of Pakistan Chambers of Commerce and Industry expressed his concern over the low and insignificant level of financing of SMEs which may contribute significantly in the economic and social development, employment generation and poverty alleviation of country.
He added that it is worrisome that 95 percent of enterprises are SMEs in Pakistan while only seven to eight percent credit financing of private sectors are given to SMEs sector and most of the credit are given to corporate sector. He stated that although the financing to SMEs sector is increasing since last year but this financing is very low as it contributes in the GDP of Pakistan over 40 percent and in exports earning by 25 percent and employs 80 percent of non-agriculture labor force. While quoting the examples of other countries he added that SMEs are dominating in China, Taiwan, Singapore, Hong Kong and Korea in these countries and contributed more than 80 percent in their development. These countries achieved the status of industrial advanced countries or newly industrial nations just on the basis of development of SMEs sector. Pakistan should learn from the experience of these countries and formulate SMEs driven policies, he stated.
He further elaborated that in Pakistan the banks are generally reluctant to give loans to SMEs sector due to high risk and transaction cost and 95 percent SMEs loans are given on collateral basis and commercial banks lack effective credit models to finance SMEs. He indicated that without financing and other facilities it is