2. Priority Sectors for Inclusive Economic Growth
Efficient credit allocation is critical for sustainable and inclusive economic growth;
The key priority sectors as per SBP’s vision are: Agriculture, SMEs & Housing Finance;
Financial Inclusion and Islamic banking are cross-cutting themes in this endeavor.

3. Contribution of SMEs to Pakistan Economy
% of Firms Having a Bank Credit
The estimated share of SMEs as %age of total businesses (3.2 million);
Estimated Contribution of SMEs to GDP
Estimated proportion of workers employed in non-agricultural workforce
Source: World Bank Enterprise Survey (2015 or latest available)

4. Overview of
SME Finance
in Pakistan

5. Consultation with Stakeholders
Banks;
Microfinance Banks;
SMEDA;
Important Training Institutes;
Business Chambers and Trade Associations;
Multilateral Institutions;
Federal and Provincial Governments;
SMEs.

6. Constraints to SME Financing
SME financing considered riskier and costlier by banks;
Lower regulatory credit limit for SEs;
Lack of credit risk-sharing facility for low-end MEs;
Cumbersome loan processing procedures at banks;
Lack of program-based lending and value-chain financing;
Scarcity of trained SME banking officers in banks and lack of incentives at the branch level;
Lack of formal structures for awareness creation for SMEs;
Limited use of technology for SME financing;
SMEs concern on taxation and documentation issues.

7. Introducing Benchmarks for 2020
Current Status of SME Financing
- 8% of private sector credit
- Number of borrowers is 174,000
Indicative Targets for 2020
- Increase SME share to 17% Increase number of SME borrowers to 500,000
Current Status of SME Financing
8% of private sector credit
Number of borrowers is 174,000
Benchmarks
Increase SME share to 17% Increase number of SME borrowers to 500,000

8. Pillars of SME Finance 1 2 3 4 5 6 7 8 9 Improving Regulatory
Framework
Upscale Microfinance
Banks
Risk Mitigation
& Incentives at Banks
Capacity Building
Non-Financial Advisory
Extension Services:
Simplified Taxation
Regime
Program Based Lending
Value-Chain &
Leveraging Technology
& Innovation Challenge
Simplified Procedures

9. Pillar 1: Improving Regulatory Framework
Favorable Regulatory Environment
Reserve Requirements Reconsidered
Upper limit for retail exposure increased from Rs. 75 million to Rs. 125 million for preferential risk weight of 75% in CAR calculation;
Condition of obtaining insurance for SE Loans up to Rs 2 million made optional;
Establishment of R&D units at banks;
Approval of program based products by CEO/President instead of the board of directors.
General reserve requirement against unsecured SE financing portfolio reduced from 2% to 1%;
General reserve requirement against secured SE portfolio withdrawn.
Back to Pillars

10. Pillar 1: Improving Regulatory Framework
Introduction of Indicative Targets
Introduction of Refinance Facility
Province-wise targets assigned to banks/DFIs from January 2018;
Gender-based targets to be assigned from January, 2019;
Targets stratified along multiple dimensions (level, growth, number of borrowers etc).
New refinance facility for Working Capital loans ifor priority sub-sectors;
The priority sub-sectors are: IT, Furniture, Surgical Goods, Gems & jewelery, Leather industry, Fruits, Printing & packaging, Dates, Processing, vegetables & food processing and packaging;
The rate for end user will be 6% and SBP Refinance rate will be 2%
Back to Pillars

11. Pillar 2: Up-scaling Microfinance Banks
Graduate eligible MFBs into MSE Banks;
Financing limit of eligible MFBs increased from Rs 0.5 million to Rs 1 million;
Prescribed regulatory limits and caps to manage risks.
Back to Pillars

12. Pillar 3: Risk Mitigation
Low-end medium enterprises covered in Credit Guarantee Scheme;
A new Credit Guarantee Company to be established;
Partnerships with provincial governments in risk sharing schemes starting with GoPb & GoS;
Establishment of Secured transaction e-registry for un-incorporated entities.
Back to Pillars

13. Pillar 4: Simplified Procedures
Loan Application Forms (LAF) for SE & ME simplified;
Borrower’s Basic Fact Sheet made part of LAF;
Turn around Time for SE loan reduced from 30 to 15 working days;
Turn around Time for ME loan prescribed at 25 working days;
Small Enterprise Loan Documentation Manual to be standardized through PBA.
Back to Pillars

14. Pillar 5: Value-Chain and Program-Based Lending
Targets to be assigned for Value-Chain Financing;
Banks asked to adopt program-based lending;
Program-based lending to expedite credit decision-making for SME Financing.
Back to Pillars

15. Pillar 6: Capacity Building & Incentives of Banks
Training programs by NIBAF for capacity building of bankers (100 programs per annum);
Awareness programs by SBP BSC and SMEDA (150 programs per annum);
Centre of Excellence to be established to undertake R&D;
Back to Pillars

16. Banks to provide NFAS to develop the capacity of SMEs;
Pillar 7: Extension of Services: Non-Financial Advisory Services (NFAS)
Banks to provide NFAS to develop the capacity of SMEs;
Focus on improving the management and organization practices of SMEs;
3S forum (SBP, SMEDA & SECP) to facilitate and steer this effort.
Back to Pillars

17. Pillar 8: Leveraging Technology & Innovation Challenge
Use of Information Technology to support growth in SME Finance
Development of a web-based marketplace for e-Commerce;
Launch an innovation challenge fund to promote SME financing through technology. For this purpose, budget has been allocated.
Back to Pillars

18. Pillar 9: Simplifying Taxation Regime
Tax rate reduction on banks’ income derived from SME financing;
Tax holiday on income of eligible start-ups and women SE borrowers;
Reduction in sales tax on services sector SEs & MEs (provincial governments).

19. Pillars of SME Finance 1 2 3 4 5 6 7 8 9 Improving Regulatory
Framework
Upscale Microfinance
Banks
Risk Mitigation
& Incentives at Banks
Capacity Building
Non-Financial Advisory
Extension Services:
Simplified Taxation
Regime
Program Based Lending
Value-Chain &
Leveraging Technology
& Innovation Challenge
Simplified Procedures

21. Robust home Remittance inflows have shored up forex reserves and provided relief from large trade deficit over the years.
Pakistani diaspora in Gulf countries and North America contributed to around 50% of total remittances in FY17
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