Daily Times

KARACHI: The State Bank of Pakistan (SBP) is developing legal and regulatory framework for graduating eligible Microfinance Banks (MFBs) into Micro and Small Enterprise (MSE) banks while financing limit of eligible MFBs has been increased from Rs 0.5 million to Rs 1 million.

The SBP launched the financing policy for the promotion of Small and Medium Enterprises (SME) with the aim to increase SME share from existing 8 percent private sector credit to 17 percent and number of borrowers from existing 174,000 to 500,000 by 2020.

The SBP identified the nine pillars under the SME policy which include improvement in the regulatory framework, up-scaling through micro-finance banks, risk mitigation strategy, simplified procedures for SME financing, programme-based lending and value-chain financing, capacity building and awareness creation, non-financial advisory services for SMEs through the banking channel, leveraging technology for the promotion of SME banking and simplification of the taxation regime for SMEs.

Under the SME promotion policy, the general reserve requirement against unsecured SE financing is being reduced from 2 percent to 1 percent, while general reserve requirement against secured portfolio is being withdrawn. Condition of obtaining insurance for financing up-to Rs 2 million (previously Rs 1 million) has been made optional for SE and ME financing.

Banks and Development Finance Institutions (DFIs) have been advised by SBP to formally establish and structure their SME banking research & development divisions. Simplified Loan Application Forms (LAF) for SE and ME have been developed in consultation with banks and other stakeholders which will be launched by Pakistan Banks’ Associations (PBA).

The SBP said banks have been advised to reduce turn around time (TAT) for processing of SE loans from 30 working days to 15 working days. Further, a Center of Excellence for SME banking & finance will also be established in collaboration with NIBAF and other institutions. This center will work with renowned international and local institutions to impart quality training to banks (conventional & Islamic) and SMEs.

SBP has also recommended Ministry of Commerce to encourage SME startups to export their handicrafts and other items. In this regard, it is recommended to create a Marketplace Website for on-boarding these entrepreneurs on a single platform. In order to resolve the taxation issues of SEs and MEs, the SBP proposes 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 service sector SEs & MEs, and inclusion of low-end medium enterprises in Credit Guarantee Scheme (CGS).

“It has been decided to convert the existing Credit Guarantee Scheme into a Credit Guarantee Company that will function as an independent entity. Consultants have been engaged for developing a business plan for the proposed Credit Guarantee Company. Efforts will be made to make the company operational by December 31, 2018”, the SBP added.

Published in Daily Times, December 24th 2017.