Strengthening loan portfolios for small and medium-sized enterprises aims to create more employment opportunities and boost exports in Pakistan.
Pakistan's government is taking proactive steps to bolster financing for small and medium enterprises (SMEs), aiming to unlock the sector's potential and bridge the existing funding gap. This ambitious plan is designed to foster sustainable economic growth, move the country away from its traditional "boom and bust" cycle, and align Pakistan's SME financing levels with regional peers like Bangladesh and India.
Key government actions include:
1. **Regulatory Reforms by the State Bank of Pakistan (SBP):** The central bank has initiated a comprehensive review and overhaul of prudential regulations to make SME financing more principles-based, remove structural barriers, and encourage banks to extend more credit to SMEs. Interest rates for SMEs have been reduced from 22% to 11% in FY25 to ease borrowing costs.
2. **Targeted Financing Goals:** The government aims to raise SME financing to 17% of total private-sector credit by 2028. Currently, only about 6% of bank credit is directed to SMEs despite their significant economic contribution.
3. **Credit Guarantee Facility:** Under the Prime Minister’s Youth, Business and Agriculture Loan Scheme, a multi-billion credit guarantee facility has been launched. The government commits to covering up to 50% of potential credit losses on principal for small businesses, encouraging banks to increase SME lending.
4. **Institutional Capacity Building and Deregulation:** Efforts are underway to strengthen the Small and Medium Enterprises Development Authority (SMEDA) to provide advisory services, regulatory relief, capacity-building, and market linkages. Deregulation measures include reducing reliance on NOCs (No Objection Certificates) and increasing e-inspections to lower compliance burdens on SMEs.
5. **Inclusive and Technology-Driven Growth Focus:** The government aims to promote SME growth that is technology-driven, climate-resilient, and socially inclusive, including empowering youth and women digitally.
Expected benefits of these measures include:
- Enhanced SME contribution to Pakistan’s GDP (currently around 40%) and exports (about 25%). - Job creation, as SMEs account for nearly 78% of non-agricultural employment. - Increased financial inclusion, particularly for youth and women, supporting digital empowerment. - Sustainable and inclusive economic growth through a more enabling financial ecosystem. - Alignment of Pakistan’s SME financing levels with regional peers, improving competitiveness and economic resilience.
Pakistan's Finance Minister, Muhammad Aurangzeb, recently spoke at a high-level panel discussion titled "Scaling up SME Finance" in Sevilla, Spain, reiterating the government's commitment to SME development. The government is also fostering partnerships that promote technology-driven, climate-compliant, and socially inclusive SME development.
This strategic plan is a significant step towards realising the potential of Pakistan's SME sector, with the potential to boost growth, exports, employment, and financial inclusion across the country.
- The Finance Minister of Pakistan, Muhammad Aurangzeb, has emphasized the government's commitment to SME development, addressing a high-level panel discussion titled "Scaling up SME Finance" in Sevilla, Spain.
- The strategic plan, aimed at realising the potential of Pakistan's SME sector, focuses on fostering technology-driven, climate-compliant, and socially inclusive SME development.
- The government's aim is to promote SME growth that is not only technology-driven but also climate-resilient and socially inclusive, empowering youth and women digitally.
- The planned regulatory reforms by the State Bank of Pakistan (SBP) for SME financing include making it more principles-based, removing structural barriers, and encouraging banks to extend more credit to SMEs, with interest rates reduced from 22% to 11% in FY25 to ease borrowing costs.
