SBP

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SBPs Initiatives for SMEs Financing
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Initiatives

• Issuance of a separate Prudential Regulation
  (PRs) for SME financing.
• Help in capacity building in human resource
  development of banks/DFIs in the field of SME
  lending.
• Creation of a separate SME Department in State
  Bank.
• Enlarging the scope of Credit Information Bureau
  (CIB).
• Granting commercial banking license to SME Bank.
• Focus on SME lending in SBP Lending Schemes for
  banks.

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Defining SMEs

• In Pakistan, definition of SME varies from
  institution to institution.
• PRs define SME as an entity which fulfills all
  the following characteristics.

Trading Manufacturing Services
No. of Employees up to 50 250 250
Total Assets at cost up to Rs.50 M Rs.100 M Rs. 50 M
Total Sales Turnover up to Rs.300 M Rs.300 M Rs. 300 M
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Encouraging Cash Flow Based Lending

• Banks/DFIs are encouraged to lend to SMEs on the
  basis of asset conversion cycle/cash flow basis.
• Banks / DFIs are allowed to take clean exposure
  i.e., facilities secured solely against personal
  guarantees on an SME up to Rs. 3 million provided
  that funded exposure should not exceed Rs. 2
  million.

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Exposure Limits

• Per SME limit Per Bank Rs. 75 M
• Per SME limit From All Banks Rs.150 M
• It is expected that SMEs approaching this limit
  should have achieved certain sophistication as
  they migrate into larger firms and should be able
  to meet the requirements of Prudential
  Regulations for Corporate / Commercial Banking

• SUBJECT TO
• For other than leased assets Up to Rs. 100.0 M
  
•  For Clean exposure Up to Rs. 3.0 M

6
Capacity Building of Banks for SME Lending
Hiring of a Consulting Firm

• SBP has hired a foreign consulting firm, which
  will provide capacity building support to a few
  commercial banks, including SME Bank, on cost
  sharing basis.
• The above will cover full spectrum of
  establishing an SME business line ranging from
  preparation of participating banks business
  plans to training of loan officers.
• The IBP and NIBAF will also collaborate with the
  firm in providing training on SME credit to
  bankers.

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Establishment of SME Department at SBP

• Objectives
• To help create conducive macro-prudential
  environment for banks/DFIs thereby increasing the
  flow of credit to SMEs
• To promote strategic focus on SMEs on the part of
  the banks/DFIs
• To facilitate banks/DFIs in adopting best
  practices for the development of their SME
  business lines through provision of capacity
  building and training services
• To induce banks/DFIs for up-front investment in
  people and technology.
• To coordinate with other SME stakeholders for
  matters relating to SME financing.

8
Enlarging the Scope of Credit Information Bureau
(CIB)

• SBP is in the process of further lowering the CIB
  limit from Rs 500,000 to cover all loans by the
  end of June 2005. This will help in improving the
  financial institutions ability to provide loans
  especially to individuals and SMEs.

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Issuance of Commercial Banking License to SME Bank

• The SME Bank, which was established through a
  merger of Small Business Finance Cooperation and
  Regional Development Finance Cooperation, has
  been issued a commercial banking license by SBP
  enabling the bank to undertake the whole range of
  banking business.
• SME bank will also receive capacity building
  services through the international consulting
  firm hired by SBP.

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SBP Credit Schemes

• The State Bank in its different credit schemes
  namely 1) Long Term Financing of Export Oriented
  Projects (LTF-EOP) 2) Locally Manufactured
  Machinery (LMM) and 3) Export Finance Scheme
  (EFS) has been paying special attention to the
  financing needs of SME Sector.
• The banks/DFIs are advised to focus SME sector
  while allowing credit under these schemes.

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Flow of Credit to SMEs

• Share of SMEs in total bank credit

(Rs. in billion)
Dec-02 Dec-03 Dec-04
170 215 284

• 67 increase since 2002.

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Thank You