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SME Financing

The Dashboard covers the trends in SME Financing in Pakistan.

Outstanding Loans to SMEs

Total loans (including Bills Purchased & Discounted) extended by local banks to SMEs, surpassed the PKR 500 billion mark in Dec 2019. With banks taking a cautious approach at the outset of COVID-19, the portfolio lost PKR 107 billion till Aug 2020. There has been some respite in the months of Sep and Oct-2020. However, given the increasing concerns of lockdown due to second wave of COVID-19 in the country, expansion in SME portfolio might stay muted.

Finance as % of Private Sector Credit Vs NPLs

Since December 2013, SME NPL ratio reached its lowest level of 15% during the last quarter (i.e., Sep-dec) of 2018. However, given the sluggish economic growth and interruptions due to COVID-19 the SME NPL ratio has now again surged to 22%. In the first six month of 2020 alone, NPL ratio of the sector expanded by 5 percentage points whereby SME Finance as % of Private Sector Credit now stand at 6.4%, lowest quarterly reading in the last 5 years.

Enhanced Credit Flow to the Service SMEs

The share of service segment within the overall SME credit has been steadily increasing. The same has now reached 28% (FY20) compared to 19% in FY14. While total outstanding SME financing portfolio of commercial banks registered a 5-Year CAGR of 9%; portfolio directed to the services industry grew at 13%, while growth has been sluggish for the trading segment with a meager 6% over the same period.

Long Term Credit Growing the Most in 5 years

While working capital financing takes up the lions share (64%) of SME credit portfolio, credit rolled out for long term investments has seen the major growth over the last 5-years. Outstanding long terms loans registered a 17% compounded growth since FY15, while there share in overall SME portfolio expanded by 7% in the same period. Share of trade finance remined stagnant at 11% while share of working capital loans got squeezed by 7%.

Islamic Banking and SME Finance

The outstanding portfolio of Islamic banks now amount PKR 40 Billion, expanding rapidly in the last few years. Islamic banks now constitute 10% of the total SME credit of banks whereby as of June 2015 they had a meager 2% share in the pie.