Smeda

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  • Topic: Debt, Loan, SME finance
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  • Published : March 5, 2013
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aSME BANKING
REGULATORY FRAMEWORK
Infrastructure, Housing & SME Finance
Department

State Bank of Pakistan

SME
SME Sector in Pakistan
 SMEs are engine of growth, employment, and income
distribution leading to poverty alleviation.

 SMEs are nurseries of entrepreneurship and innovation
 SME sector contribution is around 30% towards GDP , employs more than 70% of non-agricultural workforce and contribute
25% to export earnings of Pakistan.

 99% of total 3.2 million economic establishments in Pakistan are SMEs.

Credit
Credit to SMEs – Trends & Current position
Rs. in Billions

Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10
SME-O/S 284.0
SME NPLs 30.1
% age
Share

10.6

361.4
42.1

408.3
36.0

437.4
41.3

383.0
61.5

348.2
79.2

334.0
96.5

11.6

8.8

9.4

16.1

22.7

28.9

• SME Finance portfolio forms about 10% of total banking sector advances which is proportionately lower keeping in view the huge potential of SME sector. • There has been decrease in SME Finance in the last 2 years due to economic & financial crises, power outages, deteriorating law & order situation in the country.

Current SME Finance Portfolio
Region Wise Distribution of SME Finance
Sind
25.93%
NWFP
3.73%
Balochistan
1.52%

Other
0.88%

Punjab
64.22%

Capital
3.71%

AJK
0.73%

Gilgit Baltistan
0.15%

FATA
0.01%

Some
Some major Issues in SME Finance
Demand Side Issues & Constraints
 Absence of Proper Accounts Management, Business Planning, Missing

Formal

Management
 Lack of Collaterals to Meet Banks’ Requirements
 Low level of Awareness about Different Financing Options  Absence of Reliable and Credit Worthy data

Supply Side Issues & Constraints
 Shortage of Credit Evaluation, Product Design, Marketing Skills and non- Innovative non-

Products
 Perceived to be High Risk Projects by Banks
 Absence

of Credit
Lending, Downscaling

Scoring,

 Absence of SME R & D in Banks

Cash

flow

based

Lending,

Program

Based

SBP
SBP Initiatives for Promotion of SME
Finance
Provision of Enabling Regulatory Framework:
 Review of current Regulatory Framework for SMEs

Formulation of Refinancing Schemes for SMEs.
Credit Guarantee Scheme for Small and Rural Enterprises
Cluster Development Surveys (with LUMS & IFC)
Capacity Development of Banks (Grass Root & with IFC)
SME Sector Development Project with Donor Agencies

Prudential Regulations for SMEs
Definition SME:
Definition of SME:
Maximum Employees:
Employees:
 250 for manufacturing/service concern
 50 for trading concern

Max.
Max. Total Assets less Land & Building:
Building:
 100 M for manufacturing concern
 50 M for trading & service concern

Net Sales not Exceeding Rs. 300 M
Rs.

An individual can also be treated as an SME

Prudential
Prudential Regulations for SMEs ..Cont’d…
 Source and Capacity, Cash Flow Backed Lending:
Lending:
 Personal Guarantees of Owners of SMEs
 Clean Limit of Rs 3m (excluding clean consumer financing limits to

sponsors of SME)

 Per Party Exposure Limit
 Maximum Exposure from all FIs Rs 150 M.
 Exposure of a Single Bank/DFI on SME 75M.
75M
 The limit has no relationship with equity of the borrower. borrower.
 An SME, willing to comply PRs for Corporate/Commercial

Banking, may be allowed higher exposure limit.
limit.

Prudential Regulations for SMEs …Cont’d
 Minimum Conditions for taking Exposure
 CIB report for exposure exceeding Rs. 0.5M (defaulters may

be extended loan on genuine grounds)
 Financial Accounts for exposure exceeding Rs. 10 M
 Borrower Basic Fact Sheet (BBFS)
 Proper utilization of loan

 Restriction on facilities to related parties (Director, Major

Shareholders, Chief Executive and Employees of bank)

Classification
Classification and Provisioning
Category

Overdue period

Provision

S/S

90 Days

25%

D/F

180...
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