An Analytical Over View of Bank Loans Extended to SMEs in Pakistan

Small and Medium Enterprises are the back bone of economy and are considered to be locomotive for the economic development for the developed as under developed economies. In the present economic scenario no one can ignore the importance and role played by SMEs in the overall rise of standard of life, reduction in poverty, provision of employment, foreign exchange earnings and GDP growth. Economy of Pakistan has substantial potential for the growth of this segment but unfortunately desired benefits could not be obtained for variety of reasons including political instability ,continuity in economic priorities and policies ,law and order situation prevailing in the country ,lack of infra-structure ,energy crisis ,most important hurdle is access to bank lending at concessional rates. The central bank of the country with collaboration of SMEDA is playing an important role to make bank finance available which is as important for SMEs as oxygen for human body but so far desired results could not be achieved in true sense as banks are shy to allow lending facilities, most importantly due to lack of collateral to cover the risk. SBP reports revealed that cash flow based lending is discouraged instead collateral based lending is focused. Bank lending allowed to SME sector comprises around 6 % of total finance allowed to private sector ,out of which major portion is extended within the limit of 0.5 million and only 5 % of total SME finance is extended as clean loa