State Bank of Pakistan (SBP) should extend access to finance for the Small and Medium Enterprises (SMEs) instead of hefty lending to Government for covering up its extravagant expenditures.
The banking sector should take measures to strengthen SMEs and the domestic industrial sector to stimulate the growth of trade and industry in the country. SMEs have been playing a key role in providing impetus to economic development. This was said by President, Islamabad Chamber of Commerce & Industry (ICCI) Mahfooz Elahi.
He said that the Governments excessive and unabated borrowing from central and commercial banks has touched Rs2.999 trillion recorded at end of fiscal year 2010-11. On the contrary, our banking sector has been practicing tight loan policy for private sector, which has negatively impacted economic activities that were already suffering due to volatile law and order situation, and unavailability of gas and electricity, he added.
ICCI President said that SME sector should be given priority to make it an effective tool for economic development and banks should not show reluctance in lending to SMEs and small industries. He said that banks should also ease out on their strict conditions for providing finance; to support industrial sector and small scale enterprises.
He was of the view that SBP’s policy rate now has lost its linkage with inflation. It was government borrowing levels which were responsible for the double digit inflation, adding that, a slight rate cut would not send the right signal to investors. Mahfooz Elahi said that banks credit to SMEs have declined from Rs437 billion in 2007 to Rs334 billion in Dec 2010, depicting a huge drop in real terms.
He said that the future of banking industry in Pakistan was critically dependant on the strength and performance of the economy in which the SME sector has attained a crucial role in terms of its growth potential and greater employment opportunities. He cited the example of Taiwan, Korea, Hong Kong, China and South American countries, who have been concentrating their efforts in developing the SME sector. He said that banks should provide soft credits to SMEs and initiate special schemes for the benefit of the cottage industry. SPB he said should come up with concrete policies to support SME as these were considered the engine of economic growth and a vital source of social and economic stability.
