Karandaaz Launches a Study on SME Financing in Pakistan

Karandaaz Pakistan, working to promote access to finance for small businesses and financial inclusion in the country, has launched a report on the nature and characteristics of small and medium enterprise (SME) financing and non-performing loans in Pakistan. The study explores trends in SME financing over the past decade, and reasons that have contributed to a high ratio of non-performing loans.

The economic census conducted in 2005 placed the number of SMEs in Pakistan at approximately 3 million units, constituting more than 90 percent of the country’s economic establishments. In line with this estimate, SMEs accounts for 30 percent of GDP, generate 78 percent of non-agri employment and contribute 25 percent of manufactured goods exports. Despite these vital contributions, SMEs in Pakistan suffer from limited access to formal credit. At its peak in Dec-07, SME financing was PKR 437 billion i.e., 15 percent of total private sector credit. By 2013, this number was down to 5.6 percent, compared to 15 percent in India; 25 percent in Bangladesh, and over 30 percent in Korea, Thailand and Turkey. By 2016, SME loans were 7 percent of total private sector lending. Similarly, NPLs for the SME segment in Pakistan have remained north of 20 percent in the previous decade. Cross-country comparison indicates significantly lower SME NPL ratios for most East Asian and South Asian economies.

CEO Karandaaz, Ali Sarfraz explained