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Karandaaz Launches a Study on SME Financing in Pakistan

Islamabad | Nov 22, 2017

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

Karandaaz is committed to the financial inclusion of small and medium enterprises. This study is an evidence of our commitment to strengthening the SME sector in Pakistan. SMEs constitute an important component of Pakistan’s economy but their contributions to productivity and national GDP need to be further enhanced.