Small and medium companies will create more jobs in the country as their borrowing reaches an all-time high
In what may translate to higher employment by small and medium-sized enterprises, commonly known as SMEs, the sector borrowed a record Rs513 billion in 2018.
“The SME financing by banks in Pakistan has first time crossed the milestone of Rs500 billion,” the State Bank of Pakistan said on Tuesday. This is 14% higher than the money SMEs borrowed in 2017.
Much of this increase in the last six months as SME borrowing during the period increased by 25% compared to the previous year. This means the sector has more money at its disposal to invest in new products and the expansion of business, which will create more jobs.
The central banks attributed this ‘substantial increase’ in SME financing to the implementation of the policy, launched in December 2017, for the promotion of SME finance.
The government is also providing support to promote the SME sector as part of its 100-day plan. In its supplementary budget, the government announced to tax banking income generated through loans to SMEs at a reduced rate of 20% versus the normal rate of 30%. This will continue to encourage banks to fulfil the financing needs of SMEs.
Despite its significance in providing employment and boosting economic output, the sector’s exposure to bank loans remains less than 10%. The government wants to take it at least 17% of the banking sector’s total advances because this could translate to greater economic benefits.
The SME sector contributes 30% towards the country’s GDP, employs more than 80% of the non-agricultural workforce and generates a quarter of our export earnings. Thus, the SME sector has huge potential for employment generation and poverty alleviation, the SBP said.