Rs2trn SME financing target faces collateral challenge
KARACHI (TKP Report): Financial and Economic Analyst Ateeq Ur Rahman has welcomed the government’s allocation of Rs300 billion for small and medium enterprise (SME) exporters, but stressed that collateral requirements and difficult lending procedures continue to restrict businesses’ access to financing.
He said the initiative, alongside the target to nearly double SME financing to Rs2 trillion and increase potential borrowers to 775,000 by June 2028, could strengthen SMEs and improve Pakistan’s export competitiveness.
He appreciated the efforts of the State Bank of Pakistan (SBP), Small and Medium Enterprises Development Authority (SMEDA) and Trade Development Authority of Pakistan (TDAP) in promoting concessional financing and reducing business costs.
Under the EXIM Bank-administered export finance facility, exporters can obtain short-term working capital through transaction-based and performance-based financing.
Ur Rahman said the facility offers SME exporters an end-user rate of 6%, compared with the 12% policy rate. He added that, according to his understanding, three percentage points of the reduction were below the policy rate, while another three percentage points represented a voluntary reduction by banks.
However, he said lower interest rates would not be sufficient unless businesses could access financing through simpler lending procedures.
Exporters face difficulties arranging working capital, purchasing raw materials, meeting operational expenses and maintaining uninterrupted production. Access to finance is also important for businesses, farmers, home buyers and other underserved segments.
He said financing was needed for purpose-built warehouses, cold-chain facilities, silos, processing units, refrigerated vehicles and agriculture.
Ur Rahman identified collateral requirements as a major obstacle, saying conventional lending conditions create difficulties for SMEs in manufacturing, trading, wholesale, agriculture and exports.
The business community is seeking easier access to credit, lower borrowing costs and lending options that do not depend entirely on collateral.
He said access to finance would be essential for the government’s SME financing targets to translate into stronger business activity and export growth.