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SME@Union
?
SME Financing – Is it Really a….
SME Definition (SBP)
Type of
Business
a) Fixed Assets
Excluding Land
& Building
(Rs.M)
b) Employment
(NOs)
c) Turnover/Sales
(Rs. M)
Manufacturing
100
250
300
Trade
50
50
300
Service
50
250
300
SBP SME Prudential Regulations
Firms fulfilling a) and c) categorised as SMEs
Credit needs of up to a max of Rs. 75 m from a single FI and collectively may go up to Rs. 150 m
Public limited companies excluded from the scope of definition
SME Contribution to Economic
Development (%)
Korea
Japan
China
Pakistan
Establishments
99.16
99.00
99.40
99.00
GDP
46.00
51.00
50.00
20-25*
Employment
75.25
80.00
73.00
78.00
Exports
39.60
38.00
60.00
25.00*
*GDP and Exports of Pakistan based on estimates from various
studies. No formal data available
Reasons for Low Contribution of
SMEs to GDP

Absence of financial management and lack of book keeping
practices

Hesitant to share financial Information due to fear of the Tax
Man

One man show; no management structures

Inability of the banking sector to support SMEs

Lack of regulatory infrastructure and support systems for
equity financing
SME Financing Primarily through Equity &
Informal Sector

Over 90% equity financed

78% of the SMEs do not access credit from any formal
source

Out of the remaining 22%, less than half ever
approached the formal lending sector

Success rate among those who approached the formal
lending sector lies between 20% & 66%

Borrowing from informal sector at exorbitant rates
Source: SMEDA-ILO MSME Survey
Financial Institutions
“Entry Barriers”

Un-structured target market

SME’s perceived to be high risk

FIs not geared to reach out to diverse SME sectors

Small ticket sizes

Poor financial disclosure of SMEs

FI’s lack capacity and know how to evaluate SME
credits; They still deal with them on a relationship
basis
Moving Forward

New Regulatory framework and SME Policy from
GoP

Credit Guarantee and Venture Capital Funds being
proposed

SME Ombudsman being put in place

SMEDA playing the role of Catalyst
Moving Forward

Separate SME Prudential Regulations issued by SBP

Encouragement to lend on asset conversion cycle
and future cash flow basis

Audited accounts requirements enhanced to Rs. 10
m in case of proprietorships and partnerships

Clean lending limits enhanced to Rs. 3 million; Rs.
2m funded and Rs. 1m non-funded
SBP has set the stage for a conducive regulatory
environment by moving away from micro management.
FIs have to respond
Bridging the Gap
“Window of Opportunity”
Union Bank SME Strategy
How?
Generating Growth:
Productivity Frontier
(Future state of Best Practice)
Through need analysis
& Customised product
development
Improving Asset
Quality:
Through enhanced risk
management;
determination of
sectoral risks
Lower unit
costs per
transaction or
service
Limited
services to
limited number
of customers
UNPROFITABLE
Broader service offerings & higher
asset quality
Increasing
Operating
Efficiency:
Streamlined processes
for credit approval and
management
Why are We Different?
Two Pronged Strategy for SME Market:
Relationship Management
Programmed Products
Dedicated R & D wing
Customised Product Programmes
Financial Product Branding
 Dedicated Sales Teams
 Exclusive SME Branches
Programmed Product Development
Identification of Potential Sectors
Sector Intelligence (Primary and Secondary Research)
Quantitative
Qualitative
Product Profiling
Nature of the Product (financial solution)
Product Viability
Product Marketing
Product Sales
Programmed Product Development
Systems and Controls
Eligibility Criteria (documentation customised according to
sector norms
Compliance with SBP Prudential Reg
Loan Approval Process Flows
Internal Verifications
External Verifications (Income, collateral, legal)
Credit decisions
Turn Around Times
Monitoring and Feedback after Line Activation
Collections
Our Experience

SMEs generally receptive to commercially
viable financial solutions

SMEs Value service quality and timeliness in
credit processing

Excellent payment history
Thank You !!!