Tuesday, 22 March 2011 11:34
With emerging economies eyeing financial tools to strengthen their competitiveness, ‘financial inclusion’ has become the new buzzword in recent times.
The recognition that the availability of financial services to all segments of the economy, mainly small businesses, is vital to fuel the engine of any country, SME lending is gaining huge attention these days.
Realising this business potential, the banking sector has to play its part in advancing services to this less-served segment of the society. However, fears of mounting non-performing loans have been keeping lenders at bay.
The SME-sector NPLs surged from around Rs36 billion in 2006 to Rs96.5 billion in 2010, with the NPL ratio rising from nearly 8 to 29 percent in 2010. Deterred by this trend, bank lending to SME declined from Rs408 billion in 2006 to Rs334 billion by the year ending 2010.
Another major stumbling block is the low Forced Sales Value (FSV) benefit accruing to banks. ...