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ISLAMABAD: The government, Friday, launched the first National Credit Guarantee Company Limited (NCGCL) for small and medium enterprises and the caretaker finance minister stated that it would lay down the market infrastructure to help the SMEs with challenges and risks.

Addressing as chief guest at the inauguration of NCGCL, caretaker Minister for Finance Dr Shamshad Akhtar said that it is a joint venture between the Finance Ministry and Karandaaz.

In the past, Dr Akhtar was also chairperson of the Karandaaz Board of Directors, said an official on condition of anonymity.

SME Bank may stay as SIFC seeks a reactivation plan

The Finance Ministry said that the ministry and Karandaaz have introduced Pakistan’s first specialized credit guarantee company for SMEs.

Akhtar added that the NCGCL would have the potential and courage to transform the SME landscape in Pakistan by leveraging access to finance for SMEs across the board.

She added that we have to appreciate that it would lay down the market infrastructure that would help the SMEs in market challenges, risks.

She said that credit to the private sector has grown from 7.9 trillion to almost 11.67 trillion from September 2020 to September 2023. However, it has declined as a percentage of the total banks assets from 33 per cent to 27 per cent over the same period.

The caretaker minister added that the financial system ends up in servicing fiscal demand of large corporate and leave a tremendous investment gap in the market for other priority sectors such as SMEs and also agriculture. In the wake of these challenges, financial institutions are hesitant to lend to the SMEs, particularly because of perceived high risks and unappealing ventures.

She further stated that both of these challenges can be addressed by the NCGCL. She added that basically, banks are risk averse and prefer safe lending in investment options.

“We have to acknowledge that private sector credit allocation to SMEs is only 5.2 percent which has declined from 7.7 percent in the last five years in Pakistan,” said the caretaker finance minister while adding that it is significantly lower than South Asia which has an average of over 17 percent.

The minister said that is why undoubtedly they do better on exports and competitiveness. Akhtar further stated that the reality is that the SME sector accounts for 90 percent of registered businesses and contributes 50 percent to the GDP besides employing around 80 percent of the non-agriculture labour force.

She added that inadequate investment in the SMEs sector has hindered Pakistan’s sustainable growth and development. This is far-reaching institutional reform being launched, Akhtar added.

The caretaker finance minister said that SMEs in Pakistan have proportionate economic contribution compared to overall SMEs in South Asia. One percent increase in banks credit to the SMEs would lead to 0.7 percent increment in GDP.

Meanwhile, the Finance Ministry said that the NCGCL will help finance small and medium enterprises in Pakistan by providing a special credit guarantee facility to increase access to finance.

The ministry added that the caretaker finance minister stated the NCGCL will develop products for more than 1.5 million SMEs of Pakistan and a market size of more than Rs3.7 trillion.

She added that NCGCL will work with financial institutions to ensure the availability of credit in the market.

Jane Marriott, British High Commissioner in Pakistan said that an initial investment of Rs6 billion has been made on this company under the Financial Inclusion Programme.

The NCGCL is a partnership between the Ministry of Finance and the Government of Pakistan. British High Commission, SECP, State Bank, and Ministry of Finance representatives participated in the event.

Copyright Business Recorder, 2024

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