Small and medium enterprises: SBP urged to introduce long-term fixed rate capitalisation facility

KARACHI: President Federal B Area Association of Trade and Industry (FBAATI) Syed Raza Hussain has urged Governor State Bank of Pakistan (SBP) Jameel Ahmed to introduction of a dedicated long term fixed rate capitalization facility for Small and Medium Enterprises (SMEs).

In letter to the Governor SBP he draws his attention towards the severe financial challenges currently being faced by the industrial sector, particularly SMEs.

Raza said he fully acknowledge and appreciate the various initiatives undertaken by the State Bank of Pakistan to promote SME financing.

However, given the prevailing economic conditions, high cost of borrowing, liquidity constraints and declining capacity for business expansion, there is a strong need for a dedicated long term financing mechanism that specifically facilitates productive investment and industrial capitalization by SMES.

At present, a large number of SMEs are operating under significant liquidity pressures.

The high cost of financing makes it extremely difficult for businesses to invest in new machinery, modernize existing production facilities, increase manufacturing capacity or establish new production lines.

As a result, businesses that should otherwise be expanding and generating additional employment are increasingly focused on maintaining their existing operations.

We therefore propose the introduction of a Dedicated SME Long Term Capitalization Facility through commercial banks and DFIs, under which eligible SMEs may obtain financing at a fixed subsidized rate of 2 percent per annum for productive capital expenditure.

The facility may specifically cover the purchase of new machinery, replacement and modernization of existing machinery, expansion of production facilities, installation of additional production lines, technological upgrades and other productive investments directly related to expansion of industrial capacity.

He further propose that the facility may have a sufficiently long tenor, together with an appropriate grace period, so that the financing structure corresponds with the productive life of the machinery and the cash generation capacity of the business.

Such a facility would complement the existing SME financing framework while addressing a specific gap in affordable long term capitalization financing.

The objective should not merely be to provide working capital or temporary liquidity support. The primary objective should be to enable SMEs to invest, expand, modernize and create sustainable employment.

An industrial unit that is able to acquire new machinery can increase production, improve productivity, engage suppliers and contractors, create additional employment and generate greater economic activity.

The resulting circulation of funds throughout the domestic economy can create a significant multiplier effect.

Raza request the State Bank of Pakistan to consider developing a dedicated refinance or subsidized financing mechanism for participating banks, enabling eligible SMEs to access long term capitalization financing at a fixed rate of 2 percent per annum.

He also request that the mechanism may incorporate appropriate risk coverage and simplified eligibility requirements so that viable SMEs, particularly manufacturing and industrial units, can actually benefit from the facility.

Raza believe that such a policy initiative would provide much needed confidence to the SME sector and could play an important role in industrial expansion, modernization, employment generation and revival of economic activity.

Copyright Business Recorder, 2026