Commercial banks and development financial institutions (DFIs) are not financing small- & medium-sized enterprises (SMEs) as they are not secured against losses and are insisting on collateral.
Despite the State Bank of Pakistan’s Prudential Regulations, wherein banks & DFIs are advised to finance SMEs on cash flow basis, the lenders are reluctant because they have experienced the failure of earlier schemes and feel that advances without security will not be repaid.
The Union of Small & Medium Enterprises (UNISAME) has urged the Ministry of Commerce to establish an insurance company to cover the commercial risks of the financial institutions and commercial banks.
In view of the attitude of banks and DFIs, UNISAME requested its consultants to devise a fool-proof system whereby an intermediary agency could make a contract and secure the lender against the failure of the borrower to pay.
