State Bank of Pakistan (SBP) should extent access to finance for the Small and Medium Enterprises (SMEs) instead of hefty lending to Government for covering up its extravagant expenditures.

The Banking sector should take measures to strengthen SMEs and the domestic industrial sector to stimulate the growth of trade and industry in the country as SMEs have been playing key role in providing impetus to economic development, Mahfooz Elahi, President, Islamabad Chamber of Commerce & Industry (ICCI) has said in a statement.

He said that the Government excessive and unabated borrowing from central and commercial banks has touched Rs.2.999 trillion recorded at end of fiscal year 2010-11. On contrary, our banking sector has been practicing tight loan policy for private sector, which negatively impacted on economic activities that has already hit by bad law and order situation, and unavailability of particularly gas and electricity, he added.

ICCI President said that SMEs sector should be given priority to make it as an effective tool for economic development and banks should not show reluctance in lending to SMEs and industries.  He said that banks should also ease out its strict conditions for financing to support industrial sector and small scale enterprises to survive. 

He was of the view that SBP’s policy rate now has lost its linkage with inflation. It was government borrowing levels which were responsible for double digit inflation, adding that, a slight rate cut would not sent the right signal to the investor class.

Mahfooz Elahi said that banks credit to SMEs had declined from Rs437 billion in 2007 to Rs.334 billion in Dec 2010, showing a huge decline in real terms. He said that the future of banking industry in Pakistan was critically dependent on the strength and performance of the economy in which SME sector has attained a crucial role in terms of its growth potential and greater employment opportunities. He cited the example of Taiwan, Korea, Hong Kong, China and Countries in South America, who have been concentrating their efforts in developing the SME sector.

He said that banks should provide soft credits to SMEs and initiate special schemes, especially SPB should come up with concrete policies to support SMEs as these were considered the engine of economic growth and a vital source of social and economic stability.