Problems of Financing Small Business and Industry in Pakistan and their Solution

Problems of Financing Small Business and Industry in Pakistan and their Solution

The Banking Reforms of May 1972 had emphasized the need for adequate credit to small business and industry, and the state Bank ‘s Scheme for small business and industry, and the state Bank’s Scheme for Small Loans to Business and Industry was introduced. In Pursuance of this objective, on 20-11-1972

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Definition of Small Loans

Under the original definition of the Scheme, advances for business Purposes not exceeding Rs.50.000, and advances to industrial units having fixed assets upto Rs. 10 lac, were treated as Small Loans. Subsequently as from 1-1-1975 the limit of Rs. 50,000 was raised to Rs. 75,000 From 1-4- 1975 this limit was further raised to Rs. 1 lac and the size of industries qualifying for small loans was enhanced, in terms of their fixed assets, form Rs 10 lac Rs. 20 lac excluding land and building.


Year                             (a)                    (b)                    as %
                                    Target              Achievement   of (a)


1972-73                       26.60               41.87               157.41

Net increase in outstanding

1973-74                       45.000             7.35                 16.33
1974-75                       67.00               58.14               86.78
1975-76*                     69.00               79.60               115.36
*Upto May 1976

During the period July 1975- May 1976 we had already ceded the target for the full year 1975-76 buy more than 15%

Outstanding of small loans to business and industry stood at Rs.118. 65 crore at the end o June 1974 i.e. the target year during which the banks were nationalized. At the end of May 1976, these outstanding s stood at Rs. 278.72 crore, i.e. an increase of 134.91 per cent in a period of less than two years. No doubt, part of this increase is due to the revised definitions of loans but the figures also reflect the genuine and consistent efforts of the nationalized banks in the direction of credit to the socially desirable sectors which were hitherto neglected.

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Out standings of small Loans as a whole, i.e. small loans to agriculture and low-cost housing as well as business and industry, have similarly increased by 140.12 per cent, from Rs. 155.83 crore at the end of June 1974 to Rs. 3745. 18 crore at the end of May 1976. The share of small loans in the total private sector advances of the nationalized banks has almost doubled from 16 per cent in June 1974 to 31 per cent in May 1976.

When the Scheme for grant of Small Loans to businessmen and small industries was launched. It was known that an earlier program to disburse loans to small traders, regardless of security and chances of recovery, had proved a dismal failure, therefore, at the time of framing the  Scheme and prescribing mandatory targets several important factors were dept in view, Amongst these, the most important ones were (a) to ensure that only genuine loans for business and production were catered for and not consumption loans; (b) reasonable security was provided for the lens in the form of some tangible assets with reasonable margin; (c) the same borrowers did not avail of advances from a number of banks so as to defeat  the purpose of the Scheme; (d) all applications were processed expeditiously; (e) in case of rejection of any applications, valid and cogent reasons for it were available.

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The success so far achieved in implementation of the Scheme is evident from the fact that there are very few complaints about, delay or refection of application without any grounds and even a majority of such complaints, on examination, is found to be not justified.

There are of course many aspects of financing small business and industry, particularly the problems involved and their solutions. I am sure that the papers circulated on the subject in this Seminar have brought out the problems that have to be tackled in the spirit in which the Scheme was launched.

I hope that before we disperse we should be able to make some recommendations for resolving the issues under discussion with a view not only to broadening the base of small loans for business and industry but also to evolve a common methodology to speed up the decision making process in the light of practical experience gained in the working of the Scheme. Without taking any more of your time, therefore I would request that the discussion may be started.

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