An Overview of SME Sector and Examination of Banks Lending to SMEs: A Case Study of Jodia Bazaar - Karachi

Abstract

SMEs are considered as driving force for the economy both in developing as well as in developed countries. In the given economic structure, no one can deny the importance of Small and Medium Enterprises. They are contributing in employment generation, GDP growth, poverty reduction and earning foreign exchange for the  country by boosting its exports. Pakistani economy has good potential for the growth of SME sector but still they  are unable to get the maximum benefit from this sector. There are multiple reasons behind this, including lack of  good policies, current law and order situation as well as political instability in the country. One important problem  faced by SMEs is unavailability of finances from the formal sources including banking channels. SBP and other  specialized institutions like SME Bank, SMEDA is playing major role in the development of SME sector but still  there is a lot of cushion available. Jodia Bazaar is considered as one of the major whole sale markets in  Karachi. It consists of thousands of SMEs which includes whole sellers, retailers, importers, exporters, grain  traders etc. Due to large potential in this market almost every bank has its presence in this market in the form of  branch at Jodia Bazaar. If we look at the credit portfolio of these branches, we will come to know that the  contribution of SME portfolio in their major credit portfolio is very small. We have conducted our research to  know the factors due to which banks are reluctant to have exposure in the SME sector, especially in the Jodia  Bazaar. Data have been collected from fifteen branches of banks located in Jodia Bazaar. Results are analyzed  through Pie Charts. This research will be helpful for the Banking professionals, especially associated with credit  departments and those who want to enhance the credit portfolio of the Branch in the Small and Medium  Enterprises. Results show that Banks in Jodia Bazar are reluctant to take exposure in SME sector due to number of reasons, mainly due to unavailability of correct information, maintenance of proper accounts and  availability of trained professionals hired by SMEs. Results also show that some banks have not developed  specialized products for SMEs and they are not properly marketing the same.