SME@Union

SME Financing Is it Really a.

SME Definition (SBP)

Type of Business a) Fixed Assets Excluding Land & Building (Rs.M) b) Employment (NOs) c) Turnover/Sales (Rs. M)

Manufacturing

100

250

300

Trade

50

50

300

Service

50

250

300

SBP SME Prudential Regulations Firms fulfilling a) and c) categorised as SMEs Credit needs of up to a max of Rs. 75 m from a single FI and collectively may go up to Rs. 150 m Public limited companies excluded from the scope of definition

SME Contribution to Economic Development (%)

Korea Establishments GDP Employment Exports 99.16 46.00 75.25 39.60 Japan 99.00 51.00 80.00 38.00 China 99.40 50.00 73.00 60.00 Pakistan 99.00 20-25* 78.00 25.00*

*GDP and Exports of Pakistan based on estimates from various studies. No formal data available

Reasons for Low Contribution of SMEs to GDP

Absence of financial management and lack of book keeping practices

Hesitant to share financial Information due to fear of the Tax Man

One man show; no management structures Inability of the banking sector to support SMEs

Lack of regulatory infrastructure and support systems for

equity financing

SME Financing Primarily through Equity & Informal Sector

Over 90% equity financed 78% of the SMEs do not access credit from any formal source

Out of the remaining 22%, less than half ever approached the formal lending sector

Success rate among those who approached the formal

lending sector lies between 20% & 66%

Borrowing from informal sector at exorbitant rates

Source: SMEDA-ILO MSME Survey

Financial Institutions Entry Barriers

Un-structured target market SMEs perceived to be high risk FIs not geared to reach out to diverse SME sectors

Small ticket sizes

Poor financial disclosure of SMEs FIs lack capacity and know how to evaluate SME credits; They still deal with them on a relationship basis

Moving Forward

New Regulatory framework and SME Policy from

GoP

Credit Guarantee and Venture Capital Funds being

proposed

SME Ombudsman being put in place SMEDA playing the role of Catalyst

Moving Forward

Separate SME Prudential Regulations issued by SBP

Encouragement to lend on asset conversion cycle

and future cash flow basis

Audited accounts requirements enhanced to Rs. 10 m in case of proprietorships and partnerships

Clean lending limits enhanced to Rs. 3 million; Rs.

2m funded and Rs. 1m non-funded

SBP has set the stage for a conducive regulatory environment by moving away from micro management. FIs have to respond

Bridging the Gap Window of Opportunity

Union Bank SME Strategy

How? Generating Growth:

Productivity Frontier
(Future state of Best Practice)

Through need analysis & Customised product development

Improving Asset Quality:

Through enhanced risk management; determination of sectoral risks

Lower unit costs per transaction or service

Limited services to limited number of customers UNPROFITABLE Broader service offerings & higher asset quality

Increasing Operating Efficiency:

Streamlined processes for credit approval and management

Why are We Different?

Two Pronged Strategy for SME Market:

Relationship Management
Programmed Products Dedicated R & D wing Customised Product Programmes Financial Product Branding Dedicated Sales Teams Exclusive SME Branches

Programmed Product Development

Identification of Potential Sectors Sector Intelligence (Primary and Secondary Research) Quantitative Qualitative

Product Profiling
Nature of the Product (financial solution) Product Viability Product Marketing Product Sales

Programmed Product Development

Systems and Controls Eligibility Criteria (documentation customised according to

sector norms
Compliance with SBP Prudential Reg Loan Approval Process Flows Internal Verifications External Verifications (Income, collateral, legal) Credit decisions Turn Around Times Monitoring and Feedback after Line Activation

Collections

Our Experience

SMEs generally receptive to commercially viable financial solutions

SMEs Value service quality and timeliness in

credit processing

Excellent payment history

Thank You !!!