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Why Pakistan needs a SME Credit Guarantee Company?
SME is backbone of an economy, and has the highest job multiplier. In PK, SME credit is less than 2% of total banking credit, w/ only 120k companies even having that access, against millions of SMEs
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SME is backbone of an economy, and has the highest job multiplier. In PK, SME credit is less than 2% of total banking credit, w/ only 120k companies even having that access, against millions of SMEs
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Banks are comfortable lending to the government, and large corporates, having little appetite for SMEs, which understandably have high credit risk (or high chance of defaulting).
So how do we fix that?
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So how do we fix that?
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You start guaranteeing SME credit --- such that risk for the Bank reduces, and more credit flows to the SMEs. Eventually enough Banks start doing this, they start pricing risk appropriately, and SME credit increases
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An additional thousand rupees for SME credit creates more jobs, and economic activity than for large corporate/government.
How does it work?
The gtee co. says that we will guarantee 60% loss in any loan -- Bank goes and lends, if there is a loss, the gtee co. covers it
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How does it work?
The gtee co. says that we will guarantee 60% loss in any loan -- Bank goes and lends, if there is a loss, the gtee co. covers it
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But various credit risk models and experiences (in other economies) shows that actual losses are much lower, which means by guaranteeing 60%, you catalyze banks to lend more (and expand the pie), while actual losses are much lower
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Pakistan Credit Guarantee Company (PCGC) is a step in that direction. Through a well-capitalized structure, and an expected capital base of PKR 8bn+, it can leverage its equity and guarantee (a portion of) upto PKR 80bn of SME loans, catalyzing SME and economic growth
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ECC approved structure ensures that all the capital is exclusively used for guaranteeing SME credit only, w/ a dividend moratorium of six years, ensuring that the capital and income can be reinvested to further expand the SME credit pie
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Another example could be of a Fintech which wants to start lending to SME retailers, or distribitors. A gtee co. can absorb a portion of that risk, making the lending more palatable in terms of risk
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SME credit has an easy PKR 3 trillion + potential, against existing size of PKR 400bn. Economic growth & employment generated through this would be massive.
PCGC is a critical tool to
trigger SME lending and move the needle, and finally expand the pie for SMEs
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PCGC is a critical tool to
trigger SME lending and move the needle, and finally expand the pie for SMEs
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