Innovative financing to help MSMEs thrive: ExpertsBreaking

July 09, 2024

Qudsia Bano

In a significant move towards fostering economic inclusivity and growth, Pakistan’s finance sector is turning its attention to the empowerment of micro, small, and medium enterprises (MSMEs). As the backbone of the country’s economy, MSMEs account for a substantial share of industrial employment and production. However, these enterprises have historically faced challenges in accessing adequate financing, which has hindered their growth potential, reports WealthPK. The recent initiatives by the government and financial institutions aim to bridge this gap, ensuring that MSMEs receive the financial support required to thrive. The State Bank of Pakistan (SBP) has introduced several schemes and regulatory measures designed to facilitate easier access to credit for these enterprises. These measures include lowering interest rates for MSME loans, simplifying loan application processes, and establishing dedicated credit lines for small businesses.

Talking to WealthPK, senior economist Dr. Khurram Mughal highlighted the critical role of MSMEs in driving economic growth and reducing unemployment. He said MSMEs contribute significantly to the GDP and employ a large portion of the workforce. “By enhancing their access to finance, we can stimulate entrepreneurial activity and innovation, which are essential for sustainable economic growth,” he said. Dr. Mughal also emphasized the importance of inclusive growth, noting that “empowering MSMEs means empowering marginalized and underserved communities. Many MSMEs are operated by women and young entrepreneurs who often lack collateral and traditional banking relationships. By supporting these businesses, we are promoting social equity and economic resilience.” “When MSMEs grow, they create a ripple effect across the economy. They increase demand for raw materials, enhance supply chain efficiency, and generate employment opportunities.

This leads to a more dynamic and robust economic environment,” he explained. Dr. Ahmad Mateen, a financial analyst specializing at the World Bank said, “The advent of digital banking and fintech solutions has revolutionized access to finance for small businesses. Digital platforms offer greater convenience, lower transaction costs, and tailored financial products that cater to the unique needs of MSMEs”. This digital transformation is a game-changer for the sector, he added. “The enhanced focus on MSME financing is already showing promising results. According to the SBP data, there has been a marked increase in the number of MSMEs receiving loans, with a significant portion of these loans going to women-owned businesses and startups in underserved regions.”

Despite these positive developments, challenges remain. Access to finance is still limited for some MSMEs due to stringent collateral requirements and lack of credit history. To address these issues, experts suggested the adoption of innovative financing solutions such as credit guarantee schemes, microfinance, and peer-to-peer lending platforms. Moreover, enhancing financial literacy among MSME owners is crucial. Many small business owners lack the necessary knowledge and skills to effectively manage their finances and navigate the complexities of the financial system. Training programs and workshops can help bridge this knowledge gap, enabling MSMEs to make informed financial decisions.

Credit: INP-WealthPk