The Social Sciences

Year: 2016
Volume: 11
Issue: 13
Page No. 3245 - 3251

What Size of Opportunity Will Open to Banks That Penetrate the Small and Medium Enterprise (SME) Finance Market at Lahore? The Next Great Challenge for Enterprising Banks

Authors : Mir Salim Ullah, Nasri Bin Naimi and Rosylin Binti Md Yusoff

Abstract: SMEs’ share in Pakistan’s formal loan portfolio is 6.5%. They obtain bulk of their finances from informal sources. This study is intended to determine the size of SME finance market, the principal informal sources and the volume of finances they provide. Primary data obtained from responses of 433 SMEs to a questionnaire has been used. The SMEs were randomly selected from market committees’ lists. The study found that entrepreneurs form Rotating Savings and Credit Associations (ROSCAs) for obtaining interest and Collateral-free financing. About 90% of the surveyed entrepreneurs retain membership in up to four ROSCAs each. ROSCAs distribute Rs. 468 million per month among the members. This amounts to an impressive Rs. 1.2 million to each SME. Pakistani banking system does not finance SMEs at such a rate. As a source of SME finance, banks’ role is only marginal. The figures represent a significant market awaiting penetration by entrepreneur banks. Banks can use these findings to help position themselves for a more affective role in the SME finance market.

How to cite this article:

Mir Salim Ullah, Nasri Bin Naimi and Rosylin Binti Md Yusoff, 2016. What Size of Opportunity Will Open to Banks That Penetrate the Small and Medium Enterprise (SME) Finance Market at Lahore? The Next Great Challenge for Enterprising Banks. The Social Sciences, 11: 3245-3251.

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