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Banks shying away from innovation

KARACHI: The State Bank of Pakistan (SBP) is pushing banks quite aggressively to keep doing what is required of them to help Pakistan achieve the SDGs. Conventional and Islamic banks as well as microfinance institutions are trying to behave accordingly.

“If you look at our activities in these two years (since the launch of the goals), you’ll notice that the central bank is doing everything it can to help the nation meet the SDGs,” says a senior central banker.

“We’ve done a lot for SDGs. (Our supportive activities include) taking new initiatives, revamping old programmes and enabling banks to go for financial inclusion, poverty alleviation, women empowerment, green banking, lending for sustainable growth and innovative financing.”

The SBP has already launched the Credit Guarantee Scheme for Small and Rural Enterprises and the Technical Assistance Fund besides issuing detailed guidelines for Microcredit Guarantee Facility. It is also facilitating financially inclusive government-to-person (G2P) payments and promoting innovative rural and agricultural finance.

These initiatives are enabling conventional and Islamic banks, as well as microfinance institutions, in reaching out to the under-served segments of agricultural borrowers (including female farmers) and hitherto ignored small and medium enterprises (SMEs).

For agriculture and SME sector, the central bank is now setting more detailed lending targets for banks that should help us meet SGDs like poverty eradication, food safety, women empowerment, inclusive and sustainable economic growth and decent work for all.

In the last two years both agricultural and SME lending has seen growth. In 2014-15, gross agricultural lending of banks stood around Rs516 billion which rose past Rs598bn in 2015-16 and then soared to Rs704.5bn in the last fiscal year. Qualitatively, agricultural credit outreach also increased from 2.01 million in FY15 to 2.4m in FY16 and to 3.27m in FY17.

The stock of outstanding SME financing went up from about Rs261bn in FY15 to Rs297.5bn in FY16 and then shot up to Rs367bn in FY17. The number of SME borrowers also increased from 152,495 in FY15 to 164,734 in FY16 and to 176,847 in FY17.

The pace of increase, both in volumes of agricultural and SME lending and respective borrowers, is quite encouraging though there is still a need to accelerate it to ensure speedy job creation and fostering inclusive growth.

Banks, Islamic banks and microfinance institutions are not only lending additional and more inclusive loans to the agriculture sector and SMEs but have also been making green loans and diversifying their product base. That should help attain SDGs like promoting inclusive and sustainable industrialisation.

Under the Green Pakistan Programme aimed at developing forest infrastructure in the country and improve forestry economic management, banks have an ideal opportunity to accelerate their green financing, more so as the World Bank has offered $100m to the government to make the programme a success.

Last month, the Asian Development Bank urged member-states to create of a 20-year Green Financing Catalysing Facility as a green financing vehicle. Banks can participate in setting up such vehicles and lend generously for environment-friendly projects under public-private partnership, senior bankers say. At present, banks’ green financing is mostly limited to loaning for clean energy projects.

“Financial inclusion plays a pivotal role in the community that we live in. We believe that by doing things the right way, banks can be a powerful force for good in society” — Shazad Dada, CEO of Standard Chartered Bank

Banks’ massive consumer financing, particularly in the past two years, is also expected to help Pakistan attain loftier SDGs like ensuring healthy life and promoting well-being for citizens, achieving gender equality, ensuring quality education and promoting learning opportunities for all, bankers say.

Growing housing finance, energy and physical infrastructure financing by banks (mostly related to China-Pakistan Economic Corridor) should also go a long way in enabling Pakistan to meet key SDGs. “But for banks, except for targeted lending, there isn’t much to show how they’re contributing to meeting SDGs even though all banking activities in one way or the other make this contribution,” says a senior executive of one of the top five banks.

Financial inclusion is a must for meeting a number of SDGs. One key indicator for financial inclusion is the number of bank accounts, which rose to about 46.5m in December 2016 from around 43.4m in December 2015 — an increase of 3.1m in a year. Another indicator could be the total number of active microfinance borrowers that rose from 3.6m in 2015 to 4.2m in 2016, according to Microfinance Network’s yearly review.

The number of women borrowers also jumped from 2m in 2015 to 2.3m in 2016.

Challenges remain, however, as not all banks are tapping into lending opportunities. Moreover, not all of them are offering banking facilities to unbanked areas.

Microfinance institutions have made the most noticeable contribution in serving the unbanked and under-banked people. But they still have a long way to go to make any significant impact on a large section of poor population.

Bank financing of governmental welfare programmes that target women, youth development and empowerment often remain ineffective due to the lack of professional approach of the political guardians of such programmes. This makes it difficult to attain several SDGs.

And as banks remain shy of designing tailor-made banking products, certain good opportunities remain untapped thus affecting the pace of work on meeting SDGs.

“For example, banks can make a great contribution towards meeting SDGs if they start financing, under public-private partnership, large-scale civic projects for more efficient water distribution and solid waste management in mega cities, muses an official of the Sindh government.

Start-up financing that can help in meeting key SDGs, including job creations and women empowerment, also gets very little attention from banks and most successful tech start-ups continue to arrange finance from abroad.