In a first, Pakistan launches credit guarantee company for SMEs

ISLAMABAD: The Finance Ministry and Karandaaz Friday launched the country’s first special credit guarantee company namely the National Credit Guarantee Company Limited (NCGCL) to provide financial assistance to small and medium sized enterprises (SMEs) in the country. The joint venture of the finance ministry and Karandaaz — NCGCL— aimed at enhancing financial accessibility through special credit guarantee facilities, particularly focusing on expanding financial reach for businesses operating at the small and medium scale across the board.

Speaking on the occasion, caretaker Finance Minister Dr Shamshad highlighted the significance of this revolutionary initiative. “Private credit for SMEs in Pakistan stands at a mere 5.2%, declining from 7.7% in the last five years in the country,” she said. The caretaker minister said the credit level was significantly lower compared to other South Asia, which has an average of over 17%, undoubtedly they do better on exports and they do better on competitiveness.

“Reality is that SMEs sector accounts 90% of formally registered businesses, contributes to around 40% of GDP and employs around 80% of non agriculture labour forces, offering an opportunity to low income strata.” She was of the view that inadequate investment in the SME sector, globally recognised to enhance the competitiveness of countries and industries and value addition as well as employment generation, has hindered Pakistan’s sustainable growth and development.

The interim minister said the launching of NCGCL was a far reaching institutional reform that is being launched, adding the purpose of this transformative step was to facilitate smoother capital investment paths for small businesses. "A well designed and effectively implemented credit guarantee scheme can create an average 30 to 35% financial additionality in the market which translates into economic additionality in terms of higher productivity and innovation, employment generation etc.” She further said the NCGCL would create various products tailored for the Pakistani market, catering to over 1.5 million SMEs and a market volume exceeding Rs3.7 trillion.

Akhtar emphasised that the collaboration with financial institutions through the NCGCL would ensure guaranteed access to credit in the market, fostering economic growth for businesses. Speaking on the occasion, British High Commissioner Jean Merritt said an initial investment of Rs6 billion has been made in the company under the financial inclusion programme..